As filed with the Securities and Exchange Commission on November 22, 2006.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________________________
FORM SB-2
_________________________________
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
Registration Number: 333-_____
INTERNATIONAL
AMERICAN TECHNOLOGIES, INC.
(Exact Name Of Registrant
As Specified In Its Charter)
Nevada |
6770 |
88-0225318 |
(State of Incorporation) |
(Primary Standard Industrial Code No.) |
(I.R.S. Employer Identification No.) |
Daniel Dror |
|
601 Cien Street, Suite 235 |
601 Cien Street, Suite 235 |
Kemah, TX 77565-3077 |
Kemah, TX 77565-3077 |
(281) 334-9479 |
(281) 334-9479 |
(Address and telephone number of principal executive offices) |
(Name, address and telephone number of agent for service) |
If any of the
securities being registered on this Form are to be offered on a delayed or continuous
basis pursuant to Rule 415 under the Securities Act of 1933 check the following box:
If this Form is filed to register additional securities for an offering pursuant to
Rule 462(b) under the Securities Act, please check the following box and list the
Securities Act registration statement number of the earlier effective registration
statement for the same offering.
¨
If this
Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act,
check the following box and list the Securities Act registration statement number of the
earlier effective registration statement for the same offering.
¨
If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the
Securities Act, check the following box and list the Securities Act registration statement
number of the earlier effective registration statement for the same offering.
¨
If
delivery of the prospectus is expected to be made pursuant to Rule 434, please check the
following box.
¨
Calculation of Registration Fee |
Title of Securities To Be Registered |
Amount Being Registered |
Proposed Maximum Offering Price Per Share (1) |
Proposed Maximum Aggregate Offering Price |
Amount of Registration Fee (1) |
Common Stock underlying Series A Preferred Stock |
9,999,996(2) |
$0.40 |
$3,999,998 |
$368.00 |
Common Stock underlying Series B Preferred Stock (2) | 9,999,996(2) | $0.40 | $3,999,998 | $368.00 |
Common Stock underlying Series A Warrants | 8,333,333 | $0.40 | $3,333,333 | $306.67 |
Common Stock underlying Series B Warrants | 8,333,333 | $0.40 | $3,333,333 | $306.67 |
Common Stock underlying Series C Warrants | 8,333,333 | $0.40 | $3,333,333 | $306.66 |
Total |
44,999,999(3) |
$1,656.00 | ||
(1) Estimated solely for purposes of calculating
the registration fee in accordance with Rule 457(c) under the Securities Act of 1933,
using the average of the quoted price as reported on the NASD Bulletin Board on November
20, 2006, a date which was within five (5) days of the filing of this registration
statement.
(2) This number represents 120% of the aggregate number of shares of Common Stock necessary to effect the conversion of all of the shares of Series A Preferred Stock and Series B Preferred Stock. (3) An indeterminate number of additional shares of Common Stock shall be issuable pursuant to Rule 416 to prevent dilution resulting from stock splits, stock dividends or similar issuance and in such event the number of shares registered shall automatically be increased to cover the additional shares in accordance with Rule 416 under the Securities Act. |
The Registrant amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until this Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a) may determine.
The information in this prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted. You should rely only on the information contained in this prospectus.
PRELIMINARY PROSPECTUS SUBJECT TO COMPLETION, DATED NOVEMBER 22, 2006
PROSPECTUS
International American Technologies, Inc.
44,999,999 Shares
Common Stock
This prospectus relates to the sale of shares of Common Stock, par value $0.0001, by the selling shareholder. See "Selling Shareholder" on page 13 of this prospectus. The shares of Common Stock covered by this prospectus include:
|
9,999,996 shares of Common Stock issuable upon conversion of the Series A Convertible Preferred Stock ("Series A Preferred Stock") issued to the institutional investor in the Registrant's August 2006 private financing; this number represents 120% of the aggregate number of shares of Common Stock necessary to convert the currently outstanding 833,333 shares of Series A Preferred Stock; |
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9,999,996 shares of Common Stock issuable upon conversion of the Series B Convertible Preferred Stock ("Series B Preferred Stock") issued to the institutional investor in the Registrant's September 2006 private financing; this number represents 120% of the aggregate number of shares of Common Stock necessary to convert the currently outstanding 833,333 shares of Series B Preferred Stock; |
| 8,333,333 shares of Common Stock issuable upon exercise of the Series A Warrants; |
| 8,333,333 shares of Common Stock issuable upon exercise of the Series B Warrants; and |
| 8,333,333 shares of Common Stock issuable upon exercise of the Series C Warrants. |
This offering is not being underwritten.
The prices at which the selling shareholder may sell the shares of Common Stock will be determined by the prevailing market price for the shares or in privately negotiated transactions. Information regarding the selling shareholders and the times and manner in which they may offer and sell the shares under this prospectus is provided under the "Selling Shareholder" and "Plan of Distribution" sections in this prospectus. International American Technologies, Inc. will not receive any of the proceeds from the sale of the shares under this prospectus.
Investing in our Common Stock involves substantial risks. See "Risk Factors" beginning on page 7 of this prospectus for a discussion of information that should be considered in connection with an investment in our Common Stock.
We may amend or supplement this prospectus from time to time by filing amendments or supplements as required. You should read the entire prospectus and any amendments or supplements carefully before you make your investment decision.
Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this Prospectors is _____________, 2006
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
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You should only rely on the information contained or incorporated by reference in this prospectus. We have not authorized anyone to provide you with different information.
CORPORATE INFORMATION Back to Table of Contents
International American Technologies, Inc. maintains its executive offices at 601 Cien Street, Suite 235, Kemah, TX 77566. Our telephone number is (281) 334-9479.
PROSPECTUS SUMMARY Back to Table of Contents
T he following is a summary that highlights what we believe to be the most important information regarding International American Technologies, Inc. and the securities being offered herein. Because it is a summary, however, it may not contain all of the information that is important to you. To understand our business and this offering fully, you should read this entire prospectus and our financial statements and related notes carefully. Unless the context requires otherwise, the words "Company", "Registrant", "we", "us", "our" and similar terms refer to International American Technologies and its wholly-owned subsidiaries, Hammonds Technical Services, Inc., Hammonds Fuel Additives, Inc. and Hammonds Water Treatment Systems, Inc. (collectively, "Hammonds").
THE COMPANY
International American Technologies, Inc., a Nevada corporation, is publicly traded on the NASD Bulletin Board, an NASD-sponsored and operated inter-dealer automated quotation system for equity securities not included on The NASDAQ Stock Market, under the symbol "IMTG." The Company was incorporated on August 18, 1986. In connection with the stock purchase agreement between in between the Company and Hammonds, a privately-owned Texas corporation, effective on April 28, 2005, we changed our name from Unlimited Coatings Corporation to International American Technologies, Inc. Prior to the recent private financing transactions discussed under "Private Financing Transactions" below, we were an 81.0% owned subsidiary of American International Industries, Inc., our corporate parent, publicly traded on the NASD Bulletin Board under the symbol "AMIN." American International Industries, Inc. is sometimes hereinafter referred to as "Parent." In connection with the private financing transactions, Carl L. Hammonds, founder and CEO of Hammonds, converted his 49% minority interests in Hammonds into 16,000,000 restricted shares of our Common Stock. As a result, each Hammonds entity is a wholly-owned subsidiary of the Company and the Company became a 44.9% owned subsidiary of our Parent.
Description of Hammonds Acquisition Transaction
On February 28, 2005, we entered into a stock purchase agreement to acquire 51% of the capital stock of Hammonds Technical Services, Inc., a privately-owned Texas corporation in consideration for providing, either directly or by our Parent: (i) up to $1,000,000 in cash to Hammonds for working capital; (ii) a secured revolving long-term line of credit in the amount of $2,000,000; and (iii) our Parent issuing 145,000 restricted shares of Parent's common stock to us in consideration for a $1,450,000 promissory note payable to the Parent. The Parent's restricted shares were exchanged for two minority equity interests in Hammonds owned by third parties, which minority interest were canceled. Pursuant to the stock purchase agreement, which closed on April 28, 2005, Hammonds became a 51% owned subsidiary of the Company.
Private Financing Transactions
On August 8, 2006, we entered into a Series A Convertible Preferred Stock purchase agreement with Vision Opportunity Master Fund, Ltd. ("VOMF"), pursuant to which we agreed to sell up to 833,333 shares of Series A Preferred Stock ("Series A Preferred Stock"), paying a dividend of 8% per annum until conversion, at a price of $1.80 per share to VOMF. In the initial August 8, 2006 financing transaction, we sold 555,555 shares of Series A Preferred Stock for $1,000,000. On August 23, 2006, we sold an additional 277,778 shares of Series A Preferred Stock for $500,000. As part of the VOMF purchase of 555,555 shares of Series A Preferred Stock on August 8, 2006 and 277,778 shares of Series A Preferred Stock on August 23, 2006 (the "August 2006 Private Financing Transactions"), we issued VOMF: (i) Series A Warrants to purchase an additional 8,333,333 shares at $.18 per share, or $1,500,000, expiring with respect to 5,555,555 shares on August 8, 2011, and expiring with respect to 2,777,778 shares on August 23, 2011; and (ii) Series B Warrants to purchase an additional 8,333,333 shares at $.18 per share, or $1,500,000, which warrants expire with respect to 5,555,555 shares on August 8, 2007 and with respect to 2,777,778 shares on August 23, 2007.
On September 30, 2006, we entered into a Series B Convertible Preferred Stock purchase agreement with VOMF pursuant to which we sold to VOMF 833,333 shares of Series B Preferred Stock ("Series B Preferred Stock"), paying a dividend of 4% per annum until conversion, at a price of $1.80 per share, or $1,500,000. As part of this transaction (the "September 2006 Private Financing Transaction"), we issued VOMF: (i) Series C Warrants to purchase an additional 8,333,333 shares of our Common Stock at $.50 per share, or $4,166,666, expiring on September 29, 2011; and (ii) we agreed to extend the expiration dates on the Series B Warrants issued in the August 2006 Private Financing Transactions from August 2007 to August 2008.
Each share of Series A and Series B Preferred Stock is convertible at holder's option into ten (10) shares of our Common Stock.
In connection with the August and September 2006 Private Financing Transactions, we paid $150,000 to a placement agent. In addition, our management and Parent have agreed not to sell any of Common Stock they own or may acquire until this registration statement has been effective for six months.
For further information regarding the Series A Preferred Stock, Series B Preferred Stock and the Series A, B and C Warrants see the discussion under "Description of Securities - Series A Preferred Stock; Series B Preferred Stock and Series A, B and C Warrants" below.
In connection with the Series A and Series B stock purchase agreements, we agreed to file this registration statement with the Securities and Exchange Commission to register for resale all shares of Common Stock issuable upon the conversion of our Series A and Series B Preferred Stock and upon the exercise of the Series A, B and C Warrants. We are required to file this registration statement on or before November 30, 2006. If the registration statement is not declared effective by March 28, 2007, we will be required to pay liquidated damages equal to 2.0% of the amount invested for each calendar month or portion thereof thereafter such date until this registration statement is declared effective. Pursuant to the August and September 2006 Private Financing Transactions, in no event shall the amount of liquidated damages payable at any time and from time to time exceed an aggregate of 24% of the amount of the investment in the Series A and Series B Preferred Stock. We are required to keep this registration statement continuously effective under the Securities Act until such date as is the earlier of the date when all of the securities covered by this registration statement have been sold or the date on which such securities may be sold without any restriction pursuant to Rule 144.
Hammonds Business
In 2006, Hammonds Technical Services was separated into three separate entities that are 100% owned by the Company: (i) Hammonds Technical Services, which is the manufacturing operation for Hammonds product lines, including its omni directional vehicles or ODVs, injectors and water purification systems; (ii) Hammonds Fuel Additives, which supplies all of the fuel additives; and (iii) Hammonds Water Treatment Systems, which provides the chemical tablets for Hammonds' water purification systems.
Hammonds Technical Services manufactures engineered products and chemicals that serve multiple segments of the fuels distribution, water treatment and utility vehicle industries. Hammonds Technical Services' products are marketed by a worldwide network of distributors, manufacturers representatives and original equipment manufacturers. Hammonds Technical Services designs and manufactures fluid handling equipment. Hammonds fluid powered additive systems permit the use of a single battlefield fuel by supplying both distribution and tactical additive injectors to all branches of the United States military. Hammonds intends to continue to provide additive injection systems to the military through sole source equipment long-term contracts. Hammonds manufactures truck mounted injectors with custom blending at the end of the hose for jet fuel and other products such as diesel, LPGN (propane), home heating oil, and bio-diesel. In January 2005, Hammonds began a long-term project to install dye injection systems in over eight hundred Canadian and U.S. stationary and truck mounted diesel delivery injectors and is continuing this project in 2006.
In March 2005, Hammonds started production of an entirely new type of industrial utility vehicle called omni directional vehicle or ODV. Hammonds believes that ODV utility vehicle will establish a new standard for industrial utility vehicles based on vehicle safety and performance. Hammonds believes that the patented new design can be utilized in connection with forklifts, freight terminal tractors, security vehicles, industrial highway mowers and a full range of aviation ground handling vehicles. Hammonds has produced several prototypes of its new ODV product line at its plant in Houston, TX.. Hammonds has entered into license agreements with manufacturers to produce a range of ODVs based on Hammonds' patented technology. In addition, Hammonds has received initial stocking orders for ODVs from distributors which orders provide for six ODVs and a delivery schedule of a minimum of two additional ODVs per month for the next twelve months. The total revenues of the initial stocking orders and the scheduled delivery orders are estimated at $2,500,000.
Hammonds Fuel Additives: Hammonds Fuel Additives produces and markets motor and aviation fuel additives, with Biobor® JF as its primary product. Hammonds Fuel Additives serves the aviation, stand-by power and marine fuel markets. Biobor® JF is one of only two biocides approved for use in aviation fuels, but it has also been tested and approved as a preservative for manufactured wood products such as engineered trusses, windows and sheet building materials. The expanding use of these manufactured wood products should provide a new expanded market for Biobor® JF since products such as arsenic have been removed from the list of approved wood preservatives.
Hammonds Water Treatment Systems: Hammonds' proprietary solid disinfection technology provides a major alternative to gaseous chlorine used in every phase of water treatment. Hammonds believes that the areas of drinking water, food processing and industrial waste treatment present a significant growth potential for Hammonds' water treatment technology. Hammonds distributed 1.2 million pounds of calcium hypochlorite for municipal disinfection through its distribution network in 2005 and believes that it will distribute 2.5 million pounds in 2006. Hammonds' Water Treatment Systems, its water treatment operation was established after the 2005 fiscal year end to identify its contribution to the Company. Hammonds Water Treatment Systems generates revenues and incurs costs from a third party that supplies Hammonds purification chemicals. Hammonds projects that revenue from Hammonds Water Treatment Systems will exceed $2,000,000 during the next twelve months.
RISK FACTOR S Back to Table of Contents
You should carefully consider the risks described below before making an investment in our Common Stock. All of these risks may impair our business operations. If any of the following risks actually occurs our business, financial condition or results of operations could be materially adversely affected. In such case, the trading price of our Common Stock could decline, and you may lose all or part of your investment
RISK FACTORS RELATED TO OUR BUSINESS
Dependence upon affiliate for funding
We completed the acquisition of 51% of Hammonds on April 28, 2005. In order to
successfully grow Hammonds business and its plan to increase market share for Hammonds'
products and services, we have been dependent upon the funding from our Parent, American
International Industries, Inc. (OTCBB:AMIN), which loan at September 30, 2006 was
$2,395,699, and our Parent's ability to secure and maintain our existing $2,500,000
revolving credit line from a financial institution. At the end of 2005, we estimated that
Hammonds needed approximately $1,500,000 to $3,000,000 in additional financing in order to
complete development of Hammonds' ODV line and expand Hammonds products and services
in water treatment technology systems, fuel handling equipment systems, additives for
general fuels and commercial aviation fuels. In connection with the Company's August and
September 2006 Private Financing Transactions involving the sale of its Series A and
Series B Preferred Stock, the Company received net proceeds of approximately $2,728,000.
If additional debt and/or equity financing is required, we believe that such financing will be available from our Parent and private investors at terms and conditions acceptable to the Company. In addition, as part of the August and September 2006 financing transactions, we issued the institutional investor 24,999,999 warrants, which, if exercised in their entirety would generate an additional $7,166,666 in gross proceeds before fees and expense. However, there can be no assurance that all or a significant portion of the warrants will be exercised or that unforeseen events, such as the length of time necessary to generate market acceptance of the ODVs, any unexpected material increased development costs, and the general economy in the markets where Hammonds operates, may result in an inability to secure necessary additional financing at satisfactory terms and conditions, if at all.
We may experience adverse impacts on our results
of operations as a result of adopting new accounting standards or interpretations
Our implementation of and compliance with changes in accounting rules, including new
accounting rules and interpretations, could adversely affect our operating results or
cause unanticipated fluctuations in our operating results in future periods. For example,
we are required by the Sarbanes-Oxley Act of 2002 to file annual reports and quarterly
reports disclosing the effectiveness of our internal controls and procedures. Although we
believe our internal controls are operating effectively, and we have committed internal
resources to ensure compliance, we cannot guarantee that we will not have any material
weaknesses as reported by our auditors and such determination could materially adversely
affect our business or significantly increase our costs in order to establish effective
controls and procedures.
Competition
While we believe that we are competitive and have an established presence in our
water
treatment technology systems, fuel handling equipment systems, additives for general fuels
and commercial aviation fuels
business sectors, we may face
significant competition in our efforts to market and sell our new ODV line. Further we
could face competition from our customers, if they determine to produce and use the
products we presently sell in our
water treatment technology systems, fuel handling
equipment systems, additives for general fuels and commercial aviation fuels
business sectors. Many of our customers are well-established and possess
far greater financial, technical, human and other resources than does the Registrant.
We will compete against many companies in fragmented, highly competitive markets and we have fewer resources than some of those companies. Our business sectors compete principally on the basis of the following factors: product quality and specifications (water treatment technology and fuel additives); customized design and technical qualifications (fuel handling equipment and industrial utility vehicles); and reputation, technical expertise and reliable service (fuel additives and fuel handling equipment). Competitive pressures, including those described above, and other factors could cause us additional difficulties in acquiring and maintaining market share or could result in decreases in prices, either of which could have a material adverse effect on our financial position and results of operations. From time to time, the intensity of competition results in price discounting in a particular industry or region. Such price discounting puts pressure on margins and can negatively impact our ability to generate an operating profit.
Development efforts for our new ODV product line
are dependent upon factors outside of our control, and upon successful completion of
development and market acceptance
We have devoted significant financial and other resources to the development of our
new line of ODVs. We are dependent upon the ability of the third-party manufacturers and
subcontractors of the ODV components to complete components used in our ODV line. Our plan
is to develop enhanced production capability at our Houston, TX production and
manufacturing facility in order to have assembly-line manufacturing capable of
successfully manufacturing a complete line of ODVs with specialized features to
enable us to be able to commercially exploit our ODV development. Hammonds believes that
the patented new design can be utilized in connection with forklifts, freight terminal
tractors, security vehicles, industrial highway mowers and a full range of aviation
ground-handling vehicles. Hammonds has produced several prototypes of its ODV products at
our plant in Houston, TX and has entered into license agreements with several major
manufacturers to produce a range of vehicles based on its ODV patented technology. While
Hammonds has been successful in establishing a nationwide network of distributors and has
generated initial stocking orders for ODVs with scheduled delivery orders for 2 ODVs per
month for the next 12 months with revenues estimated at $2,500,000, there can be no
assurance that Hammonds will be able to successfully manufacture and sell a sufficient
number of ODV units to generate significant revenues and profits.
In each of the target markets for Hammonds' ODV we will face competition from older and more established companies and will be dependent on gaining market approval for our new ODV technology. We must compete for the present market for traditional forklifts, freight terminal tractors, security vehicles, industrial highway mowers and a full range of aviation ground handling vehicles and gain market acceptance for our uniquely designed ODV. If we are successful in generating demand for our line of ODVs, we will be dependent upon third party manufacturers to produce on a timely basis necessary ODV components with the quality and quantity that will be required.
We rely heavily on commodities in the
manufacturing of our equipment and price fluctuations can have a material and adverse
affect on the cost structure of our business
We are exposed to fluctuations in market prices for various commodities in the production
of our fuel additive and water treatment products. The rising price of steel, aluminum and
other components also can have an impact on the cost of production of our ODVs. At this
time, we are unable to predict the potential impact of future increases in commodity costs
on the cost of our products, or our ability, if any, to increase the selling price of our
products to cover such costs. We have not established arrangements to hedge commodity
prices and, where possible, to limit near-term exposure to fluctuations in raw material
prices. As a result, the cost to manufacture our products may rise at a time when we are
unable to increase the selling price of such products.
Our business is subject to environmental
regulations; failure to comply could result in substantial penalties
We are regulated by various national and local environmental laws governing our use of
substances and control of emissions in all our operations. Compliance with these laws
could have a material impact on our capital expenditures, earnings, or competitive
position. Our failure or inability to comply with the applicable laws and regulations
could result in monetary or other penalties, resulting in unanticipated expenditures or
restrictions on our ability to operate.
We are dependent on third-party
distributors for our ODV sales, which could reduce our ability to gain marketplace
acceptance
We have begun efforts to build the Hammonds ODV brand through direct sales and through
distribution networks and major supply agreements with other companies. Several
distributors have elected to carry initial stocking inventories of our ODV and some have
scheduled for delivery ODVs on a monthly basis. We are dependent upon our distributors'
success in generating customer orders for the stocking inventory they have purchased, in
continued scheduled orders for future shipment, as we as increasing development of our
third party distribution network. In addition, distributors may elect to make special ODV
orders with specific components and features based upon their various customers'
requirements. This could result in continued adjustment to inventories based on
their assessments of future needs. Such adjustments can impact our results either
positively or negatively.
A disruption or termination of our
relationships with certain suppliers could have a material adverse effect on our
operations
Certain of the components included in our products, including our fuel handling equipment,
our fluid injector systems and our new ODV equipment, are obtained from a limited number
of suppliers. Disruption or termination of supplier relationships could have a material
adverse effect on our operations. We believe that alternative sources could be obtained,
if necessary, but the inability in a timely manner to obtain sufficient quantities of
necessary components or the need to develop alternative sources, if and as required in the
future, could result in delays or reductions in product shipments which in turn could have
an adverse effect on our operating results and customer relationships.
Actual results could
differ from the estimates and assumptions that we use to prepare our financial statements
To prepare financial statements in conformity with generally accepted accounting
principles, management is required to make estimates and assumptions, as of the date of
the financial statements, which affect the reported values of assets, liabilities,
revenues and expenses and disclosures of contingent assets and liabilities. Areas
requiring significant estimates by our management include:
- contract costs and profits and revenue recognition;
- provisions for uncollectible receivables and recoveries of costs from subcontractors,
vendors and others;
- provisions for income taxes and related valuation allowances;
- recoverability of other intangibles and related estimated lives;
- accruals for estimated liabilities;
- timing of the introduction of new products and services and market acceptance of the
same
We are subject to the risks associated with being
a government contractor
We are a provider of products and services to governmental agencies, including
municipal water agencies, waste treatment, and our fuel additive and injector services for
the U.S. military. We are therefore exposed to risks associated with government
contracting, including reductions in government spending, canceled or delayed
appropriations specific to our contracts or projects, heightened competition and modified
or terminated contracts. Legislatures typically appropriate funds for a given program on a
year-by-year basis, even though contract performance may take more than one year and are
not always guaranteed. As a result, at the beginning of a contract or project, the related
contract or project may be only partially funded, and additional funding is normally
committed only as appropriations are made in each subsequent year. These appropriations,
and the timing of payment of appropriated amounts, may be influenced by, among other
things, the state of the economy, competing priorities, curtailments in the use of
government contracting firms, budget constraints, the timing and amount of tax receipts
and the overall level of government expenditures.
Our dependence on major customers could adversely
affect us
Hammonds has been dependent upon its ability to market its products and services to
major industrial and governmental agencies such as Arch Chemical, CSX Railroad,
Exxon/Mobil, BP Aviation, Chevron/Texaco, Tomco, KopCoat, U.S. Army, U.S. Air Force,
Defense Energy Supply and Lockheed Martin. If any of these major industrial or
governmental agencies terminated its relationship with Hammonds, whether as the result of
technological advances by competitors, or otherwise, the business operations and financial
condition of the Registrant could be adversely effected.
Our failure to attract and retain qualified
personnel, including our key officer, could have an adverse effect on us
Our ability to attract and retain qualified engineers, and other professional
personnel in accordance with our needs is an important factor in determining our future
success. The market for these professionals is competitive, and there can be no assurance
that we will be successful in our efforts to attract and retain needed professionals. In
addition, our ability to be successful depends in part on our ability to attract and
retain skilled laborers in our manufacturing and service business. Demand for these
workers can be high at times and the supply can be extremely limited at times. Our success
is also highly dependent upon the continued services of Hammonds CEO, Carl L. Hammonds and
the loss of Mr. Hammonds could materially adversely effect us, notwithstanding the fact
that we have key man insurance on the life of Mr. Hammonds.
Risks inherent in establishing a new
market
There can be no assurance that we will be successful in marketing our ODV, which is a
new technology aimed at a highly competitive industry for industrial utility vehicles.
The market for new products can be very difficult to establish. There are
competitors with long-established products, accepted technology and superior financial
resources for marketing such products. If the market for our ODV product line takes longer
to develop than anticipated, this would have an adverse affect on revenues and potential
profitability. While we believe the ODV represents an important innovation in industrial
utility vehicles, we cannot ensure our targeted customers will purchase a significant
number of ODV units or that we will be able to establish a nationwide and international
network of distributors. If the market develops more slowly than anticipated we may
require additional financing in addition to the $2,728,000 net proceeds received
from the August and September 2006 Private Financing Transactions.
We may need additional capital to fund
our negative cash flow from operations through debt or equity
Based upon our present available cash of $2,115,543, loans from our Parent of
$2,395,699 and our revolving credit line of $2,500,000 from a financial institution, if we
find that the markets for our ODV and other products develop more slowly than we
anticipate, we may require additional funding through debt and/or equity financing in
addition to the $2,728,000 net proceeds from the August and September 2006 Private
Financing Transactions in order to fund our increasing costs of operations and the costs
of completing development of the ODV line. We believe that beginning in 2007 we will
generate positive cash flow from operations and expect to also fund our operations during
2007 with the anticipated positive cash flow from operations, as well as funding provided
by or arranged for us by our Parent and the private financing that we received from VOMF.
There can be no assurance that VOMF will exercise all or a significant number of the
Series A, B or C Warrants. If unexpected expenses or increases in costs arise, there can
be no assurance that we will be able to raise additional capital in a timely manner as and
if needed. As additional funds are required it may be expected that we sell additional
securities or seek increased credit lines or new debt financing, but there can be no
assurance that such financing will be at terms satisfactory to us.
Potential risks associated with rapid
technological changes
Rapid technological changes could adversely affect our business. The market for our
products and technology in particular is characterized by rapid changes. Evolving industry
standards and changing customer needs gives rise to a very competitive marketplace for new
technology. If we are unable to meet or stay ahead of new technologies being developed and
to changes in industry standards, our business could be adversely affected.
Changes in technology, competitively imposed process standards and regulatory requirements influence the demand for many of our products and services. To grow and remain competitive, we need to anticipate changes in technological and regulatory standards. We need to continue to introduce new and enhanced products on a timely basis. We may not achieve these goals and some of our products may become obsolete. New products often face lack of market acceptance, development delays or operational failure. Stricter governmental regulations also may affect acceptance of new products. Our various patents may not provide substantial protection from competition or be of commercial benefit to us. We may not be able to enforce our rights under trademarks or patents against third parties. Some international jurisdictions may not protect these kinds of rights to the same extent that they are protected under U.S. law. If a third party successfully challenges our trademarks or patents, it may affect our competitive and financial position.
Environmental factors and changes in laws and
regulations could increase our costs and liabilities and affect the demand for our
products and services.
In addition to the environmental risks described above relating to our water treatment
business and other operations, we are subject to environmental laws and regulations,
including those concerning:
- emissions into the air;
- discharges into waterways;
- soil and water pollution;
- occupational health and safety.
Environmental laws and regulations generally impose
limitations and standards for regulated materials and require us to obtain a permit and
comply with various other requirements
The improper characterization, handling, or disposal of regulated materials or any other
failure to comply with federal, state and local environmental laws and regulations or
associated environmental permits may result in the assessment of administrative, civil,
and criminal penalties, the imposition of investigatory or remedial obligations, or the
issuance of injunctions that could restrict or prevent our ability to perform.
The environmental health and safety laws and regulations to which we are subject are constantly changing, and it is impossible to predict the effect of any future changes to these laws and regulations on us. We do not yet know the full extent, if any, of environmental liabilities associated with many of our contracts or projects. We cannot assure that our operations will continue to comply with future laws and regulations will not significantly adversely affect us.
The level of enforcement of these laws and regulations also affects the demand for many of our services. Proposed changes in regulations and the perception that enforcement of current environmental laws has been reduced has decreased the demand for some services, as customers have anticipated and adjusted to the potential changes. Future changes could result in increased or decreased demand for some of our services. The ultimate impact of the proposed changes will depend upon a number of factors, including the overall strength of the economy and customers' views on the cost-effectiveness of remedies available under the changed regulations. If proposed or enacted changes materially reduce demand for our environmental services, our results of operations could be adversely affected.
Dependent upon our ability to manage our
growth
.
Hammonds anticipates continued rapid growth in the future, based upon sales growth
achieved in 2006 and new orders for delivery through 2007, especially if our marketing
efforts for our ODV line of products is successful. In such event we will require
effective management, more manufacturing and design personnel and increased financial and
other resources. This growth, if achieved, could place significant strains on our
financial, managerial and other resources. Failure to effectively manage growth could have
a materially adverse effect on our business and results of operations.
Limited patent and proprietary
information protection
Hammonds believes that its patents for its various products and systems, including the
new ODV, and the proprietary processes used in production of its products and equipment
systems, does not infringe on the patents and proprietary rights of others. In the event
that Hammonds' products infringe the patent or proprietary rights of others, we may be
required to modify our process or obtain a license. There can be no assurance that we
would be able to do so in a timely manner, upon acceptable terms and conditions or at all.
The failure to do so would have a material adverse effect on the Company's business. In
addition, there can be no assurance that the Company will have the financial or other
resources necessary to prosecute or defend a patent infringement or proprietary rights
action. Moreover, if any of the Company's products infringe patents or proprietary rights
of others, the Company could, under certain circumstances, become liable for damages,
which could have a material adverse effect on the Company. Hammonds relies on its own
patents and proprietary know-how and confidential information and employs various methods
to protect the processes, concepts, ideas and documentation associated with its
proprietary rights. However, such patents and methods may not afford complete protection
and there can be no assurance that others will not independently develop such processes,
concepts, ideas and documentation or otherwise challenge the Company's patents. Although
the Company requires all of its employees to sign non-disclosure, non-competition and
inventions agreements, there can be no assurance that such agreements will be enforceable
or will provide meaningful protection to the Company. There can be no assurance that the
Company will be able to adequately protect its patents and trade secrets or that other
companies will not acquire information that the Company considers proprietary. Moreover,
there can be no assurance that other companies will not independently develop know-how
comparable to or superior to that of the Company.
RISK FACTORS RELATED TO MARKET OF OUR COMMON STOCK AND THE OFFERING
Market prices of our equity securities can
fluctuate significantly
The market price of our shares of Common Stock may change significantly in response to
various factors and events beyond our control, including the following:
- the risk factors described in registration statement of Form SB-2, of which this
prospectus is a part;
- changing demand for our products and services;
- our results from operations;
- general conditions in markets we operate in;
- general conditions in the securities markets;
- issuance of a significant number of shares, whether pursuant to this offering on behalf
of the selling shareholder, for compensation under employee stock options, conversion of
debt, acquisitions, additional financing or otherwise.
There is only a limited
trading market for our common stock
Our Common Stock is subject to quotation on the NASD Bulletin Board. There has only been
limited trading activity in our Common Stock. There can be no assurance that a more active
trading market will commence in our securities as a result of the increasing operations of
Hammonds. Further, in the event that an active trading market commences, there can be no
assurance as to the level of any market price of our shares of Common Stock, whether any
trading market will provide liquidity to investors, or whether any trading market will be
sustained.
The outstanding warrants may adversely affect us in the future and cause dilution to existing shareholders
There are currently 24,999,999 Series A, B and C Warrants outstanding, all of which are owned by VOMF, the selling shareholder. The Series A and Series C Warrants expire in 2011 and the Series B Warrants expire in 2008. The exercise price of the Series A and B Warrants is $0.18 per share and the exercise price of the Series C Warrants is $.50 per share, subject to adjustment in certain circumstances. Exercise of the Warrants will cause dilution in the interests of other shareholders as a result of the additional shares of Common Stock that would be issued upon such exercise. In addition, sales of the shares of our Common Stock issuable upon exercise of the Warrants could have a depressive effect on the price of our Common Stock, particularly if there is not a coinciding increase in demand by purchasers of our Common Stock. Further, the terms on which we may obtain additional financing during the period any of the Warrants remain outstanding may be adversely affected by the existence of these Warrants as well.
State blue sky
registration; potential limitations on resale of our securities
The class of Common Stock registered under the Exchange Act, other than the shares of
Common Stock registered for the benefit of the selling shareholder, have not been
registered for resale under the Act or the "blue sky" laws of any state. Other
than the selling shareholder, the holders of such shares and persons who desire to
purchase them in any trading market that may exist in the future, should be aware that
there may be significant state blue-sky law restrictions upon the ability of investors to
resell our securities. Accordingly, investors should consider the possibility that the
secondary market for the Company's securities may be a limited one.
It is the intention of the management to seek coverage and publication of information regarding the Company in an accepted publication which permits a manual exemption. This manual exemption permits a security to be distributed in a particular state without being registered if the Company issuing the security has a listing for that security in a securities manual recognized by the state. However, it is not enough for the security to be listed in a recognized manual. The listing entry must contain (i) the names of issuers, officers, and directors, (ii) an issuer's balance sheet, and (iii) a profit and loss statement for either the fiscal year preceding the balance sheet or for the most recent fiscal year of operations. Furthermore, the manual exemption is a nonissuer exemption restricted to secondary trading transactions, making it unavailable for issuers selling newly issued securities.
Most of the accepted manuals are those published in Standard and Poor's, Moody's Investor Service, Fitch's Investment Service, and Best's Insurance Reports, and many states expressly recognize these manuals. A smaller number of states declare that they "recognize securities manuals" but do not specify the recognized manuals. The following states do not have any provisions and therefore do not expressly recognize the manual exemption: Alabama, Georgia, Illinois, Kentucky, Louisiana, Montana, South Dakota, Tennessee, Vermont and Wisconsin.
Dividends unlikely on our
common stock
We do not expect to pay cash dividends on our Common Stock for the foreseeable future.
Further, the August and September 2006 Private Financing Transactions provide that no cash
dividends may be paid on our Common Stock unless and until all accrued dividends on the
Series A and Series B Preferred Stock have been paid. The payment of dividends, if any,
will be contingent upon our future revenues and earnings, capital requirements and general
financial condition. The payment of any cash dividends will be within the discretion of
our board of directors. It is our intention to retain all earnings for use in the business
operations of Hammonds and, accordingly, we do not anticipate that we will declare any
dividends on our Common Stock in the foreseeable future.
Possible issuance of
additional securities
Our Articles of Incorporation authorize the issuance of 195,000,000 shares of Common
Stock, par value $0.0001 and 5,000,000 shares of preferred stock, par value $0.0001. At
September 30, 2006, we had 36,135,000 shares of Common Stock issued and 1,666,666 shares
of Preferred Stock issued.
In connection with the August 2006
Private Financing Transactions with VOMF, Carl L. Hammonds, the owner of the 49% minority
interest in Hammonds, converted his minority interest into 16,000,000 restricted shares of
our Common Stock.
In August 2006 we sold to VOMF
833,333 shares of Series A Preferred Stock, convertible into 8,333,333 shares of Common
Stock and in September 2006 we isold to VOMF 833,333 shares of Series B Preferred Stock,
convertible into 8,333,333 shares of Common Stock. In addition, in the August 2006
Private Financing Transactions we issued to VOMF Series A and B Warrants each exercisable
to purchase 8,333,333 shares of Common Stock. In the September 2006 Private Financing
Transaction we issued to VOMF Series C Warrants exercisable to purchase 8,333,333 shares
of Common Stock. If the Series A Preferred Stock and Series B Preferred Stock are
converted into shares of Common Stock and all of the Series A, B and C Warrants are
exercised in their entirety, we would be required to issue an additional 41,666,665 shares
of Common Stock, all of which are being registered under this prospectus.
In addition, we may issue additional shares of Common Stock in connection with any future acquisitions of operating businesses or assets, to raise additional funding or under employee incentive or option plans. To the extent that additional shares of Common Stock are issued, our shareholders would experience dilution of their respective ownership interests in the Company. The issuance of additional shares of Common Stock may adversely affect the market price of our Common Stock and could impair our ability to raise capital through the sale of our equity securities.
Compliance with penny
stock rules
Our securities will initially be considered a "penny stock" as defined in the
Exchange Act and the rules thereunder, since the price of our shares of Common Stock is
less than $5. Unless our Common Stock is otherwise excluded from the definition of
"penny stock," the penny stock rules apply with respect to that particular
security. The penny stock rules require a broker-dealer prior to a transaction in penny
stock not otherwise exempt from the rules, to deliver a standardized risk disclosure
document prepared by the SEC that provides information about penny stocks and the nature
and level of risks in the penny stock market. The broker-dealer also must provide the
customer with current bid and offer quotations for the penny stock, the compensation of
the broker-dealer and its sales person in the transaction, and monthly account statements
showing the market value of each penny stock held in the customer's account. In addition,
the penny stock rules require that the broker-dealer, not otherwise exempt from such
rules, must make a special written determination that the penny stock is suitable for the
purchaser and receive the purchaser's written agreement to the transaction. These
disclosure rules have the effect of reducing the level of trading activity in the
secondary market for a stock that becomes subject to the penny stock rules. So long as the
Common Stock is subject to the penny stock rules, it may become more difficult to sell
such securities. Such requirements, if applicable, could additionally limit the level of
trading activity for our Common Stock and could make it more difficult for investors to
sell our Common Stock.
Shares eligible for future sale
As of September 30, 2006, we had 36,135,000 shares of Common Stock issued and outstanding,
32,446,280 shares are "restricted" as that term is defined under the Securities
Act, and in the future may be sold in compliance with Rule 144 under the Securities Act.
Rule 144 generally provides that a person holding restricted securities for a period of
one year may sell every three months in brokerage transactions and/or market-maker
transactions an amount equal to the greater of one (1%) percent of (a) the Company's
issued and outstanding Common Stock or (b) the average weekly trading volume of the Common
Stock during the four calendar weeks prior to such sale. Rule 144 also permits, under
certain circumstances, the sale of shares without any quantity limitation by a person who
has not been an affiliate of the Company during the three months preceding the sale and
who has satisfied a two-year holding period. However, all of the current shareholders of
the Company owning 5% or more of the issued and outstanding Common Stock are subject to
Rule 144 limitations on selling.
Any investment in our shares of Common Stock involves a high degree of risk. You should carefully consider the following information about these risks, together with the other information contained in this prospectus before you decide to invest in our Common Stock. Each of the following risks may materially and adversely affect our business objective, plan of operation and financial condition. These risks may cause the market price of our Common Stock to decline, which may cause you to lose all or a part of the money you invested in our Common Stock. We provide the following cautionary discussion of risks, uncertainties and possible inaccurate assumptions relevant to our business plan.
In addition to other information included in this registration statement, the following factors should be considered in evaluating the Company's business and future prospects.
USE OF PROCEEDS Back to Table of Contents
This prospectus relates to shares of our Common Stock that may be offered and sold from time to time by VOMF, the selling shareholder. We will not receive any proceeds from the sale of shares of Common Stock by the selling shareholder in this offering.
We are registering these shares because of registration rights granted to the selling shareholder in our recent private equity financing transactions. We will not receive any proceeds upon the conversion of the Series A or Series B Preferred Stock into shares of our Common Stock. However, we received net proceeds of approximately $2,728,000 from the sale sale of the Series A and Series B Preferred Stock and we could receive up to $3,000,000, before fees and expenses, from the exercise of the Series A and B Warrants, when and if exercised, and up to $4,166,666, before fees and expenses, from the exercise of the Series C Warrants, when and if exercised. The net proceeds from the sale of the Series A and B Preferred Stock and any proceeds received form the exercise of the Series A, B and C Warrants have been and/or will be used for working capital as set forth in the table below.
Use of Funds |
Net Proceeds Received from Sale of Preferred Stock |
Net Proceeds to be Received from Exercise of the Warrants |
||
Working Capital |
$ | 2,728,000 | $ | 6,800,000 |
Total |
$ | 2,728,000 | $ | 6,800,000 |
SELLING SHAREHOLDER Back to Table of Contents
The following table sets forth the rights of VOMF, the selling shareholder, to acquire shares of our Common Stock pursuant to the Series A and Series B Preferred Stock purchase agreements and other information relating to the selling shareholder as of November 15, 2006. The selling shareholder acquired 833,333 shares of our Series A Preferred Stock and 833,333 shares of our Series B Preferred Stock in connection with our August 2006 and September 2006 Private Financing Transactions . Each share of Series A Preferred Stock and Series B Preferred Stock is convertible into ten (10) shares of Common Stock. In addition and as part of the August 2006 Private Financing Transactions , the selling shareholder was issued 8,333,333 Series A Warrants and 8,333,333 Series B Warrants, expiring five years and two years, respectively, from the August 2006 dates of issuance. In addition and as part of the September 2006 Private Financing Transaction, the selling shareholder was issued 8,333,333 Series C Warrants, expiring five year from the date of issuance.
PLAN OF DISTRIBUTION Back to Table of Contents
We are registering the shares of Common Stock on behalf of Vision Opportunity Master Fund, Ltd., the selling shareholder. The selling shareholder and any pledgees, donees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of Common Stock being offered under this prospectus on any stock exchange, market or trading facility on which shares of our Common Stock are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling shareholder may use any one or more of the following methods when disposing of shares:
ordinary brokerage
transactions and transactions in which the broker-dealer solicits the purchaser;
block trades in
which the broker-dealer will attempt to sell the shares as agent but may position and
resell a portion of the block as principal to facilitate the transaction;
purchases by a
broker-dealer as principal and resales by the broker-dealer for its account;
an exchange
distribution in accordance with the rules of the applicable exchange;
privately-negotiated
transactions;
to cover short
sales made after the date that the registration statement of which this prospectus is a
part is declared effective by the Commission;
broker-dealers may
agree with the selling shareholders to sell a specified number of such shares at a
stipulated price per share;
through the writing
of options on the shares;
a combination of
any such methods of sale; and
any other method
permitted pursuant to applicable law.
The shares may also be sold under Rule 144 under the Securities Act of 1933, as amended, if available, rather than under this prospectus. The selling shareholder has the sole and absolute discretion not to accept any purchase offer or make any sale of shares if they deem the purchase price to be unsatisfactory at any particular time.
The selling shareholder may pledge its shares to brokers under the margin provisions of customer agreements. If a selling shareholder defaults on a margin loan, the broker may, from time to time, offer and sell the pledged shares.
Broker-dealers engaged by the selling shareholder may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling security holders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, which commissions as to a particular broker or dealer may be in excess of customary commissions to the extent permitted by applicable law.
If sales of shares offered under this prospectus are made to broker-dealers as principals, we would be required to file a post-effective amendment to the registration statement of which this prospectus is a part. In the post-effective amendment, we would be required to disclose the names of any participating broker-dealers and the compensation arrangements relating to such sales.
The selling shareholder and any broker-dealers or agents that are involved in selling the shares offered under this prospectus may be deemed to be "underwriters" within the meaning of the Securities Act in connection with these sales. Commissions received by these broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Any broker-dealers or agents that are deemed to be underwriters may not sell shares offered under this prospectus unless and until we set forth the names of the underwriters and the material details of their underwriting arrangements in a supplement to this prospectus or, if required, in a replacement prospectus included in a post-effective amendment to the registration statement of which this prospectus is a part.
The selling shareholder and any other persons participating in the sale or distribution of the shares will be subject to applicable provisions of the Securities Exchange Act of 1934, as amended, and the rules and regulations under the Exchange Act, including, without limitation, Regulation M. These provisions may restrict certain activities of, and limit the timing of purchases and sales of any of the shares by, the selling shareholder or any other such person. In the event that any of the selling shareholder are deemed an affiliated purchaser or distribution participant within the meaning of Regulation M, then the selling shareholders will not be permitted to engage in short sales of Common Stock. Furthermore, under Regulation M, persons engaged in a distribution of securities are prohibited from simultaneously engaging in market making and certain other activities with respect to such securities for a specified period of time prior to the commencement of such distributions, subject to specified exceptions or exemptions. In addition, if a short sale is deemed to be a stabilizing activity, then the selling shareholder will not be permitted to engage in a short sale of our Common Stock. All of these limitations may affect the marketability of the shares.
If any of the shares of Common Stock offered for sale pursuant to this prospectus are transferred other than pursuant to a sale under this prospectus, then subsequent holders could not use this prospectus until a post-effective amendment or prospectus supplement is filed, naming such holders. We offer no assurance as to whether the selling shareholder will sell all or any portion of the shares offered under this prospectus.
We have agreed to pay all fees and expenses we incur incident to the registration of the shares being offered under this prospectus. However, the selling shareholder and any purchaser are responsible for paying any discounts, commissions and similar selling expenses they incur.
We and the selling shareholder have agreed to indemnify one another against certain losses, damages and liabilities arising in connection with this prospectus, including liabilities under the Securities Act.
MARKET FOR COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Back to Table of Contents
Market Information
Our Common Stock is currently quoted on the NASD Bulletin Board under the symbol "IMTG", an NASD-sponsored and operated inter-dealer automated quotation system for equity securities not included on the NASDAQ Stock Market. Quotation of the Company's securities on the NASD Bulletin Board limits the liquidity and price of the Company's Common Stock more than if the Company's shares of Common Stock were listed on the NASDAQ Stock Market or a national exchange. For the periods indicated, the following table sets forth the high and low bid prices per share of Common Stock as reported by the NASD Bulletin Board. The below prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions.
Fiscal 2006 |
Fiscal 2005 |
Fiscal 2004 |
||||||||||||||||
High |
Low |
High |
Low |
High |
Low |
|||||||||||||
First Quarter ended March 31 |
$ |
0.60 |
$ |
0.35 |
$ |
0.28 |
$ |
0.23 |
$ |
0.05 |
|
$ |
0.05 |
|||||
Second Quarter ended June 30 |
$ |
0.45 |
$ |
0.30 |
$ |
0.46 |
$ |
0.20 |
$ |
0.05 |
|
$ |
0.03 |
|||||
Third Quarter ended September 30 |
$ |
0.50 |
$ |
0.25 |
$ |
0.85 |
$ |
0.35 |
$ |
0.05 |
$ |
0.02 |
||||||
Fourth Quarter ended December 31 |
$ |
--- |
$ |
--- |
$ |
0.65 |
$ |
0.31 |
$ |
0.06 |
$ |
0.02 |
As of November 20, 2006, our shares of Common Stock were held by approximately 60 shareholders of record. The transfer agent of our Common Stock is Colonial Stock Transfer, 66 Exchange Place, Salt Lake City, UT 84111.
Dividends
Holders of Common Stock are entitled to dividends when, as, and if declared by the Board of Directors, out of funds legally available therefore. We have never declared cash dividends on our Common Stock and our board of directors does not anticipate paying cash dividends in the foreseeable future as it intends to retain future earnings to finance the growth of our businesses. There are no restrictions in our articles of incorporation or bylaws that restrict us from declaring dividends. However, in connection with our August and September 2006 Private Financing Transactions, we agreed that no cash dividends may be paid on our Common Stock unless all accrued and unpaid dividends on the shares of Series A and Series B Preferred Stock have been paid.
Securities Authorized for Issuance Under Equity Compensation Plans
No equity compensation plan or agreements under which our Common Stock is authorized for issuance has been adopted during the fiscal year ended December 31, 2005.
DESCRIPTION OF BUSINESS Back to Table of Contents
International American Technologies, Inc., a Nevada corporation, is publicly traded on the pink sheets under the symbol IMTG. The Company was incorporated on August 18, 1986 and in connection with a stock purchase agreement in between the Company and Hammonds Technical Services, Inc. effective on April 28, 2005, the Registrant changed its name from Unlimited Coatings Corporation to International American Technologies, Inc. The Company is a 44.9% owned subsidiary of American International Industries, Inc., a public reporting company under the Exchange Act with its shares subject to quotation on the OTCBB under the symbol AMIN.
Some of the statements contained in this registration statement on Form SB-2 filed on behalf of the selling shareholder by International American Technologies Inc. discuss future expectations, contain projections of our operations or financial condition or state other forward-looking information.
Description of Hammonds Acquisition Transaction
On February 28, 2005, the Company entered into a stock purchase agreement to acquire 51% of the capital stock of Hammonds Technical Services, Inc., a privately owned Texas corporation founded by Carl L. Hammonds in 1982, in consideration for the Company or its Parent providing: (i) $998,300 in cash to Hammonds for working capital; (ii) a secured revolving long-term line-of-credit in the amount of $2,000,000; and (iii) the Company's Parent issuing 145,000 restricted shares of common stock to the Company in consideration for a $1,450,000 promissory note. The restricted shares were exchanged for two minority equity interests in Hammonds owned by third parties, which minority interest were canceled. The stock purchase agreement with Hammonds closed on April 28, 2005.
In connection with the August 2006 Private Financing Transactions with VOMF, Carl L. Hammonds converted his 49% minority equity interest in Hammonds into 16,000,000 shares of Common Stock and Hammonds became wholly-owned subsidiaries of the Company.
General Background of Hammonds
Hammonds manufactures engineered products and chemicals that serve multiple segments of the fuels distribution, water treatment and utility vehicle industries. Hammonds' products are marketed by a worldwide network of distributors, manufacturers representatives and original equipment manufacturers. Subsequent to year end December 31, 2005, Hammonds Technical Services, Inc. was separated into three entities : (i) Hammonds Technical Services, which is the manufacturing operation for Hammonds equipment product line s , including ODVs, injectors and water purification systems; (ii) Hammonds Fuel Additives, which supplies all of the fuel additives; and (iii) Hammonds Water Treatment Systems , which provides the chemical tablets for Hammonds' water purification systems.
Hammonds Technical Serices: Hammonds designs and manufactures a range of equipmentfluid handling equipment. Hammonds fluid powered additive systems permit the use of a single battlefield fuel by supplying both distribution and tactical additive injectors to all branches of the United States military. Hammonds intends to continue to provide additive injection systems to the military through sole source equipment long-term contracts. Hammonds manufactures truck mounted injectors with custom blending at the end of the hose for jet fuel and other products such as diesel, LPGN (propane), home heating oil, and bio-diesel. In January 2005, Hammonds began a long-term project to install dye injection systems in over eight hundred Canadian and U.S. stationary and truck mounted diesel delivery injectors and is continuing this project in 2006. In March 2005, Hammonds started production of an entirely new type of industrial utility vehicle called Omni Directional Vehicle ("ODV"). Hammonds believes that ODV utility vehicle will establish a new standard for industrial utility vehicles based on vehicle safety and performance. Hammonds believes that the patented new design can be utilized in connection with forklifts, freight terminal tractors, security vehicles, industrial highway mowers and a full range of aviation ground handling vehicles. Hammonds has produced several prototypes of its new ODV product at its plant in Houston, Texas. Hammonds has entered into license agreements with manufacturers to produce a range of vehicles based on its ODV patented technology. In addition, Hammonds has received initial stocking orders for ODVs from distributors which provide for six ODVs and a delivery schedule of a minimum of two ODVs per month for the next twelve months. The total revenues of the initial stocking orders and the scheduled delivery orders are estimated at $2,500,000.
Hammonds Fuel Additives: Hammonds Fuel Additives produces and markets motor and aviation fuel additives, with Biobor® JF as its primary product, serving the aviation, stand-by power and marine fuel markets. Biobor® JF is one of only two biocides approved for use in aviation fuels, but it has also been tested and approved as a preservative for manufactured wood products such as engineered trusses, windows and sheet building materials. The expanding use of these manufactured wood products should provide a new expanded market for Biobor® JF since products such as arsenic have been removed from the list of approved wood preservatives.
Hammonds Water Treatment Systems: The treatment of municipal and industrial water is a growing industry in the U.S., as the demand for clean water grows. Hammonds' proprietary solid disinfection technology provides a major alternative to gaseous chlorine used in every phase of water treatment. Hammonds believes that the areas of drinking water, food processing and industrial waste treatment present a significant growth potential for Hammonds' water treatment technology. Hammonds distributed 1.2 million pounds of calcium hypochlorite for municipal disinfection through its distribution network in 2005 and believes that it will distribute 2.5 million pounds in 2006. Hammonds' Water Treatment Systems was established after the 2005 fiscal year end. Hammonds Water Treatment Systems generates revenues and incurs costs from a third party that supplies Hammonds purification chemicals. Hammonds projects that revenue from Hammonds Water Treatment Systems will exceed $2,000,000 during the next twelve months.
Description of Hammonds Products and Services
Hammonds Technical Services
Hammonds Technical Services is the Hammonds entity engaged in the mauufacture of equipment and systems as follows:
Fuel Handling Equipment Systems
:
Fluid Powered Injectors: Hammonds manufactures injector systems with injection pumps that
are driven and controlled by the flow of product. They utilize a fluid driven motor that
furnishes both power and control to the injector. Requiring no external power, these
injectors provide accurate proportionate-to-flow injection of up to eight different
additives, separately or simultaneously. With primary applications in fuel distribution,
Hammonds' fluid powered injectors are chosen for aviation fuels for application in fuel
system icing inhibitors, corrosion inhibitors, conductivity and thermal stability
additives.
"Smart" Electronic Injectors: This technology combines fluid powered technology
with electronic process controls for use in data analysis and performance verification of
Hammonds' fuel handling systems. Introduced to the aviation industry by Hammonds, these
innovative systems have given Hammonds a strong market position and Hammonds expects to
maintain a competitive position in this growing market.
Hypodermic Pump: Hammonds believes that this new technology will play a dominant role in a
wide range of chemical metering applications. Hammonds believes that this is the first
entirely new fluid handling technology equipment introduced in over twenty-five years. Its
hypodermic pump is expected to contribute increasing revenues to Hammonds' line of fluid
handling products.
In-Tank Vehicle Additive System: Hammonds manufactures an In-Tank system that
automatically dispenses additives into vehicle tanks as they are filled with fuel. This
system functions without power or controls while a variety of performance additives can be
blended as the vehicle moves from fuel stop to fuel stop. Hammonds expects that higher
energy costs and growing demand for alternative blended fuels will continue to increase
demand for Hammonds' proprietary technology.
LPGN and Natural Gas Blending: Hammonds manufactures a line of injector systems that
enable new chemicals to be added to ordinary LPGN and natural gas, which will replace
acetylene as fuel in manufacturing processes. Consumers of high volumes of natural gas or
acetylene gas are the target markets for this line of injector systems.
Fuel Polishing: Hammonds distributes fuel handling systems designed to "polish"
contaminated fuel in various vehicle tanks. Offered for rent and for sale, these units are
distributed to industrial fuel and marine equipment dealers throughout the United States.
Hammonds has developed and has commenced production of the second generation of injector
systems and believes that the new additive system equipment should enable Hammonds to
maintain its competitive market position in this growing market into the next decade.
Hammonds believes that its introduction of data acquisition and transaction data trails
for its additive system equipment will continue to utilize the latest in solid state
controls.
Omni Directional Vehicles
:
In March 2005, Hammonds started production of an entirely new type of industrial utility
vehicle called Omni Directional Vehicle or ODV. Hammonds believes that ODV utility vehicle
will establish a new standard for industrial utility vehicles based on vehicle safety and
performance. Hammonds believes that the patented new design can be utilized in connection
with forklifts, freight terminal tractors, security vehicles, industrial highway mowers
and a full range of aviation ground handling vehicles. Hammonds has produced several
prototypes of its new ODV product at its plant in Houston, Texas. Hammonds has entered
into license agreements with manufacturers to produce a range of vehicles based on its ODV
patented technology. In addition, Hammonds has received initial stocking orders for ODVs
from distributors which provide for six ODVs and a delivery schedule of a minimum of two
ODVs per month for the next twelve months. The total revenues of the initial stocking
orders and the scheduled delivery orders are estimated at $2,500,000.
Hammonds Fuel Additives
Hammonds has developed additives for general fuels and commercial aviation fuels. Additives are the only means by which the performance of fuels can be enhanced. Higher levels of sophistication in aviation and ground based equipment will continue to demand additives that can expand performance. Hammonds supplies additives for aviation, diesel, gasoline, LPGN and natural gas powered vehicles and equipment.
Hammonds Biobor® JF Fuel Biocid e: In 1991, Hammonds purchased Biobor® JF, a fuel biocide approved for control of microbial growth in hydrocarbon fuels. Biobor® JF was developed by U.S. Borax in conjunction with major oil companies and the aviation industry as a means of controlling dangerous corrosion and contamination of aviation fuel as a result of hydrocarbon utilizing micro organisms. For over forty years, Biobor® JF has enjoyed the unique status as the only biocide approved for use in aviation fuels. Currently, only two manufactures are approved and Biobor® JF has continued to command the majority of the aviation market. Also widely used in diesel and heavy fuels of all grades, Biobor® JF is exclusively used by manufacturers such as Boeing, Dessault, Airbus, Lockheed, Cessna, Gulfstream, Learjet, General Dynamics, Pratt & Whitney, Rolls Royce, GE, Cummins, General Motors, Ford, Caterpillar, DaimlerChrysler and John Deere.
Performance Additives : Hammonds sells performance additives including detergents, pourpoint depressants, cetane improvers, lubricity agents and fuel system icing inhibitors. These products are purchased in bulk from manufacturers such as Shell and Union Carbide and are carefully selected to provide a well-rounded family of products that compliment the commercial and marine industry, aviation, railroad and off-road equipment market. All such products have trademarked names owned by Hammonds.
Fuel Quality Materials : Hammonds offers fuel test kits and materials used in quality control, filter media, water absorption materials and related accessories utilized extensively by aviation, off-road, commercial transportation, marine and railroad industries.
Hammonds Water Treatment Systems
Tableted Calcium Hypochlorite Systems : Manufactured by Hammonds under several United States and foreign patents, Hammonds industrial and municipal tablet systems provide water disinfection for a wide range of potable and waste water applications. Hammonds pioneered engineered tablet systems and believes that it is well established in the markets for solid chemical disinfection.
Granulated and Powder Blenders : This equipment, for which Hammonds has several patents, is used to blend and inject a variety of hydroscopic materials into pressurized fluid lines. Hammonds believes that this equipment offers competitive features related to its packaging system, removal of environmental contamination, personnel safety, preservation of product quality and accurate feed rates. Hammonds' dry products blender equipment can primarily be used in municipal and industrial waste water treatments, food processing, refining and paper manufacture.
Hydrostatic Test Equipment : Hammonds manufactures a variety of test and service equipment used in manufacturing and servicing pipelines, distribution systems and process equipment. This equipment is distributed through municipal water equipment distributors and the rental industry.
Hammonds also manufactures and markets a line of granulated and powder blenders under its U.S. patents, which equipment is used to blend and inject a variety hydroscopic materials into pressurized fluid lines. Hammonds' dry products blenders are used in municipal and industrial waste water treatment, food processing, refining and paper manufacture.
Markets Hammonds Operates In
Water Treatment Market
Demand for Clean Water. It is estimated three percent of the world's water is fresh water, most of which is in the form of ice and snow. It is further estimated that approximately 0.6 percent of all the world's water is used by humans for various purposes, including agricultural uses. Only some of this water can be used again, after purification treatment. About 70 percent of all fresh water is used for irrigation, and most of this cannot be recycled. In the U.S. about 30 percent of all irrigation water is groundwater pumped from the High Plains aquifer. Approximately 20% of the fresh water goes to industrial uses, leaving only about 10% for domestic drinking, cooking, and sanitation.
Accordingly, the purification and treatment of municipal drinking water and wastewater is a worldwide concern. The water treatment market is highly fragmented, consisting of many companies involved in various capacities, including companies that design fully integrated systems for processing millions of gallons of water for municipal, industrial, and commercial applications. Demand for water treatment has continued to grow due to economic expansion, population growth, scarcity of usable potable water, concerns about water quality and regulatory requirements. Drinking water, regardless of its source, may contain contaminants that can affect the health of consumers.
Although municipal agencies and water utilities in the United States are required to provide drinking water which complies with the U.S. Safe Drinking Water Act, the water supplied to homes and businesses from municipalities and utilities may contain high levels of bacteria, toxins and parasites, as well as high levels of chlorine used to eliminate contaminants. The importance of effective water treatment is critical from a health concerns standpoint due to the fact that impure water can impair consumers' confidence in food products, and discharge violations can result in significant fines and penalties from regulatory agencies.
Existing Water Treatment Systems. In a typical water treatment facility, the first step adds to the raw incoming water a substance which causes tiny, sticky particles (called "floc") to form - these attract dirt and other particles suspended in the water. This process of coagulation results in the heavy particles of dirt and floc clumping together and falling to the bottom. These heavier particles form sediment which is siphoned off, leaving the clearer water, which passes on to filtration. The most common filtration method is known as "slow sand" or sand-anthracite, in which the water flows into large shallow beds and passes down through layers of sand, gravel and charcoal. The final process is disinfection, which is intended to kill bacteria or other microorganisms left in the water and leave a residual to keep the water safe through the delivery pipes to the customer. Chlorine is the most commonly employed disinfectant, although chloramine, ozone, and ultraviolet (UV) are also used. Hammonds manufactures under several U.S. and foreign patents tableted calcium hypochlorite systems which provide water disinfection for a wide range of potable and waste water applications. Today's trend in water treatment filtration, due to the higher demands for water and the reduction in clean or relatively clean source waters, is to clarify and heavily filter all municipal water supplies. The smaller municipalities will also be required to meet the added water quality goals of the larger systems and will require the infrastructure to do so. Smaller municipalities ordinarily do not have the technical or financial resources required to design build and operate systems that will meet the new water quality criteria.
Fuel Additives Market
Fuel additives are the only means by which the performance of fuels can be enhanced. Hammonds believes that higher levels of demand by the aviation and ground based equipment industry will continue to grow, with increased levels of performance from fuel additives. Hammonds manufactures and/or markets additives for aviation, diesel, gasoline, LPGN and natural gas powered vehicles and equipment. Governments worldwide are legislating specifications regarding the fuel itself and engine design. Today's advanced fuel engines are far cleaner than the engines of prior decades. Unfortunately, even today's engines are not clean enough to meet current stricter air pollution regulations. Diesel fuel engines can become ultra-clean. Meeting the environmental challenges will require extensive research on clean-fuel technology. Research in this area is currently being sponsored by government agencies, major engine companies, truck and plane manufacturers, automobile makers, catalyst producers and, for fuels, oil refining companies and their technology suppliers. Large Fortune 500 companies, as well as small, emerging technology companies are investing hundreds of millions of dollars in research and development worldwide on clean-fuel technologies.
Hammonds manufactures its Biobor® JF fuel additive for sale to the general and military aviation industries. Biobor® JF provides a means of controlling dangerous corrosion and contamination of aviation fuel as a result of hydrocarbon utilizing micro organisms. Biobor® JF is one of only two biocides approved for use in aviation fuels. Currently, only two manufactures are approved and Biobor® JF has continued to command the majority of the aviation market. Also widely used in diesel and heavy fuels of all grades, Biobor® JF is used by manufacturers such as Boeing, Dessault, Airbus, Lockheed, Cessna, Gulfstream, Learjet, General Dynamics, Pratt & Whitney, Rolls Royce, GE, Cummins, General Motors, Ford, Caterpillar, DaimlerChrysler and John Deere.
Hammonds also markets performance additives including detergents, pourpoint depressants, cetane improvers, lubricity agents and fuel system icing inhibitors. These products are purchased in bulk from manufacturers such as Shell and Union Carbide and are carefully selected to provide a well rounded family of products that compliment the commercial and marine industry, aviation, railroad and off-road equipment market. All such products have trademarked names owned by Hammonds. Hammonds offers fuel test kits and materials used in quality control, filter media, water absorption materials and related accessories utilized extensively by aviation, off-road, commercial transportation, marine and railroad industries.
Industrial Utility Vehicle Market (ODV)
Aviation: It is estimated that the aviation industry will require approximately 100,000 ground support vehicles during the next five years. Hammonds believes that the aviation industry is undergoing electrification and expansion into regional jet service in addition to now facing a depleted and worn fleet as a result of world political and economical conditions over the past three years.
Fork lifts: This fundamental industrial tool represents the largest segment of industrial vehicle demand with an annual production of of more than 160,000 units during the past year. Hammonds believes that the technology and advanced engineering features of its ODV represents an advance in the fork lift industry.
Utility Tractors: Skid steer utility vehicles used for earth and snow handling compose an annual unit production of over 16,000 units. A large percentage of these tractors are used for snow management as well as general excavation and bulk material handling, and the ODV is being marketed to this industry.
Freight Trailer "Mules": Modified tractors are used to move trailers at major terminals as they are loaded for transport. Two major manufacturers dominate this market delivering approximately 3,000 units per year. Hammonds believes that it will also be able to successfully compete for this market.
Security/Law Enforcement: National security has generated a unique opportunity for the ODV since it can provide high visibility and radial vision in a very limited space. Requirements at airports, port, bridges and other high risk locations are demanding now methods of patrol and observation.
Each of the major classifications of equipment can be segmented into several categories. A fundamental benefit of the ODV is the diversity of the markets and industries it is capable of serving. In each segment of each major classification, Hammonds believes that there are distinct market boundaries providing a broad base of opportunity for the ODV product line.
Fuel Handling Equipment Market
Hammonds manufactures a wide variety of fluid injector systems which are injection pumps that are driven and controlled by the flow of product. They utilize a fluid driven motor that furnishes both power and control to the injector. Requiring no external power, these injectors provide accurate proportionate-to-flow injection of up to eight different additives, separately or simultaneously. With primary applications in fuel distribution, Hammonds' fluid powered injectors marketed to the general aviation industry and the U.S. military for application in fuel system icing inhibitors, corrosion inhibitors, conductivity and thermal stability additives. Hammonds' fuel handling equipment provides this market with an advanced means of blendings additives and chemicals.
Hammonds Business Strategy
Since its inception, Hammonds strategy has been to grow as a provider of new technology. Hammonds continues to expand its scope as a leader in serving the fuels, water treatment and utility vehicle industries. It also believes that it will experience growth in sales of water treatment products, the addition of new pumping and dispensing technologies, and expansion of fuel additive applications and production. With its development of the Omni Directional Vehicle in addition to its other products and services, Hammonds continues to experience revenue growth with an expanding line of products and services for multiple markets, sectors and industries.
Hammonds believes that future growth and profitability are attainable through careful management of corporate assets including:
Diverse background in design, manufacturing and sales of
materials handling equipment;
Leadership in aviation fuels treatment for both commercial and military uses;
Strong marketing alliances with major industries and organizations including Arch
Chemical, CSX Railroad, Exxon/Mobil, BP Aviation, Chevron(Texaco), Tomco, KopCoat, U.S.
Army, U.S. Air Force, Defense Energy Supply and Lockheed Martin;
Introduction and continued development of the ODV, providing significant growth
potential;
Continued development of an extensive network of distributors and original
equipment manufacturers;
Patented, proprietary technology in markets with high growth potential;
High profile visibility with broad based industries such as aviation, petroleum
distribution, water treatment and utility vehicles; and
Ability to secure additional debt or equity financing at terms and conditions
satisfactory to the Company.
Competition
The markets in which Hammonds operates are highly competitive. We compete in several of our products and services lines against many companies in fragmented, highly competitive markets and we have fewer resources than some of those companies. Our business competes in the areas of water treatment technology, fuel handling equipment, fuel additives and industrial utility vehicles principally on the basis of the following factors: product quality and specifications (water treatment technology and fuel additives); customized design and technical qualifications (fuel handling equipment and industrial utility vehicles); reputation, technical expertise and reliable service (fuel additives and fuel handling equipment). Competitive pressures and other factors could cause us additional difficulties in acquiring market share or could result in decreases in prices, either of which could have a material adverse effect on our financial position and results of operations.
Hammonds faces competition in the water treatment technology market from competitors offering similar equipment. Hammonds technology competes mainly against methodologies that continue to evolve as environmental and economic issues force the water treatment industry to continuously seek new and more effective ways to purify a diminishing supply of usable water. Hammonds holds multiple patents marketable in a variety of current and emerging disinfection methods including solid tablet, granular and liquid chlorine. Hammonds main competitors are PPG Industries and Arch Chemical, both of which companies market a packaged water treatment system and have far greater financial and other resources than the Company.
Among our competitors are some of the world's largest chemical and water treatment companies and major integrated companies that have their own raw material resources and far greater financial resources. Hammonds will compete with numerous well-established water treatment providers, fuel additive and chemical products companies, fuel handling equipment companies and industrial vehicle manufacturing and marketing companies, many of which possess substantially greater experience, financial, marketing, personnel and other resources than Hammonds.
Hammonds believes that it is one of the only fuel handling equipment manufacturers presently offering new proprietary designs. Other providers, Hammonds believes, sell new versions of systems based upon designs that were developed thirty and forty years ago. Price is a powerful incentive in this industry, however, and performance with low installation costs will continue to drive customer demands. Hammonds believes that Gammon Technical Services and Lubrizol are its main competitors in its fuel handling equipment business. There are a number of small competitors that use non-proprietary technology. Hammonds' fuel handling products are focused on unique market segments. Hammonds believes that its injectors are most successful in markets where electrical power and or metering equipment is not available. Hammonds has been a sole-source vendor for the United States Air Force and Army since 1985.
In the fuel additive market, Hammonds developed additive blending, introducing a fluid powered system that has been widely accepted in military and general aviation. The U.S. military has accepted the Hammonds' injectors as its "sole source" for rapid deployment combat and terminal pipeline injection. This has provided Hammonds with contracts for these products and it believes a competitive advantage compared to other equipment manufacturers that cannot meet the required specifications.
Biobor® JF is a fuel biocide marketed to the aviation, off-road vehicle and stand-by power generation industries and is registered by the United States Environmental Protection Agency as a fuel biocide. (EPA 65217-1). Biobor® JF is one of only two biocides approved for use in aviation jet fuel. Competition for the jet fuel market is limited to Kathon FP, a product of Rohm and Haas. Kathon FP is not approved for use in some parts of the United States. Biobor® JF has no geographical limitations and is used throughout the world as a primary choice by operators of turbine fuel aircraft. There are a host of other manufacturers producing fuel biocides for diesel and other hydrocarbon based fuels, with Angus Chemical being one of the largest.
Hammonds' Biobor® JF fuel biocide is approved for control of microbial growth in hydrocarbon fuels. The Biobor® JF product, a fuel additive, is widely recognized as a standard for control of fuel-born microbial growth and has been widely accepted in the aviation, marine and power generation industries. Hammonds has established a very competitive position with the Biobor® JF product, selling to such major customers as Boeing, Dessault, Airbus, Lockheed, Cessna, Gulfstream, Lear
j et, General Dynamics, Pratt & Whitney, Rolls Royce, GE, Cummins, General Motors, Ford, Caterpillar, DaimlerChrysler and John Deere. Hammonds does not believe that any other product is as accepted in the market as its Biobor® JR. While Biobor® JF is one of only two biocides approved for use in aviation fuels, it has also been tested and approved as a preservative for manufactured wood products such as engineered trusses, windows and sheet building materials. The expanding use of these manufactured wood products should provide a new expanded market for Biobor® JF since products such as arsenic have been removed from the list of approved wood preservatives. Hammonds believes that it enjoys strong market position in the aviation fuel additive market. Several other competitors have entered this market with limited success. There is considerable competition in the field of fuel biocides.The aviation industry has begun to move from engine driven to electric powered equipment. Rechargeable battery powered vehicles promise more efficiency, less maintenance and cleaner air. A majority of new equipment in the aviation industry is based on electric power. Airlines are eagerly seeking new products and ideas. Competition is significant because much of the competitors' equipment is virtually similar. However, Hammonds believes that its ODV has better features and can move faster, safer, smoother and with easier use and operation.
Many of our competitors have achieved significant national brand name and product recognition and engage in extensive promotional programs. Moreover, certain of our products and services use technology that is widely available. Accordingly, barriers to entry, apart from capital availability, may be low in certain product segments of our business, and the entrance of new competitors into the industry may reduce our ability to capture improving profit margins in circumstances where capacity utilization in the industry is increasing. Hammonds' ability to compete successfully will depend on our success at penetrating each targeted market with our products and services, market acceptance of its products and services, our ability to license and develop new and improved products, and our ability to develop and maintain distribution networks. There can be no assurance that Hammonds will be able to compete successfully, that its products will continue to meet with customer approval, that competitors will not develop and market products that are similar or superior to our products or that Hammonds will be able to successfully enhance its products or services.
Production Facilities
Hammonds' facilities are located on 10 acres of land in Houston, TX and include a 104,000 square foot industrial manufacturing, production, warehousing and distribution plant that also serves as Hammonds' territorial sales office. This facility has sufficient production capacity to meet the Company's anticipated needs for product for the foreseeable future. The real property and plant are owned by the Company and leased to Hammonds at a monthly rental of $25,000. This facility also has a subtenant that leases approximately 24,000 square feet at a monthly rental of $8,000. In addition, Hammonds maintains an executive office facility in Harris County, Houston, TX.
Materials and Principal Suppliers
Hammonds' additive systems are assembled using fabricated parts from Hammonds' facility and machined parts manufactured in our in-house machine shop. Light sheet metal working equipment were added to our fabrication capacity in 2005. Hammonds performance additives, including detergents, pourpoint depressants, cetane improver, lubricity agents and fuel systems icing inhibitors, are produced by Hammonds from products that are purchased in bulk from manufacturers such as Shell and Union Carbide.
The ODV utilizes three main propulsion components: wheel drives, hydrostatic pumps and the engine or electric motor that powers the system. A broad range of manufacturers offer equipment of this type making sourcing of primary components selective and competitive.
Dependence on Major Customers
Hammonds depends on several major customers, specifically the U.S. Army and Air Force, the major customer for Hammonds fuel additive products. Hammonds other significant customers include Arch Chemical, CSX Railroad, Exxon/Mobil, BP Aviation, Chevron/Texaco, Tomco, KopCoat, Defense Energy Supply and Lockheed Martin. If any of these major industrial or governmental agencies terminated its relationship with Hammonds, whether as the result of technological advances by competitors, or otherwise, the business operations and financial condition of the Company could be adversely effected.
Patents, Trademarks And Licenses and Other Intellectual Property
Hammonds' products are covered by various United States patents and patents pending. At present, Hammonds owns three patents covering various fuel additive blending applications. In addition, Hammonds owns six patents covering its water treatment technology. Its new Omni Directional Vehicle is covered by five patents related to design.
Employees
As of September 30, 2006, Hammonds had 44 full time employees including Carl L. Hammonds. No employees are covered by a collective bargaining agreement. Hammonds management considers relations with its employees to be satisfactory.
Environmental Laws and Regulations
Hammonds is required to comply with the rules and regulations promulgated by the U.S. Environmental Protection Agency (EPA), pursuant to the Environmental Protection Act. The original EPA registration for Biobor® JF included extensive testing in order to establish any potential adverse effects on personnel or the environment. The use of certain chemicals and other substances is subject to extensive and frequently changing federal, state, provincial and local laws and substantial regulation under these laws by governmental agencies, including the EPA, the Occupational Health and Safety Administration, various state agencies and county and local authorities acting in conjunction with federal and state authorities. Among other things, these regulatory bodies impose requirements to control air, soil and water pollution, to protect against occupational exposure to chemicals, including health and safety risks, and to require notification or reporting of the storage, use and release of certain hazardous chemicals and substances. Hammonds provides all required label warnings and instructions for the handling of its fuel additive products. Hammonds believes that it is in substantial compliance with all laws and regulations governing its material business operations and has obtained all required licenses and permits for the operation of its business. There can be no assurance that Hammonds in the future will be able to comply with, or continue to comply with, all current or future government regulations in every jurisdiction in which it will conduct its material business operations without substantial cost or interruption of its operations, or that any present or future federal, state, provincial or local environmental protection regulations may not restrict Hammonds' present and possible future activities. In the event that Hammonds is unable to comply with such requirements, Hammonds could be subject to substantial sanctions, including restrictions on its business operations, monetary liability and criminal sanctions, any of which could have a material adverse effect upon Hammonds' business. However, Hammonds' believes that it is in full compliance with all present environmental rules and regulations and that it should be able to remain in compliance in the future.
DESCRIPTION OF PROPERTY Back to Table of Contents
Our executive offices are located at 601 Cien Street, Suite 235, Kemah, TX 77565, which are also the offices of our Parent, American International Industries, Inc. To date, our executive offices have been provided to us at no cost. Hammonds' facilities are located at 910 Rankin Road, Houston, TX on 10 acres of land and include a 104,000 square foot industrial manufacturing, production, warehousing and distribution plant that also serves as Hammonds' territorial sales office. The real property and plant are owned by the Company and are leased to Hammonds at a monthly rental of $25,000. This facility has sufficient production capacity to meet the Hammonds' anticipated needs for the foreseeable future.
LEGAL PROCEEDINGS B Back to Table of Contents
We are not a party to any pending legal proceeding, nor is our property the subject of a pending legal proceeding.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS Back to Table of Contents
The following discussion should be read in conjunction with our financial statements and the related notes appearing elsewhere in this prospectus. The following discussion contains forward-looking statements reflecting our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed below and elsewhere in this report, particularly in the section entitled "Risk Factors" beginning on page 7 of this prospectus.
Results of Operations For the Three and Nine Months Ended September 30, 2006 Compared to Three and Nine Months Ended September 30, 2005
The following is derived from, and should be read in conjunction with, our unaudited condensed consolidated financial statements, and related notes, as of and for the three and nine months ended September 30, 2006 and 2005.
Revenues
. Revenues increased to $1,527,863 for the three months ended September 30, 2006 from $1,128,887 for the three months ended September 30, 2005. For the nine month periods ended September 30, 2006, revenues increased to $4,688,692 from $1,704,922 for the same nine month period of 2005. In addition, during the nine month period ended September 30, 2006, Hammonds projected backlog of orders has increased to approximately $5,000,000, representing a substantial increase from 2005.Cost of Sales.
Cost of sales was $1,321,205 and $3,577,990 for the three and nine months ended September 30, 2006 as compared to $915,904 and $1,305,043 for the three and nine months ended September 30, 2005. The increase was primarily due to Hammonds increased production volume.Selling and Administrative.
Selling and administrative expenses increased to $952,917 and $2,416,312 for the three and nine months ended September 30, 2006 from $717,651 and $1,161,662 for the three and nine months ended September 30, 2005. The increase was primarily due to sales and marketing expenses associated with the production of its new line of omni direction utility vehicles, the on-going sales and marketing efforts associated with all of its product lines, and the increase in amortization costs of the patents and trademarks.Loss from Operations.
As a result of the foregoing, our loss, excluding interest expense and income, for the three and nine-month periods ended September 30, 2006 was $746,259 and $1,305,610 compared to $504,668 and $761,783 for the same periods ended September 30, 2005.Other Income (Expense).
Other income (expense) decreased to $(179,230) and $(252,744) for the three and nine month periods ended September 30, 2006 from $2,629 and $14,325 for the three and nine-month periods ended September 30, 2005. The decrease was primarily due to an increase in the working capital line of credit.Net Income (Loss). Net Loss increased to $925,439 and $1,558,354 for the three and nine month periods ended September 30, 2006 as compared to $501,976 and $747,458 for the three and nine month periods ended September 30, 2005. The increase in net loss was primarily attributable to costs associated with Hammonds introduction of its new line of omni directional vehicles.
Liquidity and Capital Resources
At September 30, 2006, following the completion of the August 8, August 23 and September 30, 2006 private equity financing transactions with VOMF, an institutional investor, we had a cash balance of $2,115,543 compared to a cash balance of $61,875 at December 31, 2005. These financing transactions involving the sale of our Series A and Series B Preferred Stock, resulted in net proceeds of approximately $2,728,000, which proceeds are being used for Hammonds' working capital. As part of the financing transactions, we also issued a total of 24,999,999 Warrants, which, if fully exercised, would raise an additional $7,166,666 in gross proceeds before fees and expenses. Prior to the August and September financing transactions,
we funded our negative cash flow from our operating activities through proceeds from our long-term bank credit line and through borrowings from our Parent, American International Industries, Inc.At September 30, 2006 and December 31, 2005, we had total assets of $12,431,846 and $5,749,767, respectively. We had total liabilities at September 30, 2006 and December 31, 2005 of $7,627,229 and $6,094,542, respectively. Our accumulated deficit at September 30, 2006 and December 31, 2005 was $2,894,523 and $1,316,167, respectively.
We had positive working capital of $3,055,293 at September 30, 2006 compared to negative working capital of $1,810,604 at December 31, 2005. Net cash used in operations during the nine-month period ended September 31, 2006 was $2,189,591 compared to $885,178 during the nine-month period ended September 30, 2005. Net cash used in operations was mainly due to an increase in accounts receivable by $403,298, an increase in inventories by $539,813 principally attributable to our new ODV line of products. The increase in negative cash flow was partially offset by depreciation and amortization of plant and equipment of $76,031, amortization of intangibles of $307,467.
Net cash provided by investing activities was $527,110 during the nine-month period ended September 30, 2006, compared to cash used by investing activities of $327,724 for the same period of 2005. The cash provided by investing was from an increase in amounts due to American International Industries, Inc. to $552,111, offset by purchases of property and equipment of $20,203, and patents and trademarks of $25,193.
The Company's financing activities consist mainly of the issuance of debt and equity instruments. D uring the nine-month period ended September 30, 2006, the Company's financing activities provided $3,716,149 compared to $1,215,720 in the same period in the prior year. The Company raised $2,727,746 during the three-month period ended September 30, 2006 through the issuance of 1,666,666 shars of preferred stock. In addition, the Company received proceeds totaling $995,915 from the issuance of long-term debt. In the event that the Series A, B and C Warrants issued to VOMF in the August and September 2006 private financing transactions are exercised, the Company may expect additional proceeds of $4,166,666.
We believe that with the net proceeds of $2,728,000 from our August and September 2006 Private Financing Transactions, together with anticipated positive cash flow from our operations starting in 2007, funding provided under our bank line-of-credit and funding available from our Parent, that we will have adequate funding to execute our planned expansion of our manufacturing capacity and our sales and marketing efforts to meet our increasing orders in each of our product lines. We believe that we have sufficient cash to implement our growth plan. In addition, if all of the warrants the Company granted are exercised, our plan is to use additional net proceeds from such exercise for our working capital, in order to accelerate our growth plan.
Results of Operations For the years ended December 31, 2005 and 2004
The Company became an operating company in April 2005 with its acquisition of Hammonds. Therefore, financial statements of 2005 are not comparable with financial statements of 2004.
Revenues. Our revenues during the year ended December 31, 2005 were $3,395,151. During fiscal 2005, Hammonds production facility in Houston, TX was forced to close for approximately two weeks related to Hurricane Katrina. In addition, Hammonds production operations were halted for two weeks in connection with Hammonds move from a leased facility to a facility owned by the Registrants Parent. The two stoppages reduced Hammonds revenues from those anticipated. Hammonds' new 80,000 square foot facility has enabled it to increase production which should result in increased sales revenues during 2006, specifically from its new line of ODVs which were introduced during the fourth quarter of 2005, and the increase in water purification systems and injector business. We had inventories of $1,004,657 at December 31, 2005, consisting primarily of parts and materials in expectation of increasing demand for our products including Hammonds ODV line during 2006. Subsequent to the year ended December 31, 2005, Hammonds received orders for: its new line of ODVs; water purification products; and fuel additives and injectors. These orders, which exceed $3,000,000, are scheduled to be delivered during the last quarter of 2006 and the first quarter of 2007
Cost of Sales. Costs of sales for the year ended December 31, 2005 was $2,396,950 or 70.6% of revenues. Costs of sales are anticipated to increase during 2006 related to anticipated increased costs of manufacturing including manufacturing components and direct and indirect labor costs for the production of Hammonds new line of ODVs, injector systems and water purification systems.
General and administrative expenses. In 2005, general, selling and administrative expenses totaled $2,104,473 or 61.98% of revenues. The selling, general and administrative expenses primarily consist of sales and marketing expenses, research and development costs and engineering expenses. General and administrative expenses are expected to increase in 2006 principally due to additional expenditures related to additional personnel requirements. We expect our operating expenses to marginally decrease as a percentage of revenues with increasing sales in 2006.
Operating Loss. Our operating loss was $1,106,272 in 2005. Our operating loss was mainly attributable to slower than anticipated growth in sales, in part caused by Hammonds two work stoppages and the later than anticipated introduction of the new ODV line. We expect that our operating loss will decrease with the anticipated growth in revenues and reduced expenses associated with research and development as a percentage of revenues.
Net Loss. Our net loss applicable to common shareholders was $1,194,652 in 2005.
Liquidity and Capital Resources
Our current assets were $1,937,150 at December 31, 2005, consisting mainly of inventories of $1,004,657 and accounts receivable of $829,294, which we expect are fully collectible. In connection with the acquisition of Hammonds, we recorded intangible assets represented by patents and trademarks valued at $2,536,263 as of December 31, 2005. Our total assets at December 31, 2005 were $5,749,767 compared to $832,142 at December 31, 2004, which increase reflects the acquisition of Hammonds.
We had current liabilities of $3,747,754 at December 31, 2005, consisting principally of accounts payable and accrued expenses of $1,442,849. At December 31, 2005, we had long-term liabilities of $2,346,788 consisting of a note payable to our Parent, American International Industries, Inc., in the amount of $1,843,588 and deferred tax liability of $503,200.
During 2005, we had a negative cash flow from operations of $1,419,992 mainly due to our net loss of $1,194,652, an increase in accounts receivable and inventories of $515,747, offset by depreciation and amortization of $304,946.
We funded our cash used in operating activities through proceeds from our long-term line of credit in the amount of $2,131,605 and through borrowings of $998,300 from our Parent. We made payments of $570,223 on short-term borrowings during 2005.
We used cash for investing activities of $1,077,914 in 2005. C ash was used to purchase property and equipment in the amount of $119,006. We received $998,300 in short-term borrowings from our Parent which funds were used by Hammonds for working capital.
There are no limitations in the Company's articles of incorporation on the Company's ability to borrow funds or raise funds through the issuance of restricted common stock. The Company's resources together with the resources of its corporate Parent have facilitated it ability to secure its revolving line of credit and the Company believes that it has the ability to borrow funds and/or raise capital through the sale of restricted stock. To the extent that additional debt financing is utilized, any borrowing will subject us to various risks traditionally associated with indebtedness, including the risks of interest rate fluctuations and insufficiency of cash flow to pay principal and interest.
Off-Balance Sheet Arrangements
As of December 31, 2005 we did not have any off-balance sheet arrangements as defined in
Item 303(a)(4)(ii) of Regulation S-K promulgated under the Securities Act of 1934.
Contractual Obligations and Commitments
As of December 31, 2005, we have a lease with our Parent for the property and the
Company owes the Parent a management fee (see note 10).
Critical Accounting Estimates
Our significant accounting policies are described in the note 2 to the notes to our consolidated financial statements for the year ended December 31, 2005. The following supplements the description of our accounting policies as described in the notes to our consolidated financial statements.
Hammonds Technical Services' business involves the manufacturing of several different lines of equipment and product systems. As a result, Hammonds is subject to fluctuations in profitability from period to period due to the types and quantities of equipment and product systems ordered by and delivered to its customers. Hammonds does not start production activity without firm purchase orders from customers. Based upon the increasing size of Hammonds' orders, Hammonds has a backlog of orders and this is expected to permit Hammonds to achieve economic efficiencies in purchasing inventory and in allocation of its workforce. Further, with its improving liquidity, achieved following its year ended December 31, 2005, Hammonds has begun to generate improving economies in manufacturing.
Hammonds fuel additive business supplies additives to the industries which provide purchase orders for the production of additives. Hammonds does not have additives produced by third-parties until purchase orders are received and accepted by Hammonds. Hammonds has a backlog in orders for fuel additives of approximately $150,000 per month which enables Hammonds to produce one month's production at a time. As Hammonds' fuel additive customers order increasing quantities of its proprietary Biobor® JF fuel product, we estimate that backorders will increase, resulting in increases in production and revenues in future periods.
Hammonds' Water Treatment Systems was established after the 2005 fiscal year end to identify its contribution to the Company. Hammonds Water Treatment Systems generates revenues and incurs costs from a third party that supplies Hammonds purification chemicals. Hammonds projects that revenue from Hammonds Water Treatment Systems will exceed $2,000,000 during the next twelve months.
Subsequent to year end December 31, 2005, Hammonds Technical Services, Inc. was separated into three entities: (i) Hammonds Technical Services, which is the manufacturing operation for Hammonds product line, including ODVs, injectors and water purification systems; (ii) Hammonds Fuel Additives, which supplies all of the fuel additives; and (iii) Hammonds Water Treatment Systems, the recently established third operating entity, which provides the tablets for Hammonds' water purification systems.
MANAGEMENT Back to Table of Contents
Directors and Executive Officers
The following table sets forth the names and ages of the members of our Board of Directors and our executive officers and the positions held by each. At present, we have one officer and two directors. Our directors are elected to serve until the next annual meeting of shareholders and until their respective successors will have been elected and will have qualified. The following table sets forth the name, age and position held with respect to our present directors and executive officers:
Name | Age | Positions |
Gary D. Woerz | 60 | Chief Executive Officer, Chief Financial Officer and Director |
Daniel Dror | 65 | Chairman of the Board |
Gary D. Woerz has served as the Company'sChief Executive Officer and Chief Financial Officer since June 2002 and became a director of the Company in February 2005. Mr. Woerz also serves as Chief Financial Officer of American International Industries, Inc., our Parent. From 2000 to 2002, Mr. Woerz served as Chief Financial Officer of Phymetrics, Inc., which was a subsidiary of High Voltage Engineering. Phymetrics was a multi-divisional manufacturing and laboratory service company. From 1998 to 2000, Mr. Woerz served as Chief Financial Officer of Virtual Founders LLC, San Jose, CA, whose business involved investment banking and management consulting services to development stage high technology companies.
Daniel Dror serves as Chairman of the Board of the Company. Mr. Dror has also served as Chief Executive Officer, President and Chairman of the Board of American International Industries, Inc., the Company's Parent, since September 1997. From 1994 to 1997, Mr. Dror served as Chairman of the Board and Chief Executive Officer of Microtel International, Inc., a public company in the telecommunication business. From 1982 until 1993, Mr. Dror served as Chairman of the Board and Chief Executive Officer of Kleer-Vu Industries, Inc., a public company.
We do not compensate our directors for serving in such capacity. Officers are appointed annually by the Board of Directors and serve at the discretion of the Board of Directors. We do not have any standing committees at this time.
Our directors, officer or affiliates have not, within the past five years, filed any bankruptcy petition, been convicted in or been the subject of any pending criminal proceedings, or are any such person the subject or any order, judgment or decree involving the violation of any state or federal securities laws.
EXECUTIVE COMPENSATION Back to Table of Contents
The following table sets forth information concerning the total compensation that we have paid or that has accrued on behalf of our chief executive officer and other executive officers with annual compensation during the fiscal years ending December 31, 2005, 2004 and 2003.
Executive Employment Agreement
On April 25, 2005, Hammonds Technical Services entered into an employment agreement with Carl L. Hammonds, to serve as as CEO of Hammonds Technical Services for a term of five years. The employment agreement provides for base compensation of $90,000 per year, subject to increase as determined by Hammonds and the Company.
Financial Statements Back to Table of Contents
INTERNATIONAL AMERICAN TECHNOLOGIES, INC. AND SUBSIDIARIES | ||||
Consolidated Balance Sheets Back to Table of Contents | ||||
September 30, 2006 and December 31, 2005 | ||||
(unaudited) | ||||
September 30, 2006 |
December 31, 2005 |
|||
(Audited) |
||||
Assets |
||||
Current assets: | ||||
Cash |
$ | 2,115,543 |
$ |
61,875 |
Accounts receivable, net | 1,232,592 | 829,294 | ||
Current portion of notes receivable | 28,807 | 27,435 | ||
Inventories, net | 1,544,471 | 1,004,657 | ||
Prepaid expenses and other assets | 70,629 | 13,889 | ||
Total current assets | 4,992,042 | 1,937,150 | ||
Long-term notes receivable, less current portions | 368,543 | 390,310 | ||
Property and equipment, net | 778,075 | 829,049 | ||
Patents and trademarks, net | 6,253,987 | 2,536,263 | ||
Other assets | 39,199 | 56,995 | ||
Total assets | $ | 12,431,846 | $ | 5,749,767 |
Liabilities and Stockholders' Equity (Deficiency) |
||||
Current liabilities: | ||||
Accounts payable and accrued expenses | $ | 1,464,198 | $ | 1,442,849 |
Short-term notes payable | 289,558 | 173,300 | ||
Current installments of long-term debt | 157,402 | 2,131,605 | ||
Total current liabilities | 1,911,158 | 3,747,754 | ||
Long-term debt, less current installments | 2,817,172 | - | ||
Due to American International Industries, Inc. | 2,395,699 | 1,843,588 | ||
Deferred tax liability | 503,200 | 503,200 | ||
Total liabilities | 7,627,229 | 6,094,542 | ||
Stockholders' equity (deficiency): | ||||
Preferred stock, $0.001par value, authorized 5,000,000 shares: | ||||
1,666,666 issued and outstanding | 167 | - | ||
Common stock, $0.0001 par value, authorized 195,000,000 shares: | ||||
36,135,000 shares issued and outstanding at September 30, 2006 | ||||
and 20,135,000 shares and outstanding at December 31, 2005 | 3,614 | 2,014 | ||
Additional paid-in capital | 7,695,359 | 969,378 | ||
Accumulated deficit | (2,894,523) | (1,316,167) | ||
Total stockholders' equity (deficit) | 4,804,617 | (344,775) | ||
Total liabilities and stockholders' equity | $ | 12,431,846 |
$ |
5,749,767 |
See accompanying notes to consolidated financial statements. |
INTERNATIONAL AMERICAN TECHNOLOGIES, INC. AND SUBSIDIARIES | ||||||||
Consolidated Statements of Operations Back to Table of Contents | ||||||||
For the three and nine months ended September 30, 2006 and 2005 | ||||||||
(Unaudited) | ||||||||
Three Months | Three Months | Nine Months |
Nine Months |
|||||
Ended | Ended | Ended | Ended | |||||
September 30, 2006 | September 30, 2005 | September 30, 2006 | September 30, 2005 | |||||
|
(restated) |
|
(restated) |
|||||
Revenues | $ | 1,527,863 | $ | 1,128,887 | $ | 4,688,692 |
$ |
1,704,922 |
Costs and expenses: | ||||||||
Cost of sales | 1,321,205 | 915,904 | 3,577,990 | 1,305,043 | ||||
Selling, general and administrative | 952,917 | 717,651 | 2,416,312 | 1,161,662 | ||||
Total costs and expenses | 2,274,122 | 1,633,555 | 5,994,302 | 2,466,705 | ||||
Operating loss | (746,259) | (504,668) | (1,305,610) | (761,783) | ||||
Other income (expenses): | ||||||||
Interest income | 3,764 | 2,692 | 11,204 | 14,325 | ||||
Interest expense | (307,088) | - | (388,042) | - | ||||
Other income | 124,094 | - | 124,094 | - | ||||
Total other income (expenses) | (179,230) | 2,692 | (252,744) | 14,325 | ||||
Net loss before income tax | (925,489) | (501,976) | (1,558,354) | (747,458) | ||||
Provision for income tax | - | - | - | - | ||||
Net loss from operations before minority interest | (925,489) | (501,976) | (1,558,354) | (747,458) | ||||
Net loss | (925,489) | (501,976) | (1,558,354) | (747,458) | ||||
Preferred dividends | (20,000) | - | (20,000) | - | ||||
Net loss applicable to common shareholders | $ | (945,489) | $ | (501,976) | $ | (1,578,354) |
$ |
(747,458) |
Net loss applicable to common shareholders: | ||||||||
Basic | $ | (0.03) | $ | (0.02) | $ | (0.07) | $ | (0.04) |
Weighted average common shares: | ||||||||
Basic | 30,743,696 | 20,129,000 | 23,710,092 | 20,125,000 | ||||
See accompanying notes to consolidated financial statements. |
INTERNATIONAL AMERICAN TECHNOLOGIES, INC. AND SUBSIDIARIES | ||||
Consolidated Statements of Cash Flows Back to Table of Contents | ||||
Nine months ended September 30, 2006 and 2005 | ||||
(Unaudited) | ||||
Nine Months Ended | Nine Months Ended | |||
September 30, 2006 | September 30, 2005 | |||
|
(restated) |
|||
Cash flows from operating activities: | ||||
Net loss |
$ |
(1,558,354) |
$ |
(747,458) |
Adjustments to reconcile net loss | ||||
to net cash used in operating activities: | ||||
Depreciation and amortization of property and equipment | 76,031 |
52,736 |
||
Amortization of intangibles | 307,469 |
140,882 |
||
Common stock issued for services | - |
13,500 |
||
Miscellaneous write off | (22,684) | - | ||
(Increase) decrease of operating assets, net of acquisition of subsidiaries: | ||||
Accounts receivable | (403,298) | (7,216) | ||
Inventories | (539,813) | (270,483) | ||
Prepaid expenses and other current assets | (56,740) | (36,390) | ||
Other assets | 17,795 |
27,650 |
||
Accounts payable and accrued expenses | (9,997) | (58,399) | ||
Net cash used in operating activities | (2,189,591) |
(885,178) |
||
Cash flows from investing activities: | ||||
Patents and trademarks | (25,193) |
- |
||
Purchase of property and equipment | (20,203) |
(65,051) |
||
Redemption of certificate of deposit | - |
300,000 |
||
Purchase of stock in majority-owned subsidiary | - |
(998,300) |
||
Cash acquired in acquisition of majority-owned subsidiary | - |
56,506 |
||
Notes receivable | 20,395 |
19,021 |
||
Amount due to American International Industries, Inc. | 552,111 |
360,100 |
||
Net cash provided by (used in) investing activities |
527,110 |
(327,724) |
||
Cash flows from financing activities: | ||||
Proceeds from issuance of short-term debt | 16,315 | - | ||
Proceeds from issuance of preferred stock | 2,727,746 | - | ||
Proceeds from long-term borrowings | 995,915 |
1,931,968 |
||
Principal payments of short-term borrowings | (22,198) | (716,248) | ||
Principal payments of long-term borrowings | (1,739) | - | ||
Net borrowings under line of credit | 110 |
- |
||
Net cash provided by financing activities |
3,716,149 |
1,215,720 |
||
Net increase (decrease) in cash | 2,053,668 |
2,818 |
||
Cash and cash equivalents at beginning of year |
61,875 |
99 |
||
Cash and cash equivalents at end of period |
$ |
2,115,543 |
$ |
2,917 |
Supplemental schedule of cash flow information: | ||||
Interest paid |
$ |
388,042 | $ | - |
Issuance of note payable for office equipment |
$ |
4,855 |
$ |
- |
See accompanying notes to consolidated financial statements. |
INTERNATIONAL AMERICAN TECHNOLOGIES, INC. AND SUBSIDIARIES
Notes to Consolidated Financial
Statements
(1) General
International American Technologies, Inc. (the "Company"), operates as through its majority-owned subsidiaries Hammonds Technical Services, Inc., Hammonds Fuel Additives, Inc., and Hammonds Water Treatment Systems, Inc.
Principles of Consolidation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U. S. generally accepted accounting principles ("GAAP") for interim financial information and with the instructions to Form 10-QSB. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the nine months period ended September 30, 2006 are not indicative of the results that may be expected for the year ending December 31, 2006.
As contemplated by the Securities and Exchange Commission (SEC) under Rules of Regulation S-B, the accompanying financial statements and related footnotes have been condensed and do not contain certain information that will be included in the Company's annual financial statements and footnotes thereto. For further information, refer to the Company's audited consolidated financial statements and related footnotes thereto included in the Company's annual report on Form 10-KSB for the year ended December 31, 2005.
(2) Use of Estimates
The preparation of financial statements in conformity with U. S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could vary from those estimates.
(3) Revenue Recognition
Revenue is recognized when the earning process is completed, the risks and rewards of ownership have transferred to the customer, which is generally the same day as delivery or shipment of the product, the price to the buyer is fixed or determinable, and collection is reasonably assured. The Company has no significant sales returns or allowances.
(4) Recent Accounting Pronouncements
In May 2005, the Financial Accounting Standards Board ( "FASB" ) issued Statement of Financial Accounting Standard ( "SFAS" ) No. 154, Accounting Changes and Error Corrections . SFAS No. 154 replaces Accounting Principles Board Opinion No. 20, Accounting Changes , and SFAS No. 3, Reporting Accounting Changes in Internal Financial Statements , and changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS No. 154 requires retrospective application of changes in accounting principle to prior periods financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We adopted SFAS No. 154 on January 1, 2006. Any impact on the Companys consolidated results of operations and earnings per share will be dependent on the amount of any accounting changes or corrections of errors whenever recognized.
(5) Acquisition
On February 28, 2005, the Company entered into a Stock Purchase Agreement to acquire a 51% interest in the capital stock of Hammonds Technical Services, Inc., a privately owned Texas corporation ("Hammonds") in consideration for the Company or its parent, American International Industries, Inc., providing: (i) $998,300 in cash to Hammonds for working capital; (ii) a secured revolving long-term line of credit in the amount of $2,000,000; and (iii) the parent issuing 145,000 restricted shares of common stock to the Company in consideration for a $1,450,000 promissory note. The restricted shares were exchanged for two minority equity interests in Hammonds owned by third parties, which minority interest were cancelled. The total purchase price to acquire the 51% in Hammonds was $2,455,700, representing cash payments of $998,300, 145,000 shares of American International Industries restricted common stock valued at $1,450,000 and the assumption of a note payable to one of the former shareholders in the amount of $173,300 and liabilities in excess of assets in the amount of $7,400. The acquisition of Hammonds closed on April 28, 2005.
Hammonds is a manufacturer of fuel injectors and pumps for the aviation industry, and producer of fuel and water additives for the aviation and potable water industries. Sales are made to customers in both domestic and international markets.
As required by SFAS No. 141, the Company has recorded the acquisition using the purchase method of accounting with the purchase price allocated to the acquired assets and liabilities based on their respective estimated fair values at the acquisition date. The purchase price of $2,455,700 had been allocated at follows:
Current assets | $ | 1,435,939 |
Property and equipment, net | 826,765 | |
Patents and trademarks, net of amortization | 2,724,487 | |
Other non-current assets | 70,085 | |
Current liabilities | (2,098,376) | |
Deferred tax credit | (503,200) | |
$ | 2,455,700 |
On August 1, 2006 Mr. Carl L. Hammonds converted his 49% ownership of Hammonds Technical Services, Inc., Hammonds Fuel Additives, Inc., and Hammonds Water Treatment Systems, Inc. into 16,000,000 shares or 44.4% of IMTG common stock at a conversion rate of $.25 a share for total consideration of $4,000,000. The additional cost has been allocated to patents and is being amortized in a manner equivalent to the amortization used on the intangible assets acquired in the initial purchase of 51% of the company. The company is in the process of obtaining independent valuations of the individual intangible assets and when that process is completed, the amortization rates may be adjusted if appropriate.
(6) Inventory
Inventory at September 30, 2006 consisted of the following:
2006 |
||
Finished goods |
$ |
141,564 |
Work in process |
263,972 |
|
Parts and materials |
1,420,377 |
|
1,825,913 |
||
Less: Obsolescence reserve |
(281,442) |
|
$ |
1,544,471 |
(7) Income Taxes
Income taxes for the interim periods were computed using the effective tax rate estimated to be applicable for the full fiscal year, which is subject to ongoing review and evaluation by management. The estimated federal income tax expense for the three and nine month periods ended September 30, 2006 and 2005 is eliminated by net operating loss carry forwards.
(8) Short-term Notes Payable To Banks
September 30, 2006 |
December 31, 2005 |
|||
Note payable to former owner of equity interest in Hammonds payable on July 20, 2005 with accrued interest at prime plus 4% |
173,300 |
173,300 |
||
Note payable with interest at 10.75%, interest payments due quarterly, with a principal balance due on December 10, 2006 |
$ |
90,000 |
$ |
- |
Other notes with various terms |
26,258 |
- |
||
$ |
289,558 |
$ |
173,300 |
(9) Long-term Debt
Long-term debt consisted of the following:
September 30, 2006 |
December 31, 2005 |
|||
Note payable to bank, interest due monthly at prime plus 2%, principal payment due January 31, 2008, secured by assets of the Company's subsidiaries |
1,992,189 |
1,993,878 |
||
Note payable to a bank, due in quarterly installments of interest only at 6.5%, with a principal balance due on 1/1/2008 |
300,000 |
- |
||
Note payable to a bank, due in quarterly installments of interest only at 7.5%, with a principal balance due on 1/18/2008 |
200,000 |
- |
||
Note payable to a bank, due in monthly installments of interest only at 9.75%, with a principal balance due on 10/26/2007 |
400,000 |
- |
||
Note payable to a bank, due in monthly installments of principal and interest of $2,119.65 through 4/3/2011 |
82,385 |
|||
Note payable with interest at 10.75%, interest payments due quarterly, with a principal balance due on December 10, 2006 |
- |
89,890 |
||
Other notes with various terms |
- |
47,837 |
||
2,974,574 |
2,131,605 |
|||
Less current portion |
(157,402) |
(2,131,605) |
||
$ |
2,817,172 |
$ |
- |
Principal repayment provisions of long-term debt are as follows at September 30, 2006:
4th quarter of 2006 |
$ |
4,117 |
2007 |
417,503 |
|
2008 |
2,511,477 |
|
2009 |
21,255 |
|
2010 |
20,222 |
|
Total |
$ |
2,974,574 |
(10) Employee Stock Based Compensation
The Company grants options to non-employees for goods and services and in conjunction with certain agreements. These grants are accounted for under FASB Statement No. 123R, "Accounting for Stock-Based Compensation" based on the grant date fair values.
(11) Industry Segments
The Company has three reportable segments: Hammonds Technical Services, Hammonds Fuel Additives, and Hammonds Water Treatment Systems (collectively "Hammonds" ). Hammonds manufactures engineered products and chemicals that serve multiple segments of the fuels distribution, water treatment and utility vehicle industries. Hammonds products are marketed by a worldwide network of distributors, manufacturers representatives and original equipment manufacturers. The corporate overhead includes the Company's investment holdings including financing current operations and expansion of its current holdings as well as evaluating the feasibility of entering into additional businesses.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performances based on profit or loss from operations before income taxes, not including nonrecurring gains and losses and foreign exchange gains and losses.
The Company's reportable segments are strategic business units that offer different technology and marketing strategies.
The Company's areas of operations are principally in the United States. No single foreign country or geographic area is significant to the consolidated financial statements.
Consolidated revenues from external customers, operating income/(losses), and identifiable assets were as follows:
September 30, |
||||
2006 |
2005 |
|||
Revenues: |
||||
Hammonds Technical Services |
$ |
2,343,592 |
$ |
1,147,698 |
Hammonds Fuel Additives |
916,141 |
557,224 |
||
Hammonds Water Treatment |
1,428,959 |
- |
||
Corporate |
- |
- |
||
$ |
4,688,692 |
$ |
1,704,922 |
|
Income (loss) from operations: | ||||
Hammonds Technical Services | $ | (1,250,844) | $ | (745,149) |
Hammonds Fuel Additives | (47,311) | 15,780 | ||
Hammonds Water Treatment | 76,780 | - | ||
Corporate | (84,235) | (32,414) | ||
$ | (1,305,610) | $ | (761,783) |
Identifiable assets: |
||||
Hammonds Technical Services |
$ |
5,044,077 |
$ |
5,140,000 |
Hammonds Fuel Additives |
422,287 |
345,158 |
||
Hammonds Water Treatment |
733,352 |
- |
||
Corporate |
6,232,130 |
100,711 |
||
$ |
12,431,846 |
$ |
5,585,869 |
The Company's areas of operations are in the United States.
(12) Related party transactions
The Company incurred management fees from AMIN of $30,000 and $90,000 for the three-month and nine-month periods ending September 30, 2006, respectively. Additionally, the Company paid interest on notes payable to AMIN of $209,458 during the three-month period ending September 30, 2006.
Financial Statements Back to Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM Back to Table of Contents |
To the Stockholders
International American Technologies, Inc. and Subsidiary
Houston, Texas
We have audited the accompanying consolidated balance sheet of International American Technologies, Inc. and Subsidiary as of December 31, 2005 and the related consolidated statements of operations, changes in stockholders deficit, and cash flows for the year ended December 31, 2005. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall consolidated financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects the financial position of International American Technologies, Inc. and Subsidiary as of December 31, 2005, and the consolidated results of their operations and their cash flows for the year ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.
/s/ Thomas Leger & Co., L.L.P.
Thomas Leger & Co., L.L.P.
April 17, 2006
Houston, Texas
R. E. Bassie & Co. | |
Certified Public Accountants | |
6671 Southwest Freeway, Suite 550 |
|
Houston, Texas 77074 |
|
Tel: (713) 272-8500 Fax: (713) 272-8515 |
|
E-Mail: Rebassie@aol.com |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Back to Table of Contents
The Board of Directors and Stockholders
International American Technologies, Inc.:
We have audited the balance sheet of International American Technologies, Inc. (formerly Unlimited Coating Corporation) as of December 31, 2004, and the related statements of operations, stockholders' equity and cash flows for the year ended December 31, 2004. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of International American Technologies, Inc. as of December 31, 2004, and the results of its operations and its cash flows for the year ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.
/s/ R. E. Bassie & Co.
Houston, Texas
March 15, 2005
INTERNATIONAL AMERICAN TECHNOLOGIES, INC. | ||||
Consolidated Balance Sheets Back to Table of Contents | ||||
December 31, 2005 and 2004 | ||||
2005 | 2004 | |||
Assets |
||||
Current assets: | ||||
Cash |
$ | 61,875 |
$ |
99 |
Certificate of deposits | - | 300,000 | ||
Accounts receivable, net of | ||||
allowance of doubtful accounts of $123,925 at December 31, 2005 | 829,294 | - | ||
Current portion of notes receivable | 27,435 | 25,585 | ||
Inventories | 1,004,657 | 88,712 | ||
Prepaid expenses | 13,889 | - | ||
Total current assets | 1,937,150 | 414,396 | ||
Long-term notes receivable | 390,310 | 417,746 | ||
Property and equipment, net | 829,049 | - | ||
Intangible assets, net | 2,536,263 | |||
Other assets | 56,995 | - | ||
Total assets | $ | 5,749,767 | $ | 832,142 |
Liabilities and Stockholders' Equity (Deficit) |
||||
Current liabilities: | ||||
Accounts payable and accrued expenses | $ | 1,442,849 | $ | 15 |
Short-term note payable | 173,300 | - | ||
Current installments of long-term debt | 2,131,605 | - | ||
Total current liabilities | 3,747,754 | 15 | ||
Due to American International Industries, Inc. | 1,843,588 | - | ||
Deferred tax liability | 503,200 | - | ||
Total liabilities | 6,094,542 | 15 | ||
Stockholders' equity (deficit): | ||||
Preferred stock, $0.0001par value. | ||||
Authorized 5,000,000 shares: none issued | - | - | ||
Common stock, $0.0001 par value. Authorized 195,000,000 shares: | ||||
20,135,000 shares issued and outstanding at December 31, 2005 and | ||||
20,000,000 shares issued and outstanding at December 31, 2004 | 2,014 | 2,000 | ||
Additional paid-in capital | 969,378 | 951,642 | ||
Accumulated deficit | (1,316,167) | (121,515) | ||
Total stockholders' equity (deficit) | (344,775) | 832,127 | ||
Total liabilities and stockholders' equity (deficit) | $ | 5,749,767 |
$ |
832,142 |
See accompanying notes to consolidated financial statements. |
INTERNATIONAL AMERICAN TECHNOLOGIES, INC. | ||||
Consolidated Statements of Operations Back to Table of Contents | ||||
Years ended December 31, 2005 and 2004 | ||||
2005 |
2004 |
|||
Revenues | $ | 3,395,151 |
$ |
- |
Costs and expenses: | ||||
Cost of sales | 2,396,950 |
- |
||
Selling, general and administrative | 2,104,473 |
30,968 |
||
Total operating expenses | 4,501,423 | 30,968 | ||
Operating loss | (1,106,272) | (30,968) | ||
Other income (expenses): | ||||
Interest income | 18,237 | 23,975 | ||
Interest expense | (106,617) | - | ||
Total other income (expenses) | (88,380) | 23,975 | ||
Net loss before income tax | (1,194,652) | (6,993) | ||
Provision for income tax | - | - | ||
Net loss applicable to common shareholders | $ | (1,194,652) |
$ |
(6,993) |
Net loss per common share - basic and diluted | $ | (0.06) | $ | (0.00) |
Weighted average common shares - basic and diluted | 20,111,000 | 20,000,000 | ||
See accompanying notes to consolidated financial statements |
INTERNATIONAL AMERICAN TECHNOLOGIES, INC. | |||||||||
Consolidated Statements of Stockholders' Equity (Deficit) Back to Table of Contents | |||||||||
For the years ended December 31, 2005 and 2004 | |||||||||
Additional | Total | ||||||||
Common Stock | paid-in |
Accumulated |
stockholders' | ||||||
shares |
amount |
capital |
deficit |
equity | |||||
Balance, December 31, 2003 | 20,000,000 |
$ |
2,000 |
$ |
951,642 |
$ |
(114,522) |
$ |
839,120 |
Net loss | - | - | - | (6,993) | (6,993) | ||||
Balance, December 31, 2004 | 20,000,000 | 2,000 | 951,642 | (121,515) | 832,127 | ||||
Issuance of common stock for services | 135,000 | 14 | 17,736 | - | 17,750 | ||||
Net loss | - | - | - | (1,194,652) | (1,194,652) | ||||
Balance, December 31, 2005 | 20,135,000 |
$ |
2,014 |
$ |
969,378 |
$ |
(1,316,167) |
$ |
(344,775) |
See accompanying notes to consolidated financial statements |
INTERNATIONAL AMERICAN TECHNOLOGIES, INC. | ||||
Consolidated Statements of Cash Flows Back to Table of Contents | ||||
Years ended December 31, 2005 and 2004 | ||||
2005 |
2004 |
|||
Cash flows from operating activities: | ||||
Net loss |
$ |
(1,194,652) |
$ |
(6,993) |
Adjustments to reconcile net loss | ||||
to net cash used in operating activities: | ||||
Depreciation and amortization | 304,946 | - | ||
Issuance of common stock for services | 17,750 | - | ||
(Increase) decrease of operating assets, net of acquisitions: | ||||
Accounts receivable | (319,928) | - | ||
Inventories | (195,819) | - | ||
Other | (22,538) | - | ||
Increase (decrease) in operating liabilities: | ||||
Accounts payable and accrued expenses | (9,751) | 15 | ||
Net cash used in operating activities | (1,419,992) | (6,978) | ||
Cash flows from investing activities: | ||||
Purchase of property and equipment | (119,006) | - | ||
Redemption (purchase) of certificate of deposit | 300,000 | (300,000) | ||
Proceeds from payments on long-term notes receivable | 25,586 | 21,935 | ||
Amount due from (to) affiliates | (342,700) | 281,600 | ||
Purchase of stock in majority-owned subsidiary | (998,300) | - | ||
Cash acquired in acquisition of majority-owned subsidiary | 56,506 | - | ||
Net cash provided by (used in) investing activities |
(1,077,914) |
3,535 |
||
Cash flows from financing activities: | ||||
Proceeds from long-term borrowing | 2,131,605 | - | ||
Proceeds from borrowings from related parties | 998,300 | - | ||
Repayment of short-term borrowing | (570,223) | - | ||
Net cash provided by financing activities |
2,559,682 |
- |
||
Net increase (decrease) in cash | 61,776 | (3,443) | ||
Cash at beginning of year |
99 |
3,542 |
||
Cash at end of year |
$ |
61,875 |
$ |
99 |
Supplemental schedule of cash flow information: | ||||
Interest paid | $ | 106,617 | $ | - |
Taxes paid | $ | - | $ | - |
Non-cash investing and financing transactions: | ||||
Issuance of note payable and assumption of liabilities | ||||
for acquisition of subsidiary |
$ |
1,457,400 |
$ |
- |
Non-cash portion of assets and liabilities received in the acquisition of | ||||
a majority-owned subsidiary (see Note 2): | ||||
Current assets | $ | 1,379,433 | ||
Property and equipment | 826,765 | |||
Patents, trademarks and contract | 2,724,487 | |||
Other non-current assets | 70,085 | |||
Current liabilities | (2,098,376) | |||
Deferred tax liability- | (503,200) | |||
See accompanying notes to consolidated financial statements |
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
(1) Summary of Significant Accounting Policies
Organization, Ownership and Business
International American Technologies, Inc., f/k/a Unlimited Coatings Corporation, (the "Company"), was a public shell company with no operations in 2004. In 2005, the Company acquired, through its Parent company, 51% of the capital stock of Hammonds Technical Services, Inc. The Company is 81.0% owned subsidiary of American International Industries, Inc.
Principles of Consolidation
The 2005 consolidated financial statements include the accounts of the Company and its majority-owned subsidiary: Hammond Technical Services, Inc. All significant intercompany transactions and balances have been eliminated in consolidation.
Presentation of certain amounts for the year ended December 31, 2004 have been reclassified to conform to the presentations for the current year.
Cash and Cash-Equivalents
The Company considers cash and cash-equivalents to include cash on hand and demand deposits with banks with an original maturity of three months or less.
Accounts Receivable
Accounts receivable consist primarily of trade receivables, net of a valuation allowance for doubtful accounts.
Allowance for Doubtful Accounts
The Company extends credit to customers and other parties in the normal course of business. The Company regularly reviews outstanding receivables and provides for estimated losses through an allowance for doubtful accounts. In evaluating the level of established reserves, the Company makes judgments regarding its customers' ability to make required payments, economic events and other factors. As the financial condition of these parties change, circumstances develop or additional information becomes available, adjustments to the allowance for doubtful accounts may be required. In the event the Company was to determine that a customer may not be able to make required payments, the Company would increase the allowance through a charge to income in the period in which that determination is made.
Inventories
Inventories are valued at the lower-of-cost or market on a first-in, first-out basis. The Company assesses the realizability of its inventories based upon specific usage and future utility. A charge to results of operations is taken when factors that would result in a need for a reduction in the valuation, such as excess or obsolete inventory, are noted.
Property, Plant, Equipment, Depreciation, Amortization and Long Lived Assets
Long-lived assets include:
Property, Plant and equipment These assets are recorded at original cost and increased by the cost of any significant improvements after purchase. We depreciate the cost evenly over the assets estimated useful lives. Upon retirement or sale, the cost of the assets disposed of and the related accumulated depreciation are removed from the accounts, with any resultant gain or loss being recognized as a component of other income or expense.
Identifiable intangible assets These assets are recorded at original cost, intangible assets with finite lives are amortized evenly over their estimated useful lives.
At least annually, we review all long-lived assets for impairment. When necessary, we record changes for impairments of long-lived assets for the amount by which the present value of future cash flows, or some other fair value measure, is less than the carrying value of these assets.
During April, 2005 the Company acquired Hammonds Technical Services, Inc. for a purchase price of approximately $2,455,700 (See Note 2). The operations of Hammonds Technical Services are included in the consolidated statements of operations from date of acquisition.
Revenue Recognition
Revenue is recognized when the earning process is completed, the risks and rewards of ownership have transferred to the customer, which is generally the same day as delivery or shipment of the product, the price to the buyer is fixed or determinable, and collection is reasonably assured. The Company has no significant sales returns or allowances.
Income Taxes
The Company is a taxable entity and recognizes deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax assets and liabilities are measured using enacted tax rates expected to be in effect when the temporary differences reverse. The effect on the deferred tax assets and liabilities of a change in tax rates is recognized in income in the year that includes the enactment date of the rate change. A valuation allowance is used to reduce deferred tax assets to the amount that is more likely than not to be realized.
Earnings (Loss) Per Share
The basic net earnings (loss) per common share is computed by dividing the net earnings (loss) by the weighted average number of shares outstanding during a period. Diluted net earnings (loss) per common share is computed by dividing the net earnings (loss), adjusted on an as if converted basis, by the weighted average number of common shares outstanding plus potential dilutive securities.
Management's Estimates and Assumptions
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses. Actual results could differ from these estimates.
Fair Value of Financial Instruments
The Company estimates the fair value of its financial instruments using available market information and appropriate valuation methodologies. However, considerable judgment is required in interpreting market data to develop the estimates of fair value. Accordingly, the Company estimates of fair value are not necessarily indicative of the amounts that the Company could realize in a current market exchange. The use of different market assumption and/or estimation methodologies may have a material effect on the estimated fair value amounts. The interest rates payable by the Company on its notes payable approximate market rates. The Company believes that the fair value of its financial instruments comprising accounts receivable, notes receivable, accounts payable, and notes payable approximate their carrying amounts.
New Standards Implemented
In May 2005, the Financial Accounting Standards Board ( "FASB" ) issued Statement of Financial Accounting Standard ( "SFAS" ) No. 154, Accounting Changes and Error Corrections . SFAS No. 154 replaces Accounting Principles Board Opinion No. 20, Accounting Changes , and SFAS No. 3, Reporting Accounting Changes in Internal Financial Statements , and changes the requirements for the accounting for and reporting of a change in accounting principle. SFAS No. 154 requires retrospective application of changes in accounting principle to prior periods financial statements, unless it is impracticable to determine either the period-specific effects or the cumulative effect of the change. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. We will adopt SFAS No. 154 on January 1, 2006. Any impact on the Companys consolidated results of operations and earnings per share will be dependent on the amount of any accounting changes or corrections of errors whenever recognized.
In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 153. This statement addresses the measurement of exchanges of nonmonetary assets. The guidance in APB Opinion No. 29, "Accounting for Nonmonetary Transactions," is based on the principle that exchanges of nonmonetary assets should be measured based on the fair value of the assets exchanged.
The guidance in that opinion; however, included certain exceptions to that principle. This statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. This statement is effective for financial statements for fiscal years beginning after June 15, 2005. Earlier application is permitted for nonmonetary asset exchanges incurred during fiscal years beginning after the date of this statement is issued. Management believes the adoption of this statement will have no impact on the financial statements of the Company.
In December 2004, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 152, which amends FASB statement No. 66, "Accounting for Sales of Real Estate," to reference the financial accounting and reporting guidance for real estate time-sharing transactions that is provided in AICPA Statement of Position (SOP) 04-2, "Accounting for Real Estate Time-Sharing Transactions." This statement also amends FASB Statement No. 67, "Accounting for Costs and Initial Rental Operations of Real Estate Projects," to state that the guidance for (a) incidental operations and (b) costs incurred to sell real estate projects does not apply to real estate time-sharing transactions. The accounting for those operations and costs is subject to the guidance in SOP 04-2. This statement is effective for financial statements for fiscal years beginning after June 15, 2005. Management believes the adoption of this statement will have no impact on the financial statements of the Company.
In November 2004, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 151, "Inventory Costs an amendment of ARB No. 43, Chapter 4." This statement amends the guidance in ARB No. 43, Chapter 4, "Inventory Pricing," to clarify the accounting for abnormal amounts of idle facility expense, freight, handling costs, and wasted material (spoilage). Paragraph 5 of ARB 43, Chapter 4, previously stated that "under some circumstances, items such as idle facility expense, excessive spoilage, double freight, and rehandling costs may be so abnormal as to require treatment as current period charges." This statement requires that those items be recognized as current-period charges regardless of whether they meet the criterion of "so abnormal." In addition, this statement requires that allocation of fixed production overheads to the costs of conversion be based on the normal capacity of the production facilities. This statement is effective for inventory costs incurred during fiscal years beginning after June 15, 2005. Management does not believe the adoption of this statement will have any immediate material impact on the Company.
(2) Acquisition of Hammonds Technical Services, Inc.
Effective April 28, 2005, the Company entered into a Stock Purchase Agreement ("the Agreement") to acquire a 51% interest in the capital stock of Hammonds Technical Services, Inc., a privately owned Texas corporation ("Hammonds") in consideration for the Company or its Parent, American International Industries, Inc., providing: (i) $998,300 in cash to Hammonds for working capital; (ii) a secured revolving long-term line of credit in the amount of $2,000,000; and (iii) the Parent issuing 145,000 restricted shares of common stock to the Company in consideration for a $1,450,000 promissory note. These shares were exchanged for two minority equity interests in Hammonds owned by third parties. The total purchase price to acquire the 51% in Hammonds was $2,455,700 representing cash payments of $825,000, 145,000 shares of American International Industries restricted common stock valued at $1,450,000 and the assumption of a note payable to one of the former shareholders in the amount of $173,300 and liabilities in excess of assets in the amount of $7,400. No minority interest liability was recognized at the time of the acquisition because liabilities were in excess of assets.
Prior to the acquisition, Hammonds was two separate legal entities, Hammonds Technical Services, Inc. and Hammonds Fuel Additives, Inc. (collectively "Hammonds" ) manufacturers engineered products and chemicals that serve multiple segments of the fuels distribution, water treatment and utility vehicle industries. Hammonds products are marketed by a worldwide network of distributors, manufacturers representatives and original equipment manufacturers. On February 28, 2005, Hammond Fuels Additives, Inc. was merged into Hammonds Technical Services, Inc.
As required by SFAS No. 141, the Company has recorded the acquisition using the purchase method of accounting with the purchase price allocated to the acquired assets and liabilities based on their respective estimated fair values at the acquisition date. The purchase price of $2,455,700 had been allocated at follows:
Hammonds Net Book Value | Allocation of Purchase Price | Consolidated | ||||
Current assets | $ | 1,435,939 | $ | - | $ | 1,435,939 |
Property and equipment | 418,603 | 408,162 | 826,765 | |||
Patents, trademarks and contract | 173,749 | 2,550,738 | 2,724,487 | |||
Other non-current assets | 70,085 | - | 70,085 | |||
Current liabilities | (2,090,976) | (7,400) | (2,098,376) | |||
Deferred tax liability | - | (503,200) | (503,200) | |||
$ | 7,400 | $ | $2,448,300 | $ | 2,455,700 |
The following table contains a summary of the intangible assets acquired:
As of December 31, 2005 |
|||||
Gross Carrying Amount | Accumulated Amortization | Average Weighted Lives | |||
Patents | $ | 1,806,387 | $ | 125,706 | 12 years |
Trademarks | 465,199 | 29,464 | 10 years | ||
Sole Source Contract | 464,039 | 44,192 | 7 years | ||
$ | 2,735,625 | $ | 199,362 | 10 years |
Aggregate Amortization Expense |
||
For year ended December 31, 2005 |
$ |
199,362 |
Estimated Amortization Expenses | ||
For year ending December 31, 2006 | $ |
246,516 |
For year ending December 31, 2007 | $ | 246,516 |
For year ending December 31, 2008 | $ | 246,516 |
For year ending December 31, 2009 | $ | 246,516 |
For year ending December 31, 2010 | $ | 246,516 |
Revenues and expenses are included in the Companys statement of operations from May 1, 2005 through December 31, 2005.
The following unaudited pro forma data summarizes the results of operations of the Company for the years ended December 31, 2005 and 2004 as if the acquisition had been completed on January 1, 2004. The pro forma data gives effect to the actual operating results prior to acquisition. The pro forma results do not purport to be indicative of the results that would have actually been achieved if the acquisition had occurred on January 1, 2004 or may be achieved in the future.
December 31, 2005 |
December 31, 2004 |
|||
Revenues |
$ |
4,558,174 |
$ |
4,681,316 |
Net income (loss) | (1,505,316) | (520,812) | ||
Basic net earnings (loss) per share | (0.07) | (0.03) |
(3) Inventory
Inventory at December 31, 2005 consisted of the following:
2005 |
||
Finished goods |
$ |
134,240 |
Work in process |
25,696 |
|
Parts and materials |
1,148,305 |
|
1,308,241 |
||
Less: Obsolescence reserve |
(303,584) |
|
$ |
1,004,657 |
(4) Property and Equipment
A summary of property and equipment and related accumulated depreciation and amortization are as follows:
2005 |
||
Machinery and equipment |
$ |
839,393 |
Leasehold improvements |
95,240 |
|
Total property and equipment |
934,633 |
|
Less: Accumulated depreciation and amortization |
(105,584) |
|
Net property and equipment |
$ |
829,049 |
(5) Intangible Assets
Intangible assets at December 31, 2005 consisted of the following:
2005 |
||
Patents |
$ |
1,806,387 |
Trademarks | 465,199 | |
Sole Source Contract | 464,039 | |
2,735,625 | ||
Less accumulated amortization |
(199,362) |
|
$ |
2,536,263 |
(6) Long-term Debt
Long-term debt consisted of the following:
Principal repayment provisions of long-term debt are as follows at December 31, 2005:
2006 |
$ |
2,131,605 |
Total |
$ |
2,131,605 |
(7) Concentration of Credit Risk
Financial instruments that potentially subject the Companies to credit risk are primarily accounts receivable trade and notes receivable. The Company grants credit to customers throughout the United States. Generally, the Companies do not require collateral or other security to support customer receivables. Hammonds Technical Services (HTS) had two customers that represented more than 10% of its total sales. Hammonds Fuel Additives (HTA)had one customer that represented more than 10% of its total sales.
Customer A | HTS | 25% |
Customer B | HTS | 15% |
Customer C | HFA | 10% |
(8) Income Taxes
The following table set forth a reconciliation of the statutory of federal income tax for the year December 31, 2005 and 2004. The loss before taxes was $1,194,652 in 2005 and $6,993 in 2004.
December 31 |
||||
2005 | 2004 | |||
Income tax benefit computed at statutory rate for | $ | (406,182) | $ | (2,378) |
Permanent differences - non deductible expenses | 84,600 | - | ||
Increase in valuation allowance | 321,582 | 2,378 | ||
Tax benefit | $ | - | $ | - |
The Company will not file a consolidated income tax return.
Deferred Income Taxes
The tax effects of the temporary differences between financial statement income and taxable income are recognized as deferred tax asset and liability as of December 31,2005 is set below.
December 31 |
||||
2005 | 2004 | |||
Deferred tax assets: | $ | $ | ||
Net operating loss - current period | 362,882 | 41,300 | ||
Total deferred tax asset | 362,882 | 41,300 | ||
Valuation allowance | (362,882) | (41,300) | ||
Net deferred asset | $ | - | $ | - |
December 31 |
||||
2005 | 2004 | |||
Deferred tax liability: | $ | $ | ||
Fixed asset temporary difference | 138,775 | - | ||
Intangible asset temporary difference | 364,425 | - | ||
Net deferred tax liability | $ | 503,200 | $ | - |
The Company's Parent has various net operating loss carryforwards in excess of $13,000,000 which expire in 2026. The loss is limited under Internal Revenue Code Section 382.
(9) Segment Information
The Company has two reportable segments and corporate overhead: Hammonds was two separate reportable segments, Hammonds Technical Services, Inc. and Hammonds Fuel Additives, Inc. (collectively "Hammonds"). Hammonds manufacturers engineered products and chemicals that serve multiple segments of the fuels distribution, water treatment and utility vehicle industries. Hammonds products are marketed by a worldwide network of distributors, manufacturers representatives and original equipment manufacturers. The corporate overhead includes the Company's investment holdings including financing current operations and expansion of its current holdings as well as evaluating the feasibility of entering into additional businesses.
The accounting policies of the segments are the same as those described in the summary of significant accounting policies. The Company evaluates performances based on profit or loss from operations before income taxes, not including nonrecurring gains and losses and foreign exchange gains and losses.
The Company's reportable segments are strategic business units that offer different technology and marketing strategies.
The Company's areas of operations are principally in the United States. No single foreign country or geographic area is significant to the consolidated financial statements.
Consolidated revenues, operating income/(losses), and identifiable assets were as follows:
December 31 |
||||
2005 |
2004 |
|||
Revenues: |
||||
Hammonds Technical Services |
$ |
2,583,887 |
$ |
- |
Hammonds Fuel Additives |
811,264 |
- |
||
Corporate |
- |
- |
||
$ |
3,395,151 |
$ |
- |
|
Cost of Sales: | ||||
Hammonds Technical Services | $ | 1,878,500 | $ | - |
Hammonds Fuel Additives | 518,450 | - | ||
$ | 2,396,950 | $ | - |
Loss from operations: |
||||
Hammonds Technical Services |
$ |
(1,076,259) |
$ |
- |
Hammonds Fuel Additives |
(10,888) |
- |
||
Corporate |
(19,125) |
(30,968) |
||
$ |
(1,106,272) |
$ |
(30,968) |
Identifiable assets: |
||||
Hammonds Technical Services |
$ |
2,193,207 |
$ |
- |
Hammonds Fuel Additives |
3,138,302 |
- |
||
Corporate |
418,258 |
832,142 |
||
$ |
5,749,767 |
$ |
832,142 |
(10) Commitments
The Company leases office space under a noncancelable operating lease which expires in October 2015. Future minimum lease payments under the operating lease are as follows:
Year December 31, | Amount | |
2006 | $ | 301,600 |
2007 | 307,200 | |
2008 | 307,200 | |
2009 | 307,200 | |
2010 | 307,200 | |
Thereafter | 1,484,800 | |
$ | 3,015,200 |
Lease expenses for the years ended December 2005 and 2004, were $132,701 and $0, respectively. The Company is obligated to pay a management fee to its Parent in the amount of $10,000 monthly.
(11) Related Party Transactions and Economic Dependence
The Company has been and continues to be dependent upon the funding from its Parent, American International Industries, Inc. At December 31, 2005, the Company owed the Parent $1,843,588.
(12) Restatement of Previously Issued Quarterly Data (Unaudited)
The data for the quarterly periods ended June 30, 2005 and September 30, 2005 is being restated to properly account for the allocation of the purchase price for the acquisition of Hammonds. Originally, the acquisition of Hammonds incorrectly included a 100% write-up of the assets to include the 51% interest and the 49% minority interests. In addition, the restatement corrects for the overstatement of income which primarily resulted from the forgiveness of debt in the amount of $466,350, which should have been taken into consideration at the time of the acquisition.
Quarter ended June 30, 2005 | ||||||
As previously reported | Restatement adjustments | As restated | ||||
Revenues |
$ |
576,035 |
$ |
- |
$ |
576,035 |
Cost of sales |
389,139 |
- |
389,139 |
|||
Selling, general and administrative expenses |
391,955 |
52,056 |
444,011 |
|||
Total costs & expenses |
781,094 |
52,056 |
833,150 |
|||
Operating loss |
(205,059) |
(52,056) |
(257,115) |
|||
Interest income |
5,469 |
6,164 |
11,633 |
|||
Other income |
466,350 |
(466,350) |
- |
|||
Total other income (expense) |
471,819 |
(460,186) |
11,633 |
|||
Net earnings (loss) before minority interest |
266,760 |
(512,242) |
(245,482) |
|||
Minority interest |
(136,178) |
136,178 |
- |
|||
Net earnings (loss) applicable to common shareholders |
130,582 |
(376,064) |
(245,482) |
|||
Weighted average common shares | 20,125,000 | - | 20,125,000 | |||
Net earnings (loss) per share applicable to shareholders - | ||||||
basic and diluted |
$ |
0.01 |
$ |
- |
$ |
(0.01) |
Patents and trademarks, net of amortization |
$ |
138,415 |
2,509,652 |
2,648,067 |
||
Goodwill |
4,134,049 |
(4,134,049) |
- |
|||
Current liabilities |
2,961,807 |
(863,429) |
2,098,378 |
|||
Deferred tax liability |
- |
503,200 |
503,200 |
|||
Minority interest |
2,200,231 |
(2,200,231) |
- |
|||
Accumulated deficit |
$ |
4,291 | $ | (376,064) | $ | (371,773) |
Total stockholders equity | $ | 967,933 |
$ |
(376,064) |
$ |
591,869 |
Quarter ended September 30, 2005 |
||||||
As previously reported | Restatement adjustments | As restated | ||||
Revenues |
$ |
1,704,922 |
$ |
- |
$ |
1,704,922 |
Cost of sales |
1,305,043 |
- |
1,305,043 |
|||
Selling, general and administrative expenses |
1,058,947 |
102,715 |
1,161,662 |
|||
Total costs and expenses | 2,363,990 | 102,715 | 2,466,705 | |||
Operating loss |
(659,068) |
(102,715) |
(761,783) |
|||
Interest income |
14,325 |
- |
14,325 |
|||
Other income (expense) |
519,099 |
(519,099) |
- |
|||
Total other income (expense) |
533,424 |
(519,099) |
14,325 |
|||
Net loss before minority interest |
(125,644) |
(621,814) |
(747,458) |
|||
Net loss applicable to shareholders |
(125,644) |
(621,814) |
(747,458) |
|||
Weighted average common shares | 20,102,650 | 22,350 | 20,125,000 | |||
Net loss per share applicable to shareholders - basic and diluted |
$ |
(0.01) |
$ |
- |
$ |
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS Back to Table of Contents
During the last two years, to the knowledge of the Company, there was no person who had or has a direct or indirect material interest in any transaction or proposed transaction to which the Company was or is a party. Transactions in this context relate to any transaction which exceeds $60,000.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT Back to Table of Contents
The following table sets forth information regarding the beneficial ownership of our Common Stock as of the date of this prospectus. The information in this table provides the ownership information for: each person known by us to be the beneficial owner of more than 5% of our Common Stock; each of our directors; each of our executive officers; and our executive officers and directors as a group.
Beneficial ownership has been determined in accordance with the rules and regulations of the SEC and includes voting or investment power with respect to the shares. Unless otherwise indicated, the persons named in the table below have sole voting and investment power with respect to the number of shares indicated as beneficially owned by them.
Name of Beneficial Owner | Common Stock Beneficially Owned (1) | Percentage of Common Stock Owned (1)(2) | ||
American International Industries, Inc. | 16,311,280 | 45.13% | ||
601 Cien Street, Suite 235 | ||||
Kemah, TX 77565 | ||||
Gary D. Woerz, CEO, CFO and Director | 103,000 | 0.00% | ||
601 Cien Street, Suite 235 | ||||
Kemah, TX 77565 | ||||
Carl L. Hammonds, CEO of Hammonds | 16,000,000 | 44.27% | ||
601 Cien Street, Suite 235 | ||||
Kemah, TX 77565 | ||||
Vision Opportunity Master Fund, Ltd. | 41,666,665 |
(2) |
53.55 (2) | |
317 Madison Avenue, Suite 1220 | ||||
New York, NY 10017 | ||||
Daniel Dror, Chairman of the Board | 0 |
(3) |
0.00% | |
601 Cien Street, 235 | ||||
Kemah, TX 77565 | ||||
Directors and Executive Officers as a group (2 persons) | 103,000 | 0.00% |
(1)
Applicable percentage ownership is based on 36,135,000 shares of Common Stock outstanding
as of September 30, 2006. Beneficial ownership is determined in accordance with the rules
of the Securities and Exchange Commission and generally includes voting or investment
power with respect to securities. Shares of Common Stock that are currently issuable upon
conversion or exercisable within 60 days of November 20, 2006 are deemed to be
beneficially owned by the person holding such convertible securities or warrants for the
purpose of computing the percentage of ownership of such person, but are not treated as
outstanding for the purpose of computing the percentage ownership of any other
person.
(2) The 41,666,665
shares of Common Stock are issuable to
Vision Opportunity Master Fund, Ltd. as
follows: 8,333,333 shares upon conversion of the Series A Preferred Stock; 8,333,333
shares upon conversion of the Series B Preferred Stock; 8,333,333 shares upon exercise of
the Series A Warrants; 8,333,333 shares upon exercise of the Series B Warrants; and
8,333,333 shares upon exercise of the Series C Warrants.
(3) Mr. Dror is CEO, President and Chairman of the Registrnt's Parent American
International Industries, Inc.
DESCRIPTION OF SECURITIES Back to Table of Contents
Our authorized capital consists of 195,000,000 shares of Common Stock, $0.0001 par value per share, and 5,000,000 shares of Preferred Stock, $0.0001 par value per share. As of September 30, 2006, there were outstanding 36,135,000 shares of our Common Stock outstanding and 1,666,666 shares of our Preferred Stock outstanding evidenced by 833,333 shares of Series A Preferred Stock and 833,333 shares of Series B Preferred Stock. Reference is made to Exhibits 4(iii)(1) and 4(iii)(2) filed as part of this registration statement with respect to the complete terms of the relative rights and preferences applicable to the Series A and Series B Preferred Stock.
Common Stock . The holders of Common Stock are entitled to one vote for each share held of record on all matters to be voted on by shareholders. The holders of Common Stock are entitled to receive such dividends, if any, as may be declared from time to time by the Board of Directors, in its discretion, from funds legally available therefore. Upon liquidation or dissolution, the holders of our Common Stock are entitled to receive, pro rata, assets remaining available for distribution to shareholders. The Common Stock has no cumulative voting, preemptive or subscription rights and is not subject to any future calls. There are no conversion rights or redemption or sinking fund provisions applicable to the shares of Common Stock. All the outstanding shares of Common Stock are fully paid and nonassessable. There are no provisions in our Articles of Incorporation or Bylaws that would delay, defer or prevent a change in control.
Preferred Stock . Our Board of Directors are authorized, without further action by the shareholders, to issue, from time to time, up to 5,000,000 shares of Preferred Stock in one or more classes or series. Similarly, our Board of Directors will be authorized to fix or alter the designations, powers, preferences, and the number of shares which constitute each such class or series of preferred stock. Such designations, powers or preferences may include, without limitation, dividend rights (and whether dividends are cumulative), conversion rights, if any, voting rights (including the number of votes, if any, per share), redemption rights (including sinking fund provisions, if any), and liquidation preferences of any unissued shares or wholly unissued series of preferred stock. As of the date of this filing, we have designated 833,333 shares of our authorized Preferred Stock as Series A Preferred Stock and 833,333 shares of our authorized Preferred Stock as Series B Preferred Stock.
Series
A Convertible Preferred Stock
. The principal terms of the Series A Preferred Stock
are as follows:
Voting: Except with respect to specified transactions that may affect the rights,
preferences, privileges or voting power of the Series A Preferred Stock and except as
otherwise required by Nevada law, the Series A Preferred Stock has no voting rights. We
shall not affect certain specified transactions, which include authorizing or increasing
the authorized or issued amount of any stock ranking pari passu or senior to the Series A
Preferred Stock with respect to the distribution of assets on liquidation or the
dissolution or winding up, without the affirmative vote or consent of the holders, voting
as a class, of at least 75% of the shares of the Series A Preferred Stock outstanding at
the time.
Dividends: The holders of Series A Preferred Stock are entitled to receive out of legally
available assets dividends at the rate of 8% per annum, payable semi-annually on June 30
and December 31. Dividends on the Series A Preferred Stock are cumulative and are prior
and in preference to payment of any dividend or distribution on any junior stock. So long
as any shares of Series A Preferred Stock are outstanding, we will not declare, pay or set
apart for payment any dividend or make any distribution on any junior stock (other than
dividends or distributions payable in additional shares of junior stock), unless at the
time of such dividend or distribution we shall have paid all accrued and unpaid dividends
on Series A Preferred Stock.
Conversion: The holder of Series A Preferred Stock may, at their option, elect to convert
all or any portion of the shares of the Series A Preferred Stock into a number of shares
of Common Stock equal to the quotient of (i) the liquidation preference amount ($1.80) of
the shares of Series A Preferred Stock being converted plus any accrued but unpaid
dividends divided by (ii) the conversion price, which initially is $0.18 per share,
subject to certain adjustments. If, within 3 business days of our receipt of a conversion
notice, our transfer agent shall fail to issue to the holder the proper number of shares
of Common Stock subject to the conversion notice, or fail to issue a new preferred stock
certificate representing the number of shares of Series A Preferred Stock to which such
holder is entitled, we shall be required to pay additional damages on each business day
after such 3rd business day that such conversion is not timely effected equal to 0.5% of
the product of: (i) the number of shares of Common Stock not timely issued and, in the
event we failed to timely deliver a preferred stock certificate, the number of shares of
Common Stock issuable upon conversion of the shares of Series A Preferred Stock
represented by such certificate; and (ii) the closing bid price of our Common Stock on the
last possible date which we could have timely issued such Common Stock and/or such
preferred stock certificate. If we fail to pay those additional damages within 5 business
days of the date incurred, then such payment shall bear interest at the rate of 2.0% per
month (pro rated for partial months) until such payments are made. The conversion price of
the Series A Preferred Stock may be adjusted in the event of (i) Common Stock split or
reclassification; (ii) capital reorganization; (iii) distribution of dividends; or (iv)
the issuance or sale of additional shares of Common Stock or equivalents.
Liquidation. In the event of the liquidation, dissolution or winding up of our affairs,
the holders of outstanding shares of Series A Preferred Stock shall be entitled to
receive, out of our assets available for distribution to shareholders, an amount equal to
$1.80 per share or the liquidation preference amount of the Series A Preferred Stock plus
any accrued and unpaid dividends before any payment shall be made or any assets
distributed to the holders of the Common Stock or any other junior stock. If our assets
are not sufficient to pay in full the liquidation preference amount plus any accrued and
unpaid dividends payable to the holders of outstanding shares of the Series A Preferred
Stock and any series of preferred stock or any other class of stock ranking pari passu, as
to rights on liquidation, dissolution or winding up, with the Series A Preferred Stock,
then all of said assets will be distributed among the holders of the Series A Preferred
Stock and the other classes of stock ranking pari passu with the Series A Preferred Stock,
if any, ratably in accordance with the respective amounts that would be payable on such
shares if all amounts payable thereon were paid in full. All distribution payments, shall
be in cash, property valued at its fair market value as determined by an independent
appraiser or a combination thereof.
Series B Convertible Preferred Stock . The principal terms of the Series B Preferred Stock are identical to those of the Series A Preferred Stock except that the dividends on the Series B Preferred Stock shall be at the rate of 4% per annum.
Series A, B and C Warrants . Reference is made to Exhibits 4(iv)1-3 with respect to the complete terms of the Series A, B and C Warrants. Each Series A and B Warrant allows holders to purchase one share of Common Stock for $0.18, subject to adjustment. Series A Warrants expire five (5) years from the August 8 and August 23, 2006 dates of issuance and the Series B Warrants expire two years from the August 2006 dates of issuance. Each Series C Warrant allows its holder to purchase one share of Common Stock for $0.50, subject to adjustment. The Series C Warrants expire five (5) years from the September 30, 2006 date of issuance. In the event that our registration statement is not effective, as required by the registration rights agreement between the Company and VOMF, holders would also be permitted to exercise the warrants through a cashless exercise. using the formula considering the number of shares of Common Stock to be issued to the holder, the number of shares of Common Stock purchasable upon exercise of the Warrant, the exercise price of the Warrant and the closing bid price of our Common Stock. The exercise price of the Warrants and the number of shares of Common Stock purchasable upon exercise of the Warrants are subject to adjustment upon the occurrence of certain events including recapitalization of our Common Stock, dividends payable in our Common Stock, and the issuance of rights to purchase additional shares of our Common Stock or other securities convertible into additional shares of Ccommon Stock. The Warrants provide that the Company shall not effect the exercise of any Series A, B or C Warrants, and Warrantholder shall have the right to exercise Warrants, if, after giving effect to such exercise, such Warrantholder would beneficially own more thqn 9.99% of the then outstanding shares of our Common Stock. Notwithstanding the foregoing, the Warrantholder may, by a sixty-0ne day notice, request that we waive this 9.9% limitation with regard to any or all shares of Common Stock issuable upon conversion of the Series A and/or Series B Preferred Stock, in which event the 9.9% restriction shall be waived with respect to those shares of Common Stock subject to the waiver notice. There were 24,999,999 Warrants outstanding. at the date of filing of this registration statement.
Registration Rights. In connection with the issuance of the Series A and Series B Preferred Stock and the Series A, B and C Warrants issued in the August and September 2006 Private Financing Transactions, we agreed to file this registration statement with the Securities and Exchange Commission to register for resale the shares of Common Stock issuable upon the conversion of the Series A and Series B Preferred Stock and the exercise of the Series A, B and C Warrants.
INDEMNIFICATION FOR SECURITIES ACT LIABILITIES Back to Table of Contents
Section 78.7502 of the Nevada General Corporation Law allows the Company to indemnify any person who was or is threatened to be made a party to any threatened, pending, or completed action, suit, or proceeding by reason of the fact that he or she is or was a director, officer, employee, or agent of the Company or is or was serving at the request of the Company as a director, officer, employee, or agent of any corporation, partnership, joint venture, trust or other enterprise. The Company may advance expenses in connection with defending any such proceeding, provided the indemnitee undertakes to pay any amounts if it is later determined that the person was not entitled to be indemnified by the Company.
Our Bylaws require that we indemnify any person:
(1) Who was or is a party, or is threatened to be made a party, to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (other than an action by, or in our right) by reason of the fact that he is or was our director, officer, employee, or agent or is or was serving at our request as a director, office, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against such costs and expenses, and to the extent and in the manner provided under Nevada law.
(2) Who was or is a party, or is threatened to be made a party, to any threatened, pending, or completed action or suit by or in our right to procure a judgment in our favor by reason of the fact that he is or was our director, officer, employee, or agent or is or was serving at our request as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against such costs and expenses, and to the extent and in the manner provided under Nevada law.
Our Bylaws provide that the extent, amount and eligibility for the indemnification provided therein will be made by our Board of Directors. Such determinations will be made by a majority vote of a quorum consisting of directors who were not parties to such action, suit, or proceeding or by our shareholders by a majority vote of a quorum consisting of shareholders who were not parties to such action, suit, or proceeding. We are also authorized by our Bylaws to make further indemnification as provided under Nevada law except to indemnify any person against gross negligence or willful misconduct.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.
LEGAL MATTERS Back to Table of Contents
The validity of the shares of common stock being offered hereby will be passed upon for us by Thomas J. Craft, Jr., P.A.
EXPERTS B Back to Table of Contents
Our financial statements as of December 31, 2005 and 2004, and the related statements of operations, stockholders' equity and cash flows for the year ended December 31, 2005, appearing in this prospectus and registration statement have been audited by Thomas Leger & Co., L.L.P., independent registered public accountant, and for the year ended December 31, 2004, appearing in this prospectus and registration statement have been audited by R. E. Bassie & Co., independent registered public accountant, as set forth on their respective reports thereon appearing elsewhere in this prospectus, and are included in reliance upon such report given upon the authority of such firms as experts in accounting and auditing.
ADDITIONAL INFORMATION Back to Table of Contents
We have filed a registration statement on Form SB-2 under the Securities Act of 1933, as amended, relating to the shares of Common Stock being offered by this prospectus, and reference is made to such registration statement. This prospectus constitutes the prospectus of International American Technologies, Inc., filed as part of the registration statement, and it does not contain all information in the registration statement, as certain portions have been omitted in accordance with the rules and regulations of the Securities and Exchange Commission.
We are subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, which requires us to file reports, proxy statements and other information with the Securities and Exchange Commission. Such reports, proxy statements and other information may be inspected by public reference facilities of the SEC at Judiciary Plaza, 100 F Street, N.E., Washington, D.C. 20549 at prescribed rates. Because we file documents electronically with the SEC, you may obtain this information by visiting the SEC's Internet website at sec.gov.
44,999,999 Shares
of
Common Stock
of
International American Technologies, Inc.
PROSPECTUS
The date of this prospectus is _____________, 2006
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 24. Indemnification of Directors and Officers
Our Bylaws require that we indemnify any person:
(1) Who was or is a party, or is threatened to be made a party, to any threatened, pending, or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative (other than an action by, or in our right) by reason of the fact that he is or was our director, officer, employee, or agent or is or was serving at our request as a director, office, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against such costs and expenses, and to the extent and in the manner provided under Nevada law.
(2) Who was or is a party, or is threatened to be made a party, to any threatened, pending, or completed action or suit by or in our right to procure a judgment in our favor by reason of the fact that he is or was our director, officer, employee, or agent or is or was serving at our request as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against such costs and expenses, and to the extent and in the manner provided under Nevada law.
Our Bylaws provide that the extent, amount and eligibility for the indemnification provided therein will be made by our Board of Directors. Such determinations will be made by a majority vote of a quorum consisting of directors who were not parties to such action, suit, or proceeding or by our shareholders by a majority vote of a quorum consisting of shareholders who were not parties to such action, suit, or proceeding.
We are also authorized by our Bylaws to make further indemnification as provided under Nevada law except to indemnify any person against gross negligence or willful misconduct.
Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers or persons controlling us pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the Securities and Exchange Commission, such indemnification is against public policy as expressed in the Securities Act of 1933 and is, therefore, unenforceable.
Item 25. Other Expenses of Issuance and Distribution
The following table sets forth an itemization of all estimated expenses, all of which we will pay, in connection with the issuance and distribution of the securities being registered:
Item 26. Recent Sales of Unregistered Securities
The following information is given with regard to unregistered securities sold by us during the past three years, including the dates and amounts of securities sold, the persons to whom we sold the securities, the consideration received in connection with such sales and, if the securities were issued or sold other than for cash, the description of the transaction and the type and amount of consideration received.
Date | Title | Amount of Securities | Persons | Cash or Non-Cash Consideration | ||||
2/22/05 | Common Stock | 100,000 | Gary D. Woerz | Non-cash compensation for services valued at $3,000 | ||||
2/22/05 | Common Stock | 25,000 | Rebekah Laird-Ruthstrom | Non-cash compensation for services valued at $750 | ||||
8/25/05 | Common Stock | 10,000 | M. A. Levy & Associates | Non-cash compensation for services valued at $3,500 | ||||
8/08/06 | Common Stock | 16,000,000 | Carl L. Hammonds | Conversion of minority interest into common stock | ||||
8/08/06 | Series A Preferred Stock | 277,778 | Vision Opportunity Master Fund, Ltd. | Private Sale at $1.80 per share | ||||
8/23/06 | Series A Preferred Stock | 555,555 | Vision Opportunity Master Fund, Ltd. | Private Sale at $1.80 per share | ||||
9/30/06 | Series B Preferred Stock | 833,333 | Vision Opportunity Master Fund, Ltd. | Private Sale at $1.80 per share |
For each of the issuances and sales of Preferred Stock to Vision Opportunity Master Fund, Ltd. , an institutional investor, we relied upon Section 4(2) of the Securities Act of 1933, as amended, and Rule 506 of Regulation D. With respect to the issuance of shares of Common Stock to Carl L. Hammonds upon conversion of the 49% minority interest in Hammonds, and the issuances of shares for services in February and August 2005, we relied upon Section 4(2), as the basis for the exemption from registration requirements. All recipients of restricted shares either received adequate information about the Company or had access, through employment and/or business relationships with the Company to such information.
Item 27. Exhibits.
The following exhibits are included as part of this Form SB-2. References to the "Registrant" in this Exhibit List mean International American Technologies, Inc., a Nevada corporation.
Exhibit No. | Description |
3(i) | Articles of Incorporation, as amended, filed as an exhibit to the Registrant's Form 10-SB/12g filed on August 24, 2004. |
3(i)1 | Certificate of Amendment to the Articles of Incorporation, filed as an exhibit to the Registrant's Form 8-K filed on March 10, 2005. |
3(ii) | Bylaws, filed as an exhibit to the Registrant's Form 10-SB/12g filed on August 24, 2004. |
4(i)1 | Series A Convertible Preferred Stock Purchase Agreement, filed herewith. |
4(i)2 | Series B Convertible Preferred Stock Puchase Agreement, filed herewith. |
4(ii)1 | Registration Rights Agreement applicable to the Series A Preferred Stock, filed herewith. |
4(ii)2 | Registration Rights Agreement applicable to the Series B Preferred Stock, filed herewith. |
4(iii)1 | Certificate of Designation of the Series A Convertible Preferred Stock, filed herewith. |
4(iii)2 | Certificate of Designation of the Series B Convertible Preferred Stock, filed herewith. |
4(iv)1 | Series A Warrant, filed herewith. |
4(iv)2 | Series B Warrant, filed herewith. |
4(iv)3 | Series C Warrant, filed herewith. |
5 | Opinion and Consent of Thomas J. Craft, Jr., P.A., filed herewith. |
10(i) | Employment Agreement between the Registrant and Carl L. Hammonds, filed herewith. |
10(ii)2 | Stock Purchase Agreement between Registrant and Hammonds Technical Services, Inc., filed as an exhibit to the Registrant's Form 8-K on March 10, 2005. |
23(i) | Consent of Thomas Leger & Co., L.L.P., filed herewith. |
23(ii) | Consent of R. E. Bassie & Co., filed herewith. |
Item 28. Undertakings
The undersigned Registrant hereby undertakes to:
(1) File, during any period in which offers or sales are being made, a post-effective amendment to this registration statement to:
(i)
Include any prospectus required by Section 10(a)(3) of the Securities Act of 1933, as
amended (the "Securities Act");
(ii) Reflect in the prospectus any facts or events which, individually or together,
represent a fundamental change in the information in the registration statement;
(iii) Include any additional or changed material information on the plan of distribution.
(2) For determining liability under the Securities Act, treat each post-effective amendment as a new registration statement of the securities offered, and the offering of the securities at that time to be the initial bona fide offering.
(3) File a post-effective amendment to remove from registration any of the securities that remain unsold at the end of the offering.
(4) For determining liability of the undersigned small business issuer under the Securities Act to any purchaser in the initial distribution of the securities, the undersigned undertakes that in a primary offering of securities of the undersigned small business issuer pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser, if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned small business issuer will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i)
Any preliminary
prospectus or prospectus of the undersigned small business issuer relating to the offering
required to be filed pursuant to Rule 424;
(ii)
Any free writing
prospectus relating to the offering prepared by or on behalf of the undersigned small
business issuer or used or referred to by the undersigned small business issuer;
(iii)
The portion of any
other free writing prospectus relating to the offering containing material information
about the undersigned small business issuer or its securities provided by or on behalf of
the undersigned small business issuer; and
(iv)
Any other
communication that is an offer in the offering made by the undersigned small business
issuer to the purchaser.
(5) For determining any liability under the Securities Act, treat each post-effective amendment that contains a form of prospectus as a new registration statement for the securities offered in the registration statement, and that offering of the securities at that time as the initial bona fide offering of those securities.
Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements of filing on SB-2 and caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Houston, State of Texas, on November 22, 2006.
International American Technologies, Inc. | |
By: /s/ Gary D. Woerz, CEO and CFO |
In accordance with the requirements of the Securities Act of 1933, this registration statement was signed by the following person in the capacities and on the date stated:
Signature |
Title |
Date |
/s/ Daniel Dror | Chairman of the Board | November 22, 2006 |
/s/ Gary D. Woerz | Director | November 22, 2006 |
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
Dated as of August 8, 2006
among
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
and
THE PURCHASERS LISTED ON EXHIBIT A
TABLE OF CONTENTS
ARTICLE I Purchase and Sale of Preferred Stock
Section 1.1 Purchase and Sale of Stock
Section 1.2 Warrants
Section 1.3 Conversion Shares
Section 1.4 Purchase Price and Closings
ARTICLE II Representations and Warranties
Section 2.1 Representations and Warranties of the Company
Section 2.2 Representations and Warranties of the Purchasers
ARTICLE III Covenants
Section 3.1 Securities Compliance
Section 3.2 Registration and Listing
Section 3.3 Inspection Rights
Section 3.4 Compliance with Laws
Section 3.5 Keeping of Records and Books of Account
Section 3.6 Reporting Requirements
Section 3.7 Amendments
Section 3.8 Other Agreements
Section 3.9 Distributions
Section 3.10 Status of Dividends
Section 3.11 Use of Proceeds
Section 3.12 Reservation of Shares
Section 3.13 Transfer Agent Instructions
Section 3.14 Disposition of Assets
Section 3.15 Reporting Status
Section 3.16 Disclosure of Transaction
Section 3.17 Disclosure of Material Information
Section 3.18 Pledge of Securities
Section 3.19 Form SB-2 Eligibility
Section 3.20 Lock-Up Agreement
Section 3.21 Investor Relations Firm
Section 3.22 Restrictions on Certain Issuances of Securities
Section 3.23 Subsequent Financings 20
ARTICLE IV Conditions
Section 4.1 Conditions Precedent to the Obligation of the Company to Sell the Shares
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to Purchase the Shares
ARTICLE V Stock Certificate Legend
Section 5.1 Legend
ARTICLE VI Indemnification
Section 6.1 General Indemnity
Section 6.2 Indemnification Procedure
ARTICLE VII Miscellaneous
Section 7.1 Fees and Expenses
Section 7.2 Specific Enforcement, Consent to Jurisdiction.
Section 7.3 Entire Agreement; Amendment
Section 7.4 Notices
Section 7.5 Waivers
Section 7.6 Headings
Section 7.7 Successors and Assigns
Section 7.8 No Third Party Beneficiaries
Section 7.9 Governing Law
Section 7.10 Survival
Section 7.11 Counterparts
Section 7.12 Publicity
Section 7.13 Severability
Section 7.14 Further Assurances
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
This SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the " Agreement ") is dated as of August 8, 2006 by and among International American Technologies, Inc., a Nevada corporation (the " Company "), and each of the Purchasers of shares of Series A Convertible Preferred Stock of the Company whose names are set forth on Exhibit A hereto (individually, a " Purchaser " and collectively, the " Purchasers ").
The parties hereto agree as follows:
The Company covenants with each of the Purchasers as follows, which covenants are for the benefit of the Purchasers and their permitted assignees (as defined herein).
(b) For purposes of this Agreement, a Permitted Financing (as defined hereinafter) shall not be considered a Subsequent Financing. A " Permitted Financing " shall mean (i) securities issued (other than for cash) in connection with a merger, acquisition, or consolidation, (ii) securities issued pursuant to the conversion or exercise of convertible or exercisable securities issued or outstanding on or prior to the date of this Agreement or issued pursuant to this Agreement (so long as the conversion or exercise price in such securities are not amended to lower such price and/or adversely affect the Purchasers), (iii) securities issued in connection with bona fide strategic license agreements or other partnering arrangements so long as such issuances are not for the purpose of raising capital, (iv) Common Stock issued or the issuance or grants of options to purchase Common Stock pursuant to the Companys stock option plans and employee stock purchase plans outstanding as they exist on the date of this Agreement, and (v) any warrants issued to the placement agent and its designees for the transactions contemplated by the Purchase Agreement.
CONDITIONS
THESE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR INTERNATIONAL AMERICAN TECHNOLOGIES, INC. SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
The Company agrees to reissue certificates representing any of the Conversion Shares and the Warrant Shares, without the legend set forth above if at such time, prior to making any transfer of any such securities, such holder thereof shall give written notice to the Company describing the manner and terms of such transfer and removal as the Company may reasonably request. Such proposed transfer and removal will not be effected until: (a) either (i) the Company has received an opinion of counsel reasonably satisfactory to the Company, to the effect that the registration of the Conversion Shares or the Warrant Shares under the Securities Act is not required in connection with such proposed transfer, (ii) a registration statement under the Securities Act covering such proposed disposition has been filed by the Company with the Commission and has become effective under the Securities Act, (iii) the Company has received other evidence reasonably satisfactory to the Company that such registration and qualification under the Securities Act and state securities laws are not required, or (iv) the holder provides the Company with reasonable assurances that such security can be sold pursuant to Rule 144 under the Securities Act; and (b) either (i) the Company has received an opinion of counsel reasonably satisfactory to the Company, to the effect that registration or qualification under the securities or "blue sky" laws of any state is not required in connection with such proposed disposition, or (ii) compliance with applicable state securities or "blue sky" laws has been effected or a valid exemption exists with respect thereto. The Company will respond to any such notice from a holder within five (5) business days. In the case of any proposed transfer under this Section 5.1, the Company will use reasonable efforts to comply with any such applicable state securities or "blue sky" laws, but shall in no event be required, (x) to qualify to do business in any state where it is not then qualified, (y) to take any action that would subject it to tax or to the general service of process in any state where it is not then subject, or (z) to comply with state securities or "blue sky" laws of any state for which registration by coordination is unavailable to the Company. The restrictions on transfer contained in this Section 5.1 shall be in addition to, and not by way of limitation of, any other restrictions on transfer contained in any other section of this Agreement. Whenever a certificate representing the Conversion Shares or Warrant Shares is required to be issued to a Purchaser without a legend, in lieu of delivering physical certificates representing the Conversion Shares or Warrant Shares (provided that a registration statement under the Securities Act providing for the resale of the Warrant Shares and Conversion Shares is then in effect), the Company shall cause its transfer agent to electronically transmit the Conversion Shares or Warrant Shares to a Purchaser by crediting the account of such Purchaser's Prime Broker with the Depository Trust Company (" DTC ") through its Deposit Withdrawal Agent Commission (" DWAC ") system (to the extent not inconsistent with any provisions of this Agreement).
If to the Company: |
International American Technologies, Inc.
601 Cien Street Suite 235 Kemah, Texas 77565-3077 Attention: Chief Executive Officer Tel. No.: (281) 334-9479 Fax No.: (281) ___-____ |
with copies to: |
_________________________
_________________________ _________________________ Attention: ______________ Tel. No.: (___) ___-____ Fax No.: (___) ___-____ |
If to any Purchaser: | At the address of such Purchaser set forth on Exhibit A to this Agreement, with copies to Purchasers counsel as set forth on Exhibit A or as specified in writing by such Purchaser with copies to: |
Kramer Levin Naftalis & Frankel LLP 1177 Avenue of the Americas New York, New York 10036 Attention: Christopher S. Auguste Tel No.: (212) 715-9100 Fax No.: (212) 715-8000 |
Any party hereto may from time to time change its address for notices by giving at least ten (10) days written notice of such changed address to the other party hereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officer as of the date first above written.
INTERNATIONAL AMERICAN TECHNOLOGIES, INC. | |
By: | |
Name: Title: |
PURCHASER | |
By:
Name: Title: |
EXHIBIT A to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
Names and Addresses Number of Preferred Shares Dollar Amount of
of Purchasers & Warrants Purchased Investment
Initial Closing :
Vision Opportunity Master Fund, Ltd Preferred Shares: 555,555 $1,000,000
20 W 55th St., 5th floor Series A Warrants: 5,555,555
New York, NY 10019 Series B Warrants: 5,555,555
Second Closing :
Vision Opportunity Master Fund, Ltd Preferred Shares: 277,777 $500,000
20 W 55th St., 5th floor Series A Warrants: 2,777,777
New York, NY 10019 Series B Warrants: 2,777,777
EXHIBIT B to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
FORM OF CERTIFICATE OF DESIGNATION
EXHIBIT C-1 to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
EINTERNATIONAL AMERICAN TECHNOLOGIES, INC.
FORM OF SERIES A WARRANT
EXHIBIT C-2 to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
EINTERNATIONAL AMERICAN TECHNOLOGIES, INC.
FORM OF SERIES B WARRANT
EXHIBIT D to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT E to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
FORM OF LOCK-UP AGREEMENT
EXHIBIT F to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
as of August __, 2006
[Name and address of Transfer Agent]
Attn: _____________
Ladies and Gentlemen:
Reference is made to that certain Series A Convertible Preferred Stock Purchase Agreement (the " Purchase Agreement "), dated as of August 8, 2006, by and among International American Technologies, Inc., a Nevada corporation (the " Company "), and the purchasers named therein (collectively, the " Purchasers ") pursuant to which the Company is issuing to the Purchasers shares of its Series A Convertible Preferred Stock, par value $0.0001 per share, (the " Preferred Shares ") and warrants (the " Warrants ") to purchase shares of the Companys common stock, par value $0.0001 per share (the " Common Stock "). This letter shall serve as our irrevocable authorization and direction to you provided that you are the transfer agent of the Company at such time) to issue shares of Common Stock upon conversion of the Preferred Shares (the " Conversion Shares ") and exercise of the Warrants (the " Warrant Shares ") to or upon the order of a Purchaser from time to time upon (i) surrender to you of a properly completed and duly executed Conversion Notice or Exercise Notice, as the case may be, in the form attached hereto as Exhibit I and Exhibit II, respectively, (ii) in the case of the conversion of Preferred Shares, a copy of the certificates (with the original certificates delivered to the Company) representing Preferred Shares being converted or, in the case of Warrants being exercised, a copy of the Warrants (with the original Warrants delivered to the Company) being exercised (or, in each case, an indemnification undertaking with respect to such share certificates or the warrants in the case of their loss, theft or destruction), and (iii) delivery of a treasury order or other appropriate order duly executed by a duly authorized officer of the Company. So long as you have previously received (x) written confirmation from counsel to the Company that a registration statement covering resales of the Conversion Shares or Warrant Shares, as applicable, has been declared effective by the Securities and Exchange Commission (the " SEC ") under the Securities Act of 1933, as amended (the " 1933 Act "), and no subsequent notice by the Company or its counsel of the suspension or termination of its effectiveness and (y) a copy of such registration statement, and if the Purchaser represents in writing that the Conversion Shares or the Warrant Shares, as the case may be, were sold pursuant to the Registration Statement, then certificates representing the Conversion Shares and the Warrant Shares, as the case may be, shall not bear any legend restricting transfer of the Conversion Shares and the Warrant Shares, as the case may be, thereby and should not be subject to any stop-transfer restriction. Provided, however, that if you have not previously received those items and representations listed above, then the certificates for the Conversion Shares and the Warrant Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS, OR INTERNATIONAL AMERICAN TECHNOLOGIES, INC. SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED."
and, provided further, that the Company may from time to time notify you to place stop-transfer restrictions on the certificates for the Conversion Shares and the Warrant Shares in the event a registration statement covering the Conversion Shares and the Warrant Shares is subject to amendment for events then current.
A form of written confirmation from counsel to the Company that a registration statement covering resales of the Conversion Shares and the Warrant Shares has been declared effective by the SEC under the 1933 Act is attached hereto as Exhibit III.
Please be advised that the Purchasers are relying upon this letter as an inducement to enter into the Purchase Agreement and, accordingly, each Purchaser is a third party beneficiary to these instructions.
Please execute this letter in the space indicated to acknowledge your agreement to act in accordance with these instructions. Should you have any questions concerning this matter, please contact me at ___________.
Very truly yours,
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
By:
Name:
Title:
ACKNOWLEDGED AND AGREED:
[TRANSFER AGENT]
By:
Name:
Title:
Date:
EXHIBIT I
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designation of the Relative Rights and Preferences of the Series A Preferred Stock of International American Technologies, Inc. (the "Certificate of Designation"). In accordance with and pursuant to the Certificate of Designation, the undersigned hereby elects to convert the number of shares of Series A Preferred Stock, par value $0.0001 per share (the "Preferred Shares"), of International American Technologies, Inc., a Nevada corporation (the "Company"), indicated below into shares of Common Stock, par value $0.0001 per share (the "Common Stock"), of the Company, by tendering the stock certificate(s) representing the share(s) of Preferred Shares specified below as of the date specified below.
Date of Conversion:
Number of Preferred Shares to be converted:
Stock certificate no(s). of Preferred Shares to be converted:
The Common Stock have been sold pursuant to the Registration Statement (as defined in the Registration Rights Agreement): YES ____ NO____
Please confirm the following information:
Conversion Price:
Number of shares of Common Stock
to be issued:
Number of shares of Common Stock beneficially owned or deemed beneficially owned by the Holder on the Date of Conversion: _________________________
Please issue the Common Stock into which the Preferred Shares are being converted and, if applicable, any check drawn on an account of the Company in the following name and to the following address:
Issue to:
Facsimile Number:
Authorization:
By:
Title:
Dated:
EXHIBIT II
FORM OF EXERCISE NOTICE
EXERCISE FORM
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
The undersigned _______________, pursuant to the provisions of the within Warrant, hereby elects to purchase _____ shares of Common Stock of International American Technologies, Inc. covered by the within Warrant.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
Number of shares of Common Stock beneficially owned or deemed beneficially owned by the Holder on the date of Exercise: _________________________
ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto __________________ the within Warrant and all rights evidenced thereby and does irrevocably constitute and appoint _____________, attorney, to transfer the said Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto __________________ the right to purchase _________ shares of Warrant Stock evidenced by the within Warrant together with all rights therein, and does irrevocably constitute and appoint ___________________, attorney, to transfer that part of the said Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-_____ canceled (or transferred or exchanged) this _____ day of ___________, _____, shares of Common Stock issued therefor in the name of _______________, Warrant No. W-_____ issued for ____ shares of Common Stock in the name of _______________.
EXHIBIT III
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[Name and address of Transfer Agent]
Attn: _____________
Re: International American Technologies, Inc.
Ladies and Gentlemen:
We are counsel to International American Technologies, Inc., a Nevada corporation (the " Company "), and have represented the Company in connection with that certain Series A Convertible Preferred Stock Purchase Agreement (the " Purchase Agreement "), dated as of August 8, 2006, by and among the Company and the purchasers named therein (collectively, the " Purchasers ") pursuant to which the Company issued to the Purchasers shares of its Series A Convertible Preferred Stock, par value $0.0001 per share, (the " Preferred Shares ") and warrants (the " Warrants ") to purchase shares of the Companys common stock, par value $0.0001 per share (the " Common Stock "). Pursuant to the Purchase Agreement, the Company has also entered into a Registration Rights Agreement with the Purchasers (the " Registration Rights Agreement "), dated as of August 8, 2006, pursuant to which the Company agreed, among other things, to register the Registrable Securities (as defined in the Registration Rights Agreement), including the shares of Common Stock issuable upon conversion of the Preferred Shares and exercise of the Warrants, under the Securities Act of 1933, as amended (the " 1933 Act "). In connection with the Companys obligations under the Registration Rights Agreement, on ________________, 2006, the Company filed a Registration Statement on Form SB-2 (File No. 333-________) (the " Registration Statement ") with the Securities and Exchange Commission (the " SEC ") relating to the resale of the Registrable Securities which names each of the present Purchasers as a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the SECs 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 SECs 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 accordingly, the Registrable Securities are available for resale under the 1933 Act pursuant to the Registration Statement.
Very truly yours,
[COMPANY COUNSEL]
By:
cc: [LIST NAMES OF PURCHASERS]
EXHIBIT G to the
SERIES A CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
FORM OF OPINION OF COUNSEL
Very truly yours,
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE
AGREEMENT
Dated as of September 29, 2006
among
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
and
THE PURCHASERS LISTED ON EXHIBIT A
TABLE OF CONTENTS
ARTICLE I Purchase and Sale of Preferred Stock
Section 1.1 Purchase and Sale of Stock
Section 1.2 Series C Warrants
Section 1.3 Exchange of Series B Warrants
Section 1.4 Conversion Shares
Section 1.5 Purchase Price and Closing
ARTICLE II Representations and Warranties
Section 2.1 Representations and Warranties of the Company
Section 2.2 Representations and Warranties of the Purchasers
ARTICLE III Covenants
Section 3.1 Securities Compliance
Section 3.2 Registration and Listing
Section 3.3 Inspection Rights
Section 3.4 Compliance with Laws
Section 3.5 Keeping of Records and Books of Account
Section 3.6 Reporting Requirements
Section 3.7 Amendments
Section 3.8 Other Agreements
Section 3.9 Distributions
Section 3.10 Status of Dividends
Section 3.11 Use of Proceeds
Section 3.12 Reservation of Shares
Section 3.13 Transfer Agent Instructions
Section 3.14 Disposition of Assets
Section 3.15 Reporting Status
Section 3.16 Disclosure of Transaction
Section 3.17 Disclosure of Material Information
Section 3.18 Pledge of Securities
Section 3.19 Form SB-2 Eligibility
Section 3.20 Restrictions on Certain Issuances of Securities
Section 3.21 Subsequent Financings
ARTICLE IV Conditions
Section 4.1 Conditions Precedent to the Obligation of the Company to Sell the Shares
Section 4.2 Conditions Precedent to the Obligation of the Purchasers to Purchase the Shares
ARTICLE V Stock Certificate Legend
Section 5.1 Legend
ARTICLE VI Indemnification
Section 6.1 General Indemnity
Section 6.2 Indemnification Procedure
ARTICLE VII Miscellaneous
Section 7.1 Fees and Expenses
Section 7.2 Specific Enforcement, Consent to Jurisdiction.
Section 7.3 Entire Agreement; Amendment
Section 7.4 Notices
Section 7.5 Waivers
Section 7.6 Headings
Section 7.7 Successors and Assigns
Section 7.8 No Third Party Beneficiaries
Section 7.9 Governing Law
Section 7.10 Survival
Section 7.11 Counterparts
Section 7.12 Publicity
Section 7.13 Severability
Section 7.14 Further Assurances
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT
This SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT (the " Agreement ") is dated as of September 29, 2006 by and among International American Technologies, Inc., a Nevada corporation (the " Company "), and each of the Purchasers of shares of Series B Convertible Preferred Stock of the Company whose names are set forth on Exhibit A hereto (individually, a " Purchaser " and collectively, the " Purchasers ").
The parties hereto agree as follows:
The Company covenants with each of the Purchasers as follows, which covenants are for the benefit of the Purchasers and their permitted assignees (as defined herein).
(b) For purposes of this Agreement, a Permitted Financing (as defined hereinafter) shall not be considered a Subsequent Financing. A " Permitted Financing " shall mean (i) securities issued (other than for cash) in connection with a merger, acquisition, or consolidation, (ii) securities issued pursuant to the conversion or exercise of convertible or exercisable securities issued or outstanding on or prior to the date of this Agreement or issued pursuant to this Agreement (so long as the conversion or exercise price in such securities are not amended to lower such price and/or adversely affect the Purchasers), (iii) securities issued in connection with bona fide strategic license agreements or other partnering arrangements so long as such issuances are not for the purpose of raising capital, (iv) Common Stock issued or the issuance or grants of options to purchase Common Stock pursuant to the Companys stock option plans and employee stock purchase plans outstanding as they exist on the date of this Agreement, and (v) any warrants issued to the placement agent and its designees for the transactions contemplated by the Purchase Agreement.
CONDITIONS
THESE SECURITIES REPRESENTED BY THIS CERTIFICATE (THE "SECURITIES") HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR INTERNATIONAL AMERICAN TECHNOLOGIES, INC. SHALL HAVE RECEIVED AN OPINION OF COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
The Company agrees to reissue certificates representing any of the Conversion Shares and the Warrant Shares, without the legend set forth above if at such time, prior to making any transfer of any such securities, such holder thereof shall give written notice to the Company describing the manner and terms of such transfer and removal as the Company may reasonably request. Such proposed transfer and removal will not be effected until: (a) either (i) the Company has received an opinion of counsel reasonably satisfactory to the Company, to the effect that the registration of the Conversion Shares or the Warrant Shares under the Securities Act is not required in connection with such proposed transfer, (ii) a registration statement under the Securities Act covering such proposed disposition has been filed by the Company with the Commission and has become effective under the Securities Act, (iii) the Company has received other evidence reasonably satisfactory to the Company that such registration and qualification under the Securities Act and state securities laws are not required, or (iv) the holder provides the Company with reasonable assurances that such security can be sold pursuant to Rule 144 under the Securities Act; and (b) either (i) the Company has received an opinion of counsel reasonably satisfactory to the Company, to the effect that registration or qualification under the securities or "blue sky" laws of any state is not required in connection with such proposed disposition, or (ii) compliance with applicable state securities or "blue sky" laws has been effected or a valid exemption exists with respect thereto. The Company will respond to any such notice from a holder within five (5) business days. In the case of any proposed transfer under this Section 5.1, the Company will use reasonable efforts to comply with any such applicable state securities or "blue sky" laws, but shall in no event be required, (x) to qualify to do business in any state where it is not then qualified, (y) to take any action that would subject it to tax or to the general service of process in any state where it is not then subject, or (z) to comply with state securities or "blue sky" laws of any state for which registration by coordination is unavailable to the Company. The restrictions on transfer contained in this Section 5.1 shall be in addition to, and not by way of limitation of, any other restrictions on transfer contained in any other section of this Agreement. Whenever a certificate representing the Conversion Shares or Warrant Shares is required to be issued to a Purchaser without a legend, in lieu of delivering physical certificates representing the Conversion Shares or Warrant Shares (provided that a registration statement under the Securities Act providing for the resale of the Warrant Shares and Conversion Shares is then in effect), the Company shall cause its transfer agent to electronically transmit the Conversion Shares or Warrant Shares to a Purchaser by crediting the account of such Purchaser's Prime Broker with the Depository Trust Company (" DTC ") through its Deposit Withdrawal Agent Commission (" DWAC ") system (to the extent not inconsistent with any provisions of this Agreement).
Any party hereto may from time to time change its address for notices by giving at least ten (10) days written notice of such changed address to the other party hereto.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed by their respective authorized officer as of the date first above written.
INTERNATIONAL AMERICAN TECHNOLOGIES, INC. | |
By: | |
Name: Title: |
VISION OPPORTUNITY MASTER FUND, LTD. | |
By:
Name: Title: |
EXHIBIT A to the
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
Names and Addresses Number of Preferred Shares Dollar Amount of
of Purchasers & Warrants Purchased Investment
Vision Opportunity Master Fund, Ltd. Preferred Shares: 833,333 $1,500,000
20 W 55 th St., 5th floor Series C Warrants: 8,333,333
New York, NY 10019 Series B Warrants: 8,333,333
EXHIBIT B to the
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
FORM OF CERTIFICATE OF DESIGNATION
EXHIBIT C-1 to the
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
EINTERNATIONAL AMERICAN TECHNOLOGIES, INC.
FORM OF SERIES C WARRANT
EXHIBIT C-2 to the
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
EINTERNATIONAL AMERICAN TECHNOLOGIES, INC.
FORM OF SERIES B WARRANT
EXHIBIT D to the
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
FORM OF REGISTRATION RIGHTS AGREEMENT
EXHIBIT E to the
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
as of September 29, 2006
[Name and address of Transfer Agent]
Attn: _____________
Ladies and Gentlemen:
Reference is made to that certain Series B Convertible Preferred Stock Purchase Agreement (the " Purchase Agreement "), dated as of September 29, 2006, by and among International American Technologies, Inc., a Nevada corporation (the " Company "), and the purchasers named therein (collectively, the " Purchasers ") pursuant to which the Company is issuing to the Purchasers shares of its Series B Convertible Preferred Stock, par value $0.0001 per share, (the " Preferred Shares ") and warrants (the " Warrants ") to purchase shares of the Companys common stock, par value $0.0001 per share (the " Common Stock "). This letter shall serve as our irrevocable authorization and direction to you provided that you are the transfer agent of the Company at such time) to issue shares of Common Stock upon conversion of the Preferred Shares (the " Conversion Shares ") and exercise of the Warrants (the " Warrant Shares ") to or upon the order of a Purchaser from time to time upon (i) surrender to you of a properly completed and duly executed Conversion Notice or Exercise Notice, as the case may be, in the form attached hereto as Exhibit I and Exhibit II, respectively, (ii) in the case of the conversion of Preferred Shares, a copy of the certificates (with the original certificates delivered to the Company) representing Preferred Shares being converted or, in the case of Warrants being exercised, a copy of the Warrants (with the original Warrants delivered to the Company) being exercised (or, in each case, an indemnification undertaking with respect to such share certificates or the warrants in the case of their loss, theft or destruction), and (iii) delivery of a treasury order or other appropriate order duly executed by a duly authorized officer of the Company. So long as you have previously received (x) written confirmation from counsel to the Company that a registration statement covering resales of the Conversion Shares or Warrant Shares, as applicable, has been declared effective by the Securities and Exchange Commission (the " SEC ") under the Securities Act of 1933, as amended (the " 1933 Act "), and no subsequent notice by the Company or its counsel of the suspension or termination of its effectiveness and (y) a copy of such registration statement, and if the Purchaser represents in writing that the Conversion Shares or the Warrant Shares, as the case may be, were sold pursuant to the Registration Statement, then certificates representing the Conversion Shares and the Warrant Shares, as the case may be, shall not bear any legend restricting transfer of the Conversion Shares and the Warrant Shares, as the case may be, thereby and should not be subject to any stop-transfer restriction. Provided, however, that if you have not previously received those items and representations listed above, then the certificates for the Conversion Shares and the Warrant Shares shall bear the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE SECURITIES ACT"), OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT OR APPLICABLE STATE SECURITIES LAWS, OR INTERNATIONAL AMERICAN TECHNOLOGIES, INC. SHALL HAVE RECEIVED AN OPINION OF ITS COUNSEL THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED."
and, provided further, that the Company may from time to time notify you to place stop-transfer restrictions on the certificates for the Conversion Shares and the Warrant Shares in the event a registration statement covering the Conversion Shares and the Warrant Shares is subject to amendment for events then current.
A form of written confirmation from counsel to the Company that a registration statement covering resales of the Conversion Shares and the Warrant Shares has been declared effective by the SEC under the 1933 Act is attached hereto as Exhibit III.
Please be advised that the Purchasers are relying upon this letter as an inducement to enter into the Purchase Agreement and, accordingly, each Purchaser is a third party beneficiary to these instructions.
Please execute this letter in the space indicated to acknowledge your agreement to act in accordance with these instructions. Should you have any questions concerning this matter, please contact me at ___________.
Very truly yours,
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
By:
Name:
Title:
ACKNOWLEDGED AND AGREED:
[TRANSFER AGENT]
By:
Name:
Title:
Date:
EXHIBIT I
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designation of the Relative Rights and Preferences of the Series B Preferred Stock of International American Technologies, Inc. (the "Certificate of Designation"). In accordance with and pursuant to the Certificate of Designation, the undersigned hereby elects to convert the number of shares of Series B Preferred Stock, par value $0.0001 per share (the "Preferred Shares"), of International American Technologies, Inc., a Nevada corporation (the "Company"), indicated below into shares of Common Stock, par value $0.0001 per share (the "Common Stock"), of the Company, by tendering the stock certificate(s) representing the share(s) of Preferred Shares specified below as of the date specified below.
Date of Conversion:
Number of Preferred Shares to be converted:
Stock certificate no(s). of Preferred Shares to be converted:
The Common Stock have been sold pursuant to the Registration Statement (as defined in the Registration Rights Agreement): YES ____ NO____
Please confirm the following information:
Conversion Price:
Number of shares of Common Stock
to be issued:
Number of shares of Common Stock beneficially owned or deemed beneficially owned by the Holder on the Date of Conversion: _________________________
Please issue the Common Stock into which the Preferred Shares are being converted and, if applicable, any check drawn on an account of the Company in the following name and to the following address:
Issue to:
Facsimile Number:
Authorization:
By:
Title:
Dated:
EXHIBIT II
FORM OF EXERCISE NOTICE
EXERCISE FORM
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
The undersigned _______________, pursuant to the provisions of the within Warrant, hereby elects to purchase _____ shares of Common Stock of International American Technologies, Inc. covered by the within Warrant.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
Number of shares of Common Stock beneficially owned or deemed beneficially owned by the Holder on the date of Exercise: _________________________
ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto __________________ the within Warrant and all rights evidenced thereby and does irrevocably constitute and appoint _____________, attorney, to transfer the said Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto __________________ the right to purchase _________ shares of Warrant Stock evidenced by the within Warrant together with all rights therein, and does irrevocably constitute and appoint ___________________, attorney, to transfer that part of the said Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-_____ canceled (or transferred or exchanged) this _____ day of ___________, _____, shares of Common Stock issued therefor in the name of _______________, Warrant No. W-_____ issued for ____ shares of Common Stock in the name of _______________.
EXHIBIT III
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[Name and address of Transfer Agent]
Attn: _____________
Re: International American Technologies, Inc.
Ladies and Gentlemen:
We are counsel to International American Technologies, Inc., a Nevada corporation (the " Company "), and have represented the Company in connection with that certain Series B Convertible Preferred Stock Purchase Agreement (the " Purchase Agreement "), dated as of September 29, 2006, by and among the Company and the purchasers named therein (collectively, the " Purchasers ") pursuant to which the Company issued to the Purchasers shares of its Series B Convertible Preferred Stock, par value $0.0001 per share, (the " Preferred Shares ") and warrants (the " Warrants ") to purchase shares of the Companys common stock, par value $0.0001 per share (the " Common Stock "). Pursuant to the Purchase Agreement, the Company has also entered into a Registration Rights Agreement with the Purchasers (the " Registration Rights Agreement "), dated as of September 29, 2006, pursuant to which the Company agreed, among other things, to register the Registrable Securities (as defined in the Registration Rights Agreement), including the shares of Common Stock issuable upon conversion of the Preferred Shares and exercise of the Warrants, under the Securities Act of 1933, as amended (the " 1933 Act "). In connection with the Companys obligations under the Registration Rights Agreement, on ________________, 2006, the Company filed a Registration Statement on Form SB-2 (File No. 333-________) (the " Registration Statement ") with the Securities and Exchange Commission (the " SEC ") relating to the resale of the Registrable Securities which names each of the present Purchasers as a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the SECs 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 SECs 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 accordingly, the Registrable Securities are available for resale under the 1933 Act pursuant to the Registration Statement.
Very truly yours,
[COMPANY COUNSEL]
By:
cc: [LIST NAMES OF PURCHASERS]
EXHIBIT F to the
SERIES B CONVERTIBLE PREFERRED STOCK PURCHASE AGREEMENT FOR
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
FORM OF OPINION OF COUNSEL
Very truly yours,
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this " Agreement ") is made and entered into as of August 8, 2006, by and among International American Technologies, Inc., a Nevada corporation (the " Company "), and the purchasers listed on Schedule I hereto (the " Purchasers ").
This Agreement is being entered into pursuant to the Series A Convertible Preferred Stock Purchase Agreement dated as of the date hereof among the Company and the Purchasers (the " Purchase Agreement ").
The Company and the Purchasers hereby agree as follows:
1. Definitions .
Capitalized terms used and not otherwise defined herein shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings:
" Advice " shall have meaning set forth in Section 3(m).
" Affiliate " means, with respect to any Person, any other Person that directly or indirectly controls or is controlled by or under common control with such Person. For the purposes of this definition, " control ," when used with respect to any Person, means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; and the terms of " affiliated ," " controlling " and " controlled " have meanings correlative to the foregoing.
" Board " shall have meaning set forth in Section 3(n).
" Business Day " means any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the state of New York generally are authorized or required by law or other government actions to close.
" Closing Date " means the date of the Initial Closing of the purchase and sale of the Preferred Stock and the Warrants pursuant to the Purchase Agreement.
" Commission " means the Securities and Exchange Commission.
" Common Stock " means the Company's Common Stock, par value $0.0001 per share.
" Effectiveness Date " means with respect to the Registration Statement the earlier of (A) the one hundred twentieth (120 th ) day following the Closing Date (or in the event the Registration Statement receives a "full review" by the Commission, the one hundred fiftieth (150 th ) day following the Closing Date) or (B) the date which is within three (3) Business Days after the date on which the Commission informs the Company (i) that the Commission will not review the Registration Statement or (ii) that the Company may request the acceleration of the effectiveness of the Registration Statement and the Company makes such request; provided that , if the Effectiveness Date falls on a Saturday, Sunday or any other day which shall be a legal holiday or a day on which the Commission is authorized or required by law or other government actions to close, the Effectiveness Date shall be the following Business Day.
" Effectiveness Period " shall have the meaning set forth in Section 2.
" Event " shall have the meaning set forth in Section 7(e).
" Event Date " shall have the meaning set forth in Section 7(e).
" Exchange Act " means the Securities Exchange Act of 1934, as amended.
" Filing Date " means the forty-fifth (45 th ) day following the Closing Date; provided that , if the Filing Date falls on a Saturday, Sunday or any other day which shall be a legal holiday or a day on which the Commission is authorized or required by law or other government actions to close, the Filing Date shall be the following Business Day.
" Holder " or " Holders " means the holder or holders, as the case may be, from time to time of Registrable Securities.
" Indemnified Party " shall have the meaning set forth in Section 5(c).
" Indemnifying Party " shall have the meaning set forth in Section 5(c).
" Losses " shall have the meaning set forth in Section 5(a).
" Person " means an individual or a corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind.
" Preferred Stock " means shares of the Companys Series A Convertible Preferred Stock issued to the Purchasers pursuant to the Purchase Agreement.
" Proceeding " means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.
" Prospectus " means the prospectus included in the Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference in such Prospectus.
" Registrable Securities means (i) the shares of Common Stock issuable upon conversion of the Preferred Stock and (ii) the shares of Common Stock issuable upon exercise of the Warrants.
" Registration Statement " means the registration statements and any additional registration statements contemplated by Section 2, including (in each case) the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference in such registration statement.
" Rule 144 " means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.
" Rule 158 " means Rule 158 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.
" Rule 415 " means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.
" Rule 424 " means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.
" Securities Act " means the Securities Act of 1933, as amended.
" Special Counsel " means Kramer Levin Naftalis & Frankel LLP, for which the Holders will be reimbursed by the Company pursuant to Section 4.
" Warrants " means the warrants to purchase shares of Common Stock issued to the Purchasers pursuant to the Purchase Agreement.
2. Resale Registration.
On or prior to the Filing Date, the Company shall prepare and file with the Commission a "resale" Registration Statement providing for the resale of all Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415. The Registration Statement shall be on Form SB-2 (except if the Company is not then eligible to register for resale the Registrable Securities on Form SB-2, in which case such registration shall be on another appropriate form in accordance herewith and the Securities Act and the rules promulgated thereunder). Such Registration Statement shall cover to the extent allowable under the Securities Act and the rules promulgated thereunder (including Rule 416), such indeterminate number of additional shares of Common Stock resulting from stock splits, stock dividends or similar transactions with respect to the Registrable Securities. The Company shall (i) not permit any securities other than the Registrable Securities and the securities listed on Schedule II hereto to be included in the Registration Statement and (ii) use its best efforts to cause the Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event prior to the Effectiveness Date, and to keep such Registration Statement continuously effective under the Securities Act until such date as is the earlier of (x) the date when all Registrable Securities covered by such Registration Statement have been sold or (y) the date on which the Registrable Securities may be sold without any restriction pursuant to Rule 144(k) as determined by the counsel to the Company pursuant to a written opinion letter, addressed to the Company's transfer agent to such effect (the " Effectiveness Period "). The Company shall request that the effective time of the Registration Statement is 4:00 p.m. Eastern Time on the effective date. If at any time and for any reason, an additional Registration Statement is required to be filed because at such time the actual number of shares of Common Stock into which the Preferred Stock is convertible and the Warrants are exercisable plus the number of shares of Common Stock exceeds the number of shares of Registrable Securities remaining under the Registration Statement, the Company shall have twenty (20) Business Days to file such additional Registration Statement, and the Company shall use its best efforts to cause such additional Registration Statement to be declared effective by the Commission as soon as possible, but in no event later than sixty (60) days after filing.
3. Registration Procedures.
In connection with the Company's registration obligations hereunder, the Company shall:
(a) Prepare and file with the Commission, on or prior to the Filing Date, a Registration Statement on Form SB-2 (or if the Company is not then eligible to register for resale the Registrable Securities on Form SB-2 such registration shall be on another appropriate form in accordance herewith and the Securities Act and the rules promulgated thereunder) in accordance with the plan of distribution as set forth on Exhibit A hereto and in accordance with applicable law, and cause the Registration Statement to become effective and remain effective as provided herein; provided , however , that not less than five (5) Business Days prior to the filing of the Registration Statement or any related Prospectus or any amendment or supplement thereto, the Company shall (i) furnish to the Holders and any Special Counsel, copies of all such documents proposed to be filed, which documents will be subject to the review of such Holders and such Special Counsel, and (ii) cause its officers and directors, counsel and independent certified public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of Special Counsel, to conduct a reasonable review of such documents. The Company shall not file the Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities or any Special Counsel shall reasonably object in writing within three (3) Business Days of their receipt thereof.
(b) (i) Prepare and file with the Commission such amendments, including post-effective amendments, to the Registration Statement as may be necessary to keep the Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements as necessary in order to register for resale under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424 (or any similar provisions then in force) promulgated under the Securities Act; (iii) respond as promptly as possible, but in no event later than ten (10) Business Days, to any comments received from the Commission with respect to the Registration Statement or any amendment thereto and as promptly as possible provide the Holders true and complete copies of all correspondence from and to the Commission relating to the Registration Statement; (iv) file the final prospectus pursuant to Rule 424 of the Securities Act no later than 9:00 a.m. Eastern Time on the Business Day following the date the Registration Statement is declared effective by the Commission; and (v) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by the Registration Statement during the Effectiveness Period in accordance with the intended methods of disposition by the Holders thereof set forth in the Registration Statement as so amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities and any Special Counsel as promptly as possible (and, in the case of (i)(A) below, not less than three (3) Business Days prior to such filing, and in the case of (iii) below, on the same day of receipt by the Company of such notice from the Commission) and (if requested by any such Person) confirm such notice in writing no later than one (1) Business Day following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to the Registration Statement is filed; (B) when the Commission notifies the Company whether there will be a "review" of such Registration Statement and whenever the Commission comments in writing on such Registration Statement and (C) with respect to the Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission or any other Federal or state governmental authority for amendments or supplements to the Registration Statement or Prospectus or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement covering any or all of the Registrable Securities or the initiation or threatening of any Proceedings for that purpose; (iv) if at any time any of the representations and warranties of the Company contained in any agreement contemplated hereby ceases to be true and correct in all material respects; (v) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and (vi) of the occurrence of any event that makes any statement made in the Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to the Registration Statement, Prospectus or other documents so that, in the case of the Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of, as promptly as possible, (i) any order suspending the effectiveness of the Registration Statement or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction.
(e) If requested by the Holders of a majority in interest of the Registrable Securities, (i) promptly incorporate in a Prospectus supplement or post-effective amendment to the Registration Statement such information as the Company reasonably agrees should be included therein and (ii) make all required filings of such Prospectus supplement or such post-effective amendment as soon as practicable after the Company has received notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment.
(i) Cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold pursuant to a Registration Statement, which certificates, to the extent permitted by the Purchase Agreement and applicable federal and state securities laws, shall be free of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any Holder may request in connection with any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section 3(c)(vi), as promptly as possible, prepare a supplement or amendment, including a post-effective amendment, to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither the Registration Statement nor such Prospectus will contain 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, in the light of the circumstances under which they were made, not misleading.
(k) Use its best efforts to cause all Registrable Securities relating to the Registration Statement to be listed or quoted on the OTC Bulletin Board or any other securities exchange, quotation system or market, if any, on which similar securities issued by the Company are then listed or traded as and when required pursuant to the Purchase Agreement.
(l) Comply in all material respects with all applicable rules and regulations of the Commission and make generally available to its security holders all documents filed or required to be filed with the Commission, including, but not limited, to, earning statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 not later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) commencing on the first day of the first fiscal quarter of the Company after the effective date of the Registration Statement, which statement shall conform to the requirements of Rule 158.
(m) The Company may require each selling Holder to furnish to the Company information regarding such Holder and the distribution of such Registrable Securities as is required by law to be disclosed in the Registration Statement, Prospectus, or any amendment or supplement thereto, and the Company may exclude from such registration the Registrable Securities of any such Holder who unreasonably fails to furnish such information within a reasonable time after receiving such request.
If the Registration Statement refers to any Holder by name or otherwise as the holder of any securities of the Company, then such Holder shall have the right to require (if such reference to such Holder by name or otherwise is not required by the Securities Act or any similar federal statute then in force) the deletion of the reference to such Holder in any amendment or supplement to the Registration Statement filed or prepared subsequent to the time that such reference ceases to be required.
Each Holder covenants and agrees that it will not sell any Registrable Securities under the Registration Statement until the Company has electronically filed the Prospectus as then amended or supplemented as contemplated in Section 3(g) and notice from the Company that the Registration Statement and any post-effective amendments thereto have become effective as contemplated by Section 3(c).
Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v), 3(c)(vi) or 3(n), such Holder will forthwith discontinue disposition of such Registrable Securities under the Registration Statement until such Holder's receipt of the copies of the supplemented Prospectus and/or amended Registration Statement contemplated by Section 3(j), or until it is advised in writing (the " Advice ") by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement.
(n) If (i) there is material non-public information regarding the Company which the Company's Board of Directors (the " Board ") determines not to be in the Company's best interest to disclose and which the Company is not otherwise required to disclose, (ii) there is a significant business opportunity (including, but not limited to, the acquisition or disposition of assets (other than in the ordinary course of business) or any merger, consolidation, tender offer or other similar transaction) available to the Company which the Board determines not to be in the Company's best interest to disclose, or (iii) the Company is required to file a post-effective amendment to the Registration Statement to incorporate the Companys quarterly and annual reports and audited financial statements on Forms 10-QSB and 10-KSB, then the Company may (x) postpone or suspend filing of a registration statement for a period not to exceed thirty (30) consecutive days or (y) postpone or suspend effectiveness of a registration statement for a period not to exceed twenty (20) consecutive days; provided that the Company may not postpone or suspend effectiveness of a registration statement under this Section 3(n) for more than forty-five (45) days in the aggregate during any three hundred sixty (360) day period; provided , however , that no such postponement or suspension shall be permitted for consecutive twenty (20) day periods arising out of the same set of facts, circumstances or transactions.
4. Registration Expenses .
All fees and expenses incident to the performance of or compliance with this Agreement by the Company, except as and to the extent specified in this Section 4, shall be borne by the Company whether or not the Registration Statement is filed or becomes effective and whether or not any Registrable Securities are sold pursuant to the Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with the OTC Bulletin Board and each other securities exchange or market on which Registrable Securities are required hereunder to be listed, if any (B) with respect to filing fees required to be paid to the National Association of Securities Dealers, Inc. and the NASD Regulation, Inc. and (C) in compliance with state securities or Blue Sky laws (including, without limitation, fees and disbursements of counsel for the Holders in connection with Blue Sky qualifications of the Registrable Securities and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as the Holders of a majority of Registrable Securities may designate)), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing prospectuses if the printing of prospectuses is requested by the holders of a majority of the Registrable Securities included in the Registration Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company and Special Counsel for the Holders, in the case of the Special Counsel, up to a maximum amount of $7,500, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement, including, without limitation, the Company's independent public accountants (including the expenses of any comfort letters or costs associated with the delivery by independent public accountants of a comfort letter or comfort letters). In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder. The Company shall not be responsible for any discounts, commissions, transfer taxes or other similar fees incurred by the Holders in connection with the sale of the Registrable Securities.
5. Indemnification .
(a) Indemnification by the Company . The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, managers, partners, members, shareholders, agents, brokers, investment advisors and employees of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, costs of preparation and attorneys' fees) and expenses (collectively, " Losses "), as incurred, arising out of or relating to any violation of securities laws or untrue or alleged untrue statement of a material fact contained in the Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in the light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that such untrue statements or omissions are based solely upon information regarding such Holder or such other Indemnified Party furnished in writing to the Company by such Holder expressly for use therein. The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding of which the Company is aware in connection with the transactions contemplated by this Agreement.
(b) Indemnification by Holders . Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents and employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses (as determined by a court of competent jurisdiction in a final judgment not subject to appeal or review), as incurred, arising solely out of or based solely upon any untrue statement of a material fact contained in the Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto, or arising solely out of or based solely upon any omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in the light of the circumstances under which they were made) not misleading, to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Holder or other Indemnifying Party to the Company specifically for inclusion in the Registration Statement or such Prospectus. Notwithstanding anything to the contrary contained herein, each Holder shall be liable under this Section 5(b) for only that amount as does not exceed the net proceeds to such Holder as a result of the sale of Registrable Securities pursuant to such Registration Statement.
(c) Conduct of Indemnification Proceedings . If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an " Indemnified Party "), such Indemnified Party promptly shall notify the Person from whom indemnity is sought (the " Indemnifying Party ) in writing, and the Indemnifying Party shall be entitled to assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have proximately and materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; or (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such parties shall have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld or delayed. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending or threatened Proceeding in respect of which any Indemnified Party is a party and indemnity has been sought hereunder, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten (10) Business Days of written notice thereof to the Indemnifying Party (regardless of whether it is ultimately determined that an Indemnified Party is not entitled to indemnification hereunder; provided, that the Indemnified Party shall reimburse all such fees and expenses to the extent it is finally judicially determined that such Indemnified Party is not entitled to indemnification hereunder).
(d) Contribution . If a claim for indemnification under Section 5(a) or 5(b) is due but unavailable to an Indemnified Party because of a failure or refusal of a governmental authority to enforce such indemnification in accordance with its terms (by reason of public policy or otherwise), then each 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, in such proportion as is appropriate to reflect the relative benefits received by the Indemnifying Party on the one hand and the Indemnified Party on the other from the offering of the Preferred Stock and Warrants. If, but only if, the allocation provided by the foregoing sentence is not permitted by applicable law, the allocation of contribution shall be made in such proportion as is appropriate to reflect not only the relative benefits referred to in the foregoing sentence but also the relative fault, as applicable, of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party 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 of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in Section 5(c), any reasonable attorneys' or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms. In no event shall any selling Holder be required to contribute an amount under this Section 5(d) in excess of the net proceeds received by such Holder upon sale of such Holders Registrable Securities pursuant to the Registration Statement giving rise to such contribution obligation.
The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties pursuant to the law.
6. Rule 144 .
As long as any Holder owns Preferred Stock, Warrants or Registrable Securities, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to Section 13(a) or 15(d) of the Exchange Act. As long as any Holder owns Preferred Stock, Warrants or Registrable Securities, if the Company is not required to file reports pursuant to Section 13(a) or 15(d) of the Exchange Act, it will prepare and furnish to the Holders and make publicly available in accordance with Rule 144(c) promulgated under the Securities Act annual and quarterly financial statements, together with a discussion and analysis of such financial statements in form and substance substantially similar to those that would otherwise be required to be included in reports required by Section 13(a) or 15(d) of the Exchange Act, as well as any other information required thereby, in the time period that such filings would have been required to have been made under the Exchange Act. The Company further covenants that it will take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Person to sell Conversion Shares and Warrant Shares without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 promulgated under the Securities Act, including providing any legal opinions relating to such sale pursuant to Rule 144. Upon the request of any Holder, the Company shall deliver to such Holder a written certification of a duly authorized officer as to whether it has complied with such requirements.
7. Miscellaneous .
(a) Remedies . In the event of a breach by the Company or by a Holder, of any of their obligations under this Agreement, such Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements . Neither the Company nor any of its subsidiaries has, as of the date hereof entered into and currently in effect, nor shall the Company or any of its subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. Except as disclosed in Schedule 2.1(c) of the Purchase Agreement or Schedule II hereto, neither the Company nor any of its subsidiaries has previously entered into any agreement currently in effect granting any registration rights with respect to any of its securities to any Person. Without limiting the generality of the foregoing, without the written consent of the Holders of a majority of the then outstanding Registrable Securities, the Company shall not grant to any Person the right to request the Company to register any securities of the Company under the Securities Act unless the rights so granted are subject in all respects to the prior rights in full of the Holders set forth herein, and are not otherwise in conflict with the provisions of this Agreement.
(c) No Piggyback on Registrations . Neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto or as disclosed in Schedule 2.1(c) of the Purchase Agreement or Schedule II hereto) may include securities of the Company in the Registration Statement, and the Company shall not after the date hereof enter into any agreement providing such right to any of its securityholders, unless the right so granted is subject in all respects to the prior rights in full of the Holders set forth herein, and is not otherwise in conflict with the provisions of this Agreement.
(d) Piggy-Back Registrations . If at any time when there is not an effective Registration Statement covering (i) Conversion Shares or (ii) Warrant Shares, the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity 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 send to each holder of Registrable Securities written notice of such determination and, if within thirty (30) days after receipt of such notice, or within such shorter period of time as may be specified by the Company in such written notice as may be necessary for the Company to comply with its obligations with respect to the timing of the filing of such registration statement, any such holder shall so request in writing, (which request shall specify the Registrable Securities intended to be disposed of by the Purchasers), the Company will cause the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the holder, to the extent requisite to permit the disposition of the Registrable Securities so to be registered, provided that if at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to such holder and, thereupon, (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay expenses in accordance with Section 4 hereof), and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities being registered pursuant to this Section 7(d) for the same period as the delay in registering such other securities. The Company shall include in such registration statement all or any part of such Registrable Securities such holder requests to be registered; provided , however , that the Company shall not be required to register any Registrable Securities pursuant to this Section 7(d) that are eligible for sale pursuant to Rule 144(k) of the Securities Act. In the case of an underwritten public offering, if the managing underwriter(s) or underwriter(s) should reasonably object to the inclusion of the Registrable Securities in such registration statement, then if the Company after consultation with the managing underwriter should reasonably determine that the inclusion of such Registrable Securities would materially adversely affect the offering contemplated in such registration statement, and based on such determination recommends inclusion in such registration statement of fewer or none of the Registrable Securities of the Holders, then (x) the number of Registrable Securities of the Holders included in such registration statement shall be reduced pro-rata among such Holders (based upon the number of Registrable Securities requested to be included in the registration), if the Company after consultation with the underwriter(s) recommends the inclusion of fewer Registrable Securities, or (y) none of the Registrable Securities of the Holders shall be included in such registration statement, if the Company after consultation with the underwriter(s) recommends the inclusion of none of such Registrable Securities; provided , however , that if securities are being offered for the account of other persons or entities as well as the Company, such reduction shall not represent a greater fraction of the number of Registrable securities intended to be offered by the Holders than the fraction of similar reductions imposed on such other persons or entities (other than the Company).
(e) Failure to File Registration Statement and Other Events . The Company and the Purchasers agree that the Holders will suffer damages if the Registration Statement is not filed on or prior to the Filing Date and not declared effective by the Commission on or prior to the Effectiveness Date and maintained in the manner contemplated herein during the Effectiveness Period or if certain other events occur. The Company and the Holders further agree that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, if (A) the Registration Statement is not filed on or prior to the Filing Date, or (B) the Registration Statement is not declared effective by the Commission on or prior to the Effectiveness Date, or (C) the Company fails to file with the Commission a request for acceleration in accordance with Rule 461 promulgated under the Securities Act within three (3) Business Days of the date that the Company is notified (orally or in writing, whichever is earlier) by the Commission that a Registration Statement will not be "reviewed," or not subject to further review, or (D) the Registration Statement is filed with and declared effective by the Commission but thereafter ceases to be effective as to all Registrable Securities at any time prior to the expiration of the Effectiveness Period, without being succeeded immediately by a subsequent Registration Statement filed with and declared effective by the Commission, or (E) the Company has breached Section 3(n), or (F) trading in the Common Stock shall be suspended or if the Common Stock is no longer quoted on or delisted from the OTC Bulletin Board (or other principal exchange on which the Common Stock is traded) for any reason for more than three (3) Business Days in the aggregate (any such failure or breach being referred to as an " Event ," and for purposes of clauses (A) and (B) the date on which such Event occurs, or for purposes of clause (C) the date on which such three (3) Business Day period is exceeded, or for purposes of clause (D) after more than fifteen (15) Business Days, or for purposes of clause (F) the date on which such three (3) Business Day period is exceeded, being referred to as " Event Date "), the Company shall pay an amount in cash as liquidated damages to each Holder equal to two percent (2.0%) of the amount of the Holders initial investment in the Preferred Stock for each calendar month or portion thereof thereafter from the Event Date until the applicable Event is cured; provided , however , that in no event shall the amount of liquidated damages payable at any time and from time to time to any Holder pursuant to this Section 7(e) exceed an aggregate of twenty-four percent (24%) of the amount of the Holders initial investment in the Preferred Stock. Notwithstanding anything to the contrary in this paragraph (e), if (a) any of the Events described in clauses (A), (B), (C), (D) or (F) shall have occurred, (b) on or prior to the applicable Event Date, the Company shall have exercised its rights under Section 3(n) hereof and (c) the postponement or suspension permitted pursuant to such Section 3(n) shall remain effective as of such applicable Event Date, then the applicable Event Date shall be deemed instead to occur on the second Business Day following the termination of such postponement or suspension. Liquidated damages payable by the Company pursuant to this Section 7(d) shall be payable on the first (1 st ) Business Day of each thirty (30) day period following the Event Date. Notwithstanding anything to the contrary contained herein, in no event shall any liquidated damages be payable with respect to the Warrants or the Warrant Shares.
(f) Amendments and Waivers . The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of seventy-five percent (75%) of the Registrable Securities outstanding.
(g) Notices . Any notice, demand, request, waiver or other communication required or permitted to be given hereunder shall be in writing and shall be effective (a) upon hand delivery, telecopy or facsimile 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 second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:
Any party hereto may from time to time change its address for notices by giving at least ten (10) days written notice of such changed address to the other party hereto.
(h) Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns and shall inure to the benefit of each Holder and its successors and assigns. The Company may not assign this Agreement or any of its rights or obligations hereunder without the prior written consent of each Holder. Each Purchaser may assign its rights hereunder in the manner and to the Persons as permitted under the Purchase Agreement.
(i) Assignment of Registration Rights . The rights of each Holder hereunder, including the right to have the Company register for resale Registrable Securities in accordance with the terms of this Agreement, shall be automatically assignable by each Holder to any Person of all or a portion of the Preferred Stock, the Common Shares or the Registrable Securities if: (i) the Holder 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) following such transfer or assignment the further disposition of such securities by the transferee or assignees is restricted under the Securities Act and applicable state securities laws, (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this Section, the transferee or assignee agrees in writing with the Company to be bound by all of the provisions of this Agreement, and (v) such transfer shall have been made in accordance with the applicable requirements of the Purchase Agreement. The rights to assignment shall apply to the Holders (and to subsequent) successors and assigns.
(j) Counterparts . This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement and shall become effective when counterparts have been signed by each party and delivered to the other parties hereto, it being understood that all parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.
(k) Governing Law; Jurisdiction . This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York, without giving effect to any of the conflicts of law principles which would result in the application of the substantive law of another jurisdiction. This Agreement shall not be interpreted or construed with any presumption against the party causing this Agreement to be drafted. The Company and the Holders agree that venue for any dispute arising under this Agreement will lie exclusively in the state or federal courts located in New York County, New York, and the parties irrevocably waive any right to raise forum non conveniens or any other argument that New York is not the proper venue. The Company and the Holders irrevocably consent to personal jurisdiction in the state and federal courts of the state of New York. The Company and the Holders consent to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing in this Section 7(k) shall affect or limit any right to serve process in any other manner permitted by law. The Company and the Holders hereby agree that the prevailing party in any suit, action or proceeding arising out of or relating to this Agreement or the Purchase Agreement, shall be entitled to reimbursement for reasonable legal fees from the non-prevailing party. The parties hereby waive all rights to a trial by jury.
(l) Cumulative Remedies . The remedies provided herein are cumulative and not exclusive of any remedies provided by law.
(m) Severability . If any term, provision, covenant or restriction of this Agreement is held to be invalid, illegal, void or unenforceable in any respect, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
(n) Headings . The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.
(o) Shares Held by the Company and its Affiliates . Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or its Affiliates (other than any Holder or transferees or successors or assigns thereof if such Holder is deemed to be an Affiliate solely by reason of its holdings of such Registrable Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage.
(p) Independent Nature of Purchasers . The Company acknowledges that the obligations of each Purchaser under the Transaction Documents are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under the Transaction Documents. The Company acknowledges that the decision of each Purchaser to purchase Securities pursuant to the Purchase Agreement has been made by such Purchaser independently of any other Purchaser and independently of any information, materials, statements or opinions as to the business, affairs, operations, assets, properties, liabilities, results of operations, condition (financial or otherwise) or prospects of the Company or of its Subsidiaries which may have made or given by any other Purchaser or by any agent or employee of any other Purchaser, and no Purchaser or any of its agents or employees shall have any liability to any Purchaser (or any other person) relating to or arising from any such information, materials, statements or opinions. The Company acknowledges that nothing contained herein, or in any Transaction Document, and no action taken by any Purchaser pursuant hereto or thereto (including, but not limited to, the (i) inclusion of a Purchaser in the Registration Statement and (ii) review by, and consent to, such Registration Statement by a Purchaser) shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. The Company acknowledges that each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. The Company acknowledges that for reasons of administrative convenience only, the Transaction Documents have been prepared by counsel for one of the Purchasers and such counsel does not represent all of the Purchasers. The Company acknowledges that it has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by the Purchasers. The Company acknowledges that such procedure with respect to the Transaction Documents in no way creates a presumption that the Purchasers are in any way acting in concert or as a group with respect to the Transaction Documents or the transactions contemplated hereby or thereby.
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IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights Agreement to be duly executed by their respective authorized persons as of the date first indicated above.
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
By:_____________________________________ Name:
Title:
PURCHASER:
By:_____________________________________ Name:
Title:
Schedule I
Purchasers
Names and Addresses Number of Preferred Shares Dollar Amount of
of Purchasers & Warrants Purchased Investment
Vision Opportunity Master Fund, Ltd. Preferred Shares: 555,555 $1,000,000
20 W 55th St., 5th floor Series A Warrants: 5,555,555
New York, NY 10019 Series B Warrants: 5,555,555
Series J Warrants: 5,555,555
Schedule II
Other Securities to be Included on the Registration Statement
None.
Exhibit A
Plan of Distribution
The selling security holders and any of their pledgees, donees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock being offered under this prospectus on any stock exchange, market or trading facility on which shares of our common stock are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling security holders may use any one or more of the following methods when disposing of shares:
- ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
- block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
- purchases by a broker-dealer as principal and resales by the broker-dealer for its account;
- an exchange distribution in accordance with the rules of the applicable exchange;
- privately negotiated transactions;
- to cover short sales made after the date that the registration statement of which this prospectus is a part is declared effective by the Commission;
- broker-dealers may agree with the selling security holders to sell a specified number of such shares at a stipulated price per share;
- a combination of any of these methods of sale; and
- any other method permitted pursuant to applicable law.
The shares may also be sold under Rule 144 under the Securities Act of 1933, as amended ("Securities Act"), if available, rather than under this prospectus. The selling security holders have the sole and absolute discretion not to accept any purchase offer or make any sale of shares if they deem the purchase price to be unsatisfactory at any particular time.
The selling security holders may pledge their shares to their brokers under the margin provisions of customer agreements. If a selling security holder defaults on a margin loan, the broker may, from time to time, offer and sell the pledged shares.
Broker-dealers engaged by the selling security holders may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling security holders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, which commissions as to a particular broker or dealer may be in excess of customary commissions to the extent permitted by applicable law.
If sales of shares offered under this prospectus are made to broker-dealers as principals, we would be required to file a post-effective amendment to the registration statement of which this prospectus is a part. In the post-effective amendment, we would be required to disclose the names of any participating broker-dealers and the compensation arrangements relating to such sales.
The selling security holders and any broker-dealers or agents that are involved in selling the shares offered under this prospectus may be deemed to be "underwriters" within the meaning of the Securities Act in connection with these sales. Commissions received by these broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Any broker-dealers or agents that are deemed to be underwriters may not sell shares offered under this prospectus unless and until we set forth the names of the underwriters and the material details of their underwriting arrangements in a supplement to this prospectus or, if required, in a replacement prospectus included in a post-effective amendment to the registration statement of which this prospectus is a part.
The selling security holders and any other persons participating in the sale or distribution of the shares offered under this prospectus will be subject to applicable provisions of the Exchange Act, and the rules and regulations under that act, including Regulation M. These provisions may restrict activities of, and limit the timing of purchases and sales of any of the shares by, the selling security holders or any other person. Furthermore, under Regulation M, persons engaged in a distribution of securities are prohibited from simultaneously engaging in market making and other activities with respect to those securities for a specified period of time prior to the commencement of such distributions, subject to specified exceptions or exemptions. All of these limitations may affect the marketability of the shares.
If any of the shares of common stock offered for sale pursuant to this prospectus are transferred other than pursuant to a sale under this prospectus, then subsequent holders could not use this prospectus until a post-effective amendment or prospectus supplement is filed, naming such holders. We offer no assurance as to whether any of the selling security holders will sell all or any portion of the shares offered under this prospectus.
We have agreed to pay all fees and expenses we incur incident to the registration of the shares being offered under this prospectus. However, each selling security holder and purchaser is responsible for paying any discounts, commissions and similar selling expenses they incur.
We and the selling security holders have agreed to indemnify one another against certain losses, damages and liabilities arising in connection with this prospectus, including liabilities under the Securities Act.
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this " Agreement ") is made and entered into as of September 29, 2006, by and among International American Technologies, Inc., a Nevada corporation (the " Company "), and the purchasers listed on Schedule I hereto (the " Purchasers ").
This Agreement is being entered into pursuant to the Series B Convertible Preferred Stock Purchase Agreement dated as of the date hereof among the Company and the Purchasers (the " Purchase Agreement ").
The Company and the Purchasers hereby agree as follows:
1. Definitions .
Capitalized terms used and not otherwise defined herein shall have the meanings given such terms in the Purchase Agreement. As used in this Agreement, the following terms shall have the following meanings:
" Advice " shall have meaning set forth in Section 3(m).
" Affiliate " means, with respect to any Person, any other Person that directly or indirectly controls or is controlled by or under common control with such Person. For the purposes of this definition, " control ," when used with respect to any Person, means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise; and the terms of " affiliated ," " controlling " and " controlled " have meanings correlative to the foregoing.
" Board " shall have meaning set forth in Section 3(n).
" Business Day " means any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the state of New York generally are authorized or required by law or other government actions to close.
" Closing Date " means the date of the Closing of the purchase and sale of the Preferred Stock and the Warrants pursuant to the Purchase Agreement.
" Commission " means the Securities and Exchange Commission.
" Common Stock " means the Company's Common Stock, par value $0.0001 per share.
" Effectiveness Date " means with respect to the Registration Statement the earlier of (A) the one hundred twentieth (120 th ) day following the Closing Date (or in the event the Registration Statement receives a "full review" by the Commission, the one hundred fiftieth (150 th ) day following the Closing Date) or (B) the date which is within three (3) Business Days after the date on which the Commission informs the Company (i) that the Commission will not review the Registration Statement or (ii) that the Company may request the acceleration of the effectiveness of the Registration Statement and the Company makes such request; provided that , if the Effectiveness Date falls on a Saturday, Sunday or any other day which shall be a legal holiday or a day on which the Commission is authorized or required by law or other government actions to close, the Effectiveness Date shall be the following Business Day.
" Effectiveness Period " shall have the meaning set forth in Section 2.
" Event " shall have the meaning set forth in Section 7(e).
" Event Date " shall have the meaning set forth in Section 7(e).
" Exchange Act " means the Securities Exchange Act of 1934, as amended.
" Filing Date " means the forty-fifth (45 th ) day following the Closing Date; provided that , if the Filing Date falls on a Saturday, Sunday or any other day which shall be a legal holiday or a day on which the Commission is authorized or required by law or other government actions to close, the Filing Date shall be the following Business Day.
" Holder " or " Holders " means the holder or holders, as the case may be, from time to time of Registrable Securities.
" Indemnified Party " shall have the meaning set forth in Section 5(c).
" Indemnifying Party " shall have the meaning set forth in Section 5(c).
" Losses " shall have the meaning set forth in Section 5(a).
" Person " means an individual or a corporation, partnership, trust, incorporated or unincorporated association, joint venture, limited liability company, joint stock company, government (or an agency or political subdivision thereof) or other entity of any kind.
" Preferred Stock " means shares of the Companys Series B Convertible Preferred Stock issued to the Purchasers pursuant to the Purchase Agreement.
" Proceeding " means an action, claim, suit, investigation or proceeding (including, without limitation, an investigation or partial proceeding, such as a deposition), whether commenced or threatened.
" Prospectus " means the prospectus included in the Registration Statement (including, without limitation, a prospectus that includes any information previously omitted from a prospectus filed as part of an effective registration statement in reliance upon Rule 430A promulgated under the Securities Act), as amended or supplemented by any prospectus supplement, with respect to the terms of the offering of any portion of the Registrable Securities covered by the Registration Statement, and all other amendments and supplements to the Prospectus, including post-effective amendments, and all material incorporated by reference in such Prospectus.
" Registrable Securities means (i) the shares of Common Stock issuable upon conversion of the Preferred Stock and (ii) the shares of Common Stock issuable upon exercise of the Warrants.
" Registration Statement " means the registration statements and any additional registration statements contemplated by Section 2, including (in each case) the Prospectus, amendments and supplements to such registration statement or Prospectus, including pre- and post-effective amendments, all exhibits thereto, and all material incorporated by reference in such registration statement.
" Rule 144 " means Rule 144 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.
" Rule 158 " means Rule 158 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.
" Rule 415 " means Rule 415 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.
" Rule 424 " means Rule 424 promulgated by the Commission pursuant to the Securities Act, as such Rule may be amended from time to time, or any similar rule or regulation hereafter adopted by the Commission having substantially the same effect as such Rule.
" Securities Act " means the Securities Act of 1933, as amended.
" Special Counsel " means Kramer Levin Naftalis & Frankel LLP, for which the Holders will be reimbursed by the Company pursuant to Section 4.
" Warrants " means the warrants to purchase shares of Common Stock issued to the Purchasers pursuant to the Purchase Agreement.
2. Resale Registration.
On or prior to the Filing Date, the Company shall prepare and file with the Commission a "resale" Registration Statement providing for the resale of all Registrable Securities for an offering to be made on a continuous basis pursuant to Rule 415. The Registration Statement shall be on Form SB-2 (except if the Company is not then eligible to register for resale the Registrable Securities on Form SB-2, in which case such registration shall be on another appropriate form in accordance herewith and the Securities Act and the rules promulgated thereunder). Such Registration Statement shall cover to the extent allowable under the Securities Act and the rules promulgated thereunder (including Rule 416), such indeterminate number of additional shares of Common Stock resulting from stock splits, stock dividends or similar transactions with respect to the Registrable Securities. The Company shall (i) not permit any securities other than the Registrable Securities and the securities listed on Schedule II hereto to be included in the Registration Statement and (ii) use its best efforts to cause the Registration Statement to be declared effective under the Securities Act as promptly as possible after the filing thereof, but in any event prior to the Effectiveness Date, and to keep such Registration Statement continuously effective under the Securities Act until such date as is the earlier of (x) the date when all Registrable Securities covered by such Registration Statement have been sold or (y) the date on which the Registrable Securities may be sold without any restriction pursuant to Rule 144(k) as determined by the counsel to the Company pursuant to a written opinion letter, addressed to the Company's transfer agent to such effect (the " Effectiveness Period "). The Company shall request that the effective time of the Registration Statement is 4:00 p.m. Eastern Time on the effective date. If at any time and for any reason, an additional Registration Statement is required to be filed because at such time the actual number of shares of Common Stock into which the Preferred Stock is convertible and the Warrants are exercisable plus the number of shares of Common Stock exceeds the number of shares of Registrable Securities remaining under the Registration Statement, the Company shall have twenty (20) Business Days to file such additional Registration Statement, and the Company shall use its best efforts to cause such additional Registration Statement to be declared effective by the Commission as soon as possible, but in no event later than sixty (60) days after filing.
3. Registration Procedures.
In connection with the Company's registration obligations hereunder, the Company shall:
(a) Prepare and file with the Commission, on or prior to the Filing Date, a Registration Statement on Form SB-2 (or if the Company is not then eligible to register for resale the Registrable Securities on Form SB-2 such registration shall be on another appropriate form in accordance herewith and the Securities Act and the rules promulgated thereunder) in accordance with the plan of distribution as set forth on Exhibit A hereto and in accordance with applicable law, and cause the Registration Statement to become effective and remain effective as provided herein; provided , however , that not less than five (5) Business Days prior to the filing of the Registration Statement or any related Prospectus or any amendment or supplement thereto, the Company shall (i) furnish to the Holders and any Special Counsel, copies of all such documents proposed to be filed, which documents will be subject to the review of such Holders and such Special Counsel, and (ii) cause its officers and directors, counsel and independent certified public accountants to respond to such inquiries as shall be necessary, in the reasonable opinion of Special Counsel, to conduct a reasonable review of such documents. The Company shall not file the Registration Statement or any such Prospectus or any amendments or supplements thereto to which the Holders of a majority of the Registrable Securities or any Special Counsel shall reasonably object in writing within three (3) Business Days of their receipt thereof.
(b) (i) Prepare and file with the Commission such amendments, including post-effective amendments, to the Registration Statement as may be necessary to keep the Registration Statement continuously effective as to the applicable Registrable Securities for the Effectiveness Period and prepare and file with the Commission such additional Registration Statements as necessary in order to register for resale under the Securities Act all of the Registrable Securities; (ii) cause the related Prospectus to be amended or supplemented by any required Prospectus supplement, and as so supplemented or amended to be filed pursuant to Rule 424 (or any similar provisions then in force) promulgated under the Securities Act; (iii) respond as promptly as possible, but in no event later than ten (10) Business Days, to any comments received from the Commission with respect to the Registration Statement or any amendment thereto and as promptly as possible provide the Holders true and complete copies of all correspondence from and to the Commission relating to the Registration Statement; (iv) file the final prospectus pursuant to Rule 424 of the Securities Act no later than 9:00 a.m. Eastern Time on the Business Day following the date the Registration Statement is declared effective by the Commission; and (v) comply in all material respects with the provisions of the Securities Act and the Exchange Act with respect to the disposition of all Registrable Securities covered by the Registration Statement during the Effectiveness Period in accordance with the intended methods of disposition by the Holders thereof set forth in the Registration Statement as so amended or in such Prospectus as so supplemented.
(c) Notify the Holders of Registrable Securities and any Special Counsel as promptly as possible (and, in the case of (i)(A) below, not less than three (3) Business Days prior to such filing, and in the case of (iii) below, on the same day of receipt by the Company of such notice from the Commission) and (if requested by any such Person) confirm such notice in writing no later than one (1) Business Day following the day (i)(A) when a Prospectus or any Prospectus supplement or post-effective amendment to the Registration Statement is filed; (B) when the Commission notifies the Company whether there will be a "review" of such Registration Statement and whenever the Commission comments in writing on such Registration Statement and (C) with respect to the Registration Statement or any post-effective amendment, when the same has become effective; (ii) of any request by the Commission or any other Federal or state governmental authority for amendments or supplements to the Registration Statement or Prospectus or for additional information; (iii) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement covering any or all of the Registrable Securities or the initiation or threatening of any Proceedings for that purpose; (iv) if at any time any of the representations and warranties of the Company contained in any agreement contemplated hereby ceases to be true and correct in all material respects; (v) of the receipt by the Company of any notification with respect to the suspension of the qualification or exemption from qualification of any of the Registrable Securities for sale in any jurisdiction, or the initiation or threatening of any Proceeding for such purpose; and (vi) of the occurrence of any event that makes any statement made in the Registration Statement or Prospectus or any document incorporated or deemed to be incorporated therein by reference untrue in any material respect or that requires any revisions to the Registration Statement, Prospectus or other documents so that, in the case of the Registration Statement or the Prospectus, as the case may be, it will not contain any untrue statement of a material fact or omit to state any material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances under which they were made, not misleading.
(d) Use its best efforts to avoid the issuance of, or, if issued, obtain the withdrawal of, as promptly as possible, (i) any order suspending the effectiveness of the Registration Statement or (ii) any suspension of the qualification (or exemption from qualification) of any of the Registrable Securities for sale in any jurisdiction.
(e) If requested by the Holders of a majority in interest of the Registrable Securities, (i) promptly incorporate in a Prospectus supplement or post-effective amendment to the Registration Statement such information as the Company reasonably agrees should be included therein and (ii) make all required filings of such Prospectus supplement or such post-effective amendment as soon as practicable after the Company has received notification of the matters to be incorporated in such Prospectus supplement or post-effective amendment.
(i) Cooperate with the Holders to facilitate the timely preparation and delivery of certificates representing Registrable Securities to be sold pursuant to a Registration Statement, which certificates, to the extent permitted by the Purchase Agreement and applicable federal and state securities laws, shall be free of all restrictive legends, and to enable such Registrable Securities to be in such denominations and registered in such names as any Holder may request in connection with any sale of Registrable Securities.
(j) Upon the occurrence of any event contemplated by Section 3(c)(vi), as promptly as possible, prepare a supplement or amendment, including a post-effective amendment, to the Registration Statement or a supplement to the related Prospectus or any document incorporated or deemed to be incorporated therein by reference, and file any other required document so that, as thereafter delivered, neither the Registration Statement nor such Prospectus will contain 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, in the light of the circumstances under which they were made, not misleading.
(k) Use its best efforts to cause all Registrable Securities relating to the Registration Statement to be listed or quoted on the OTC Bulletin Board or any other securities exchange, quotation system or market, if any, on which similar securities issued by the Company are then listed or traded as and when required pursuant to the Purchase Agreement.
(l) Comply in all material respects with all applicable rules and regulations of the Commission and make generally available to its security holders all documents filed or required to be filed with the Commission, including, but not limited, to, earning statements satisfying the provisions of Section 11(a) of the Securities Act and Rule 158 not later than 45 days after the end of any 12-month period (or 90 days after the end of any 12-month period if such period is a fiscal year) commencing on the first day of the first fiscal quarter of the Company after the effective date of the Registration Statement, which statement shall conform to the requirements of Rule 158.
(m) The Company may require each selling Holder to furnish to the Company information regarding such Holder and the distribution of such Registrable Securities as is required by law to be disclosed in the Registration Statement, Prospectus, or any amendment or supplement thereto, and the Company may exclude from such registration the Registrable Securities of any such Holder who unreasonably fails to furnish such information within a reasonable time after receiving such request.
If the Registration Statement refers to any Holder by name or otherwise as the holder of any securities of the Company, then such Holder shall have the right to require (if such reference to such Holder by name or otherwise is not required by the Securities Act or any similar federal statute then in force) the deletion of the reference to such Holder in any amendment or supplement to the Registration Statement filed or prepared subsequent to the time that such reference ceases to be required.
Each Holder covenants and agrees that it will not sell any Registrable Securities under the Registration Statement until the Company has electronically filed the Prospectus as then amended or supplemented as contemplated in Section 3(g) and notice from the Company that the Registration Statement and any post-effective amendments thereto have become effective as contemplated by Section 3(c).
Each Holder agrees by its acquisition of such Registrable Securities that, upon receipt of a notice from the Company of the occurrence of any event of the kind described in Section 3(c)(ii), 3(c)(iii), 3(c)(iv), 3(c)(v), 3(c)(vi) or 3(n), such Holder will forthwith discontinue disposition of such Registrable Securities under the Registration Statement until such Holder's receipt of the copies of the supplemented Prospectus and/or amended Registration Statement contemplated by Section 3(j), or until it is advised in writing (the " Advice ") by the Company that the use of the applicable Prospectus may be resumed, and, in either case, has received copies of any additional or supplemental filings that are incorporated or deemed to be incorporated by reference in such Prospectus or Registration Statement.
(n) If (i) there is material non-public information regarding the Company which the Company's Board of Directors (the " Board ") determines not to be in the Company's best interest to disclose and which the Company is not otherwise required to disclose, (ii) there is a significant business opportunity (including, but not limited to, the acquisition or disposition of assets (other than in the ordinary course of business) or any merger, consolidation, tender offer or other similar transaction) available to the Company which the Board determines not to be in the Company's best interest to disclose, or (iii) the Company is required to file a post-effective amendment to the Registration Statement to incorporate the Companys quarterly and annual reports and audited financial statements on Forms 10-QSB and 10-KSB, then the Company may (x) postpone or suspend filing of a registration statement for a period not to exceed thirty (30) consecutive days or (y) postpone or suspend effectiveness of a registration statement for a period not to exceed twenty (20) consecutive days; provided that the Company may not postpone or suspend effectiveness of a registration statement under this Section 3(n) for more than forty-five (45) days in the aggregate during any three hundred sixty (360) day period; provided , however , that no such postponement or suspension shall be permitted for consecutive twenty (20) day periods arising out of the same set of facts, circumstances or transactions.
4. Registration Expenses .
All fees and expenses incident to the performance of or compliance with this Agreement by the Company, except as and to the extent specified in this Section 4, shall be borne by the Company whether or not the Registration Statement is filed or becomes effective and whether or not any Registrable Securities are sold pursuant to the Registration Statement. The fees and expenses referred to in the foregoing sentence shall include, without limitation, (i) all registration and filing fees (including, without limitation, fees and expenses (A) with respect to filings required to be made with the OTC Bulletin Board and each other securities exchange or market on which Registrable Securities are required hereunder to be listed, if any (B) with respect to filing fees required to be paid to the National Association of Securities Dealers, Inc. and the NASD Regulation, Inc. and (C) in compliance with state securities or Blue Sky laws (including, without limitation, fees and disbursements of counsel for the Holders in connection with Blue Sky qualifications of the Registrable Securities and determination of the eligibility of the Registrable Securities for investment under the laws of such jurisdictions as the Holders of a majority of Registrable Securities may designate)), (ii) printing expenses (including, without limitation, expenses of printing certificates for Registrable Securities and of printing prospectuses if the printing of prospectuses is requested by the holders of a majority of the Registrable Securities included in the Registration Statement), (iii) messenger, telephone and delivery expenses, (iv) fees and disbursements of counsel for the Company and Special Counsel for the Holders, in the case of the Special Counsel, up to a maximum amount of $7,500, (v) Securities Act liability insurance, if the Company so desires such insurance, and (vi) fees and expenses of all other Persons retained by the Company in connection with the consummation of the transactions contemplated by this Agreement, including, without limitation, the Company's independent public accountants (including the expenses of any comfort letters or costs associated with the delivery by independent public accountants of a comfort letter or comfort letters). In addition, the Company shall be responsible for all of its internal expenses incurred in connection with the consummation of the transactions contemplated by this Agreement (including, without limitation, all salaries and expenses of its officers and employees performing legal or accounting duties), the expense of any annual audit, the fees and expenses incurred in connection with the listing of the Registrable Securities on any securities exchange as required hereunder. The Company shall not be responsible for any discounts, commissions, transfer taxes or other similar fees incurred by the Holders in connection with the sale of the Registrable Securities.
5. Indemnification .
(a) Indemnification by the Company . The Company shall, notwithstanding any termination of this Agreement, indemnify and hold harmless each Holder, the officers, directors, managers, partners, members, shareholders, agents, brokers, investment advisors and employees of each of them, each Person who controls any such Holder (within the meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act) and the officers, directors, agents and employees of each such controlling Person, to the fullest extent permitted by applicable law, from and against any and all losses, claims, damages, liabilities, costs (including, without limitation, costs of preparation and attorneys' fees) and expenses (collectively, " Losses "), as incurred, arising out of or relating to any violation of securities laws or untrue or alleged untrue statement of a material fact contained in the Registration Statement, any Prospectus or any form of prospectus or in any amendment or supplement thereto or in any preliminary prospectus, or arising out of or relating to any omission or alleged omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in the light of the circumstances under which they were made) not misleading, except to the extent, but only to the extent, that such untrue statements or omissions are based solely upon information regarding such Holder or such other Indemnified Party furnished in writing to the Company by such Holder expressly for use therein. The Company shall notify the Holders promptly of the institution, threat or assertion of any Proceeding of which the Company is aware in connection with the transactions contemplated by this Agreement.
(b) Indemnification by Holders . Each Holder shall, severally and not jointly, indemnify and hold harmless the Company, its directors, officers, agents and employees, each Person who controls the Company (within the meaning of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the directors, officers, agents and employees of such controlling Persons, to the fullest extent permitted by applicable law, from and against all Losses (as determined by a court of competent jurisdiction in a final judgment not subject to appeal or review), as incurred, arising solely out of or based solely upon any untrue statement of a material fact contained in the Registration Statement, any Prospectus, or any form of prospectus, or in any amendment or supplement thereto, or arising solely out of or based solely upon any omission of a material fact required to be stated therein or necessary to make the statements therein (in the case of any Prospectus or form of prospectus or supplement thereto, in the light of the circumstances under which they were made) not misleading, to the extent, but only to the extent, that such untrue statement or omission is contained in any information so furnished in writing by such Holder or other Indemnifying Party to the Company specifically for inclusion in the Registration Statement or such Prospectus. Notwithstanding anything to the contrary contained herein, each Holder shall be liable under this Section 5(b) for only that amount as does not exceed the net proceeds to such Holder as a result of the sale of Registrable Securities pursuant to such Registration Statement.
(c) Conduct of Indemnification Proceedings . If any Proceeding shall be brought or asserted against any Person entitled to indemnity hereunder (an " Indemnified Party "), such Indemnified Party promptly shall notify the Person from whom indemnity is sought (the " Indemnifying Party ) in writing, and the Indemnifying Party shall be entitled to assume the defense thereof, including the employment of counsel reasonably satisfactory to the Indemnified Party and the payment of all fees and expenses incurred in connection with defense thereof; provided, that the failure of any Indemnified Party to give such notice shall not relieve the Indemnifying Party of its obligations or liabilities pursuant to this Agreement, except (and only) to the extent that it shall be finally determined by a court of competent jurisdiction (which determination is not subject to appeal or further review) that such failure shall have proximately and materially adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel in any such Proceeding and to participate in the defense thereof, but the fees and expenses of such counsel shall be at the expense of such Indemnified Party or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such fees and expenses; or (2) the Indemnifying Party shall have failed promptly to assume the defense of such Proceeding and to employ counsel reasonably satisfactory to such Indemnified Party in any such Proceeding; or (3) the named parties to any such Proceeding (including any impleaded parties) include both such Indemnified Party and the Indemnifying Party, and such parties shall have been advised by counsel that a conflict of interest is likely to exist if the same counsel were to represent such Indemnified Party and the Indemnifying Party (in which case, if such Indemnified Party notifies the Indemnifying Party in writing that it elects to employ separate counsel at the expense of the Indemnifying Party, the Indemnifying Party shall not have the right to assume the defense thereof and such counsel shall be at the expense of the Indemnifying Party). The Indemnifying Party shall not be liable for any settlement of any such Proceeding effected without its written consent, which consent shall not be unreasonably withheld or delayed. No Indemnifying Party shall, without the prior written consent of the Indemnified Party, effect any settlement of any pending or threatened Proceeding in respect of which any Indemnified Party is a party and indemnity has been sought hereunder, unless such settlement includes an unconditional release of such Indemnified Party from all liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable fees and expenses to the extent incurred in connection with investigating or preparing to defend such Proceeding in a manner not inconsistent with this Section) shall be paid to the Indemnified Party, as incurred, within ten (10) Business Days of written notice thereof to the Indemnifying Party (regardless of whether it is ultimately determined that an Indemnified Party is not entitled to indemnification hereunder; provided, that the Indemnified Party shall reimburse all such fees and expenses to the extent it is finally judicially determined that such Indemnified Party is not entitled to indemnification hereunder).
(d) Contribution . If a claim for indemnification under Section 5(a) or 5(b) is due but unavailable to an Indemnified Party because of a failure or refusal of a governmental authority to enforce such indemnification in accordance with its terms (by reason of public policy or otherwise), then each 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, in such proportion as is appropriate to reflect the relative benefits received by the Indemnifying Party on the one hand and the Indemnified Party on the other from the offering of the Preferred Stock and Warrants. If, but only if, the allocation provided by the foregoing sentence is not permitted by applicable law, the allocation of contribution shall be made in such proportion as is appropriate to reflect not only the relative benefits referred to in the foregoing sentence but also the relative fault, as applicable, of the Indemnifying Party and Indemnified Party in connection with the actions, statements or omissions that resulted in such Losses as well as any other relevant equitable considerations. The relative fault of such Indemnifying Party and Indemnified Party 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 of a material fact, has been taken or made by, or relates to information supplied by, such Indemnifying Party or Indemnified Party, and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such action, statement or omission. The amount paid or payable by a party as a result of any Losses shall be deemed to include, subject to the limitations set forth in Section 5(c), any reasonable attorneys' or other reasonable fees or expenses incurred by such party in connection with any Proceeding to the extent such party would have been indemnified for such fees or expenses if the indemnification provided for in this Section was available to such party in accordance with its terms. In no event shall any selling Holder be required to contribute an amount under this Section 5(d) in excess of the net proceeds received by such Holder upon sale of such Holders Registrable Securities pursuant to the Registration Statement giving rise to such contribution obligation.
The parties hereto agree that it would not be just and equitable if contribution pursuant to this Section 5(d) were determined by pro rata allocation or by any other method of allocation that does not take into account the equitable considerations referred to in the immediately preceding paragraph. No Person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Securities Act) shall be entitled to contribution from any Person who was not guilty of such fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section are in addition to any liability that the Indemnifying Parties may have to the Indemnified Parties pursuant to the law.
6. Rule 144 .
As long as any Holder owns Preferred Stock, Warrants or Registrable Securities, the Company covenants to timely file (or obtain extensions in respect thereof and file within the applicable grace period) all reports required to be filed by the Company after the date hereof pursuant to Section 13(a) or 15(d) of the Exchange Act. As long as any Holder owns Preferred Stock, Warrants or Registrable Securities, if the Company is not required to file reports pursuant to Section 13(a) or 15(d) of the Exchange Act, it will prepare and furnish to the Holders and make publicly available in accordance with Rule 144(c) promulgated under the Securities Act annual and quarterly financial statements, together with a discussion and analysis of such financial statements in form and substance substantially similar to those that would otherwise be required to be included in reports required by Section 13(a) or 15(d) of the Exchange Act, as well as any other information required thereby, in the time period that such filings would have been required to have been made under the Exchange Act. The Company further covenants that it will take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Person to sell Conversion Shares and Warrant Shares without registration under the Securities Act within the limitation of the exemptions provided by Rule 144 promulgated under the Securities Act, including providing any legal opinions relating to such sale pursuant to Rule 144. Upon the request of any Holder, the Company shall deliver to such Holder a written certification of a duly authorized officer as to whether it has complied with such requirements.
7. Miscellaneous .
(a) Remedies . In the event of a breach by the Company or by a Holder, of any of their obligations under this Agreement, such Holder or the Company, as the case may be, in addition to being entitled to exercise all rights granted by law and under this Agreement, including recovery of damages, will be entitled to specific performance of its rights under this Agreement. The Company and each Holder agree that monetary damages would not provide adequate compensation for any losses incurred by reason of a breach by it of any of the provisions of this Agreement and hereby further agrees that, in the event of any action for specific performance in respect of such breach, it shall waive the defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements . Neither the Company nor any of its subsidiaries has, as of the date hereof entered into and currently in effect, nor shall the Company or any of its subsidiaries, on or after the date of this Agreement, enter into any agreement with respect to its securities that is inconsistent with the rights granted to the Holders in this Agreement or otherwise conflicts with the provisions hereof. Except as disclosed in Schedule 2.1(c) of the Purchase Agreement or Schedule II hereto, neither the Company nor any of its subsidiaries has previously entered into any agreement currently in effect granting any registration rights with respect to any of its securities to any Person. Without limiting the generality of the foregoing, without the written consent of the Holders of a majority of the then outstanding Registrable Securities, the Company shall not grant to any Person the right to request the Company to register any securities of the Company under the Securities Act unless the rights so granted are subject in all respects to the prior rights in full of the Holders set forth herein, and are not otherwise in conflict with the provisions of this Agreement.
(c) No Piggyback on Registrations . Neither the Company nor any of its security holders (other than the Holders in such capacity pursuant hereto or as disclosed in Schedule 2.1(c) of the Purchase Agreement or Schedule II hereto) may include securities of the Company in the Registration Statement, and the Company shall not after the date hereof enter into any agreement providing such right to any of its securityholders, unless the right so granted is subject in all respects to the prior rights in full of the Holders set forth herein, and is not otherwise in conflict with the provisions of this Agreement.
(d) Piggy-Back Registrations . If at any time when there is not an effective Registration Statement covering (i) Conversion Shares or (ii) Warrant Shares, the Company shall determine to prepare and file with the Commission a registration statement relating to an offering for its own account or the account of others under the Securities Act of any of its equity securities, other than on Form S-4 or Form S-8 (each as promulgated under the Securities Act) or their then equivalents relating to equity 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 send to each holder of Registrable Securities written notice of such determination and, if within thirty (30) days after receipt of such notice, or within such shorter period of time as may be specified by the Company in such written notice as may be necessary for the Company to comply with its obligations with respect to the timing of the filing of such registration statement, any such holder shall so request in writing, (which request shall specify the Registrable Securities intended to be disposed of by the Purchasers), the Company will cause the registration under the Securities Act of all Registrable Securities which the Company has been so requested to register by the holder, to the extent requisite to permit the disposition of the Registrable Securities so to be registered, provided that if at any time after giving written notice of its intention to register any securities and prior to the effective date of the registration statement filed in connection with such registration, the Company shall determine for any reason not to register or to delay registration of such securities, the Company may, at its election, give written notice of such determination to such holder and, thereupon, (i) in the case of a determination not to register, shall be relieved of its obligation to register any Registrable Securities in connection with such registration (but not from its obligation to pay expenses in accordance with Section 4 hereof), and (ii) in the case of a determination to delay registering, shall be permitted to delay registering any Registrable Securities being registered pursuant to this Section 7(d) for the same period as the delay in registering such other securities. The Company shall include in such registration statement all or any part of such Registrable Securities such holder requests to be registered; provided , however , that the Company shall not be required to register any Registrable Securities pursuant to this Section 7(d) that are eligible for sale pursuant to Rule 144(k) of the Securities Act. In the case of an underwritten public offering, if the managing underwriter(s) or underwriter(s) should reasonably object to the inclusion of the Registrable Securities in such registration statement, then if the Company after consultation with the managing underwriter should reasonably determine that the inclusion of such Registrable Securities would materially adversely affect the offering contemplated in such registration statement, and based on such determination recommends inclusion in such registration statement of fewer or none of the Registrable Securities of the Holders, then (x) the number of Registrable Securities of the Holders included in such registration statement shall be reduced pro-rata among such Holders (based upon the number of Registrable Securities requested to be included in the registration), if the Company after consultation with the underwriter(s) recommends the inclusion of fewer Registrable Securities, or (y) none of the Registrable Securities of the Holders shall be included in such registration statement, if the Company after consultation with the underwriter(s) recommends the inclusion of none of such Registrable Securities; provided , however , that if securities are being offered for the account of other persons or entities as well as the Company, such reduction shall not represent a greater fraction of the number of Registrable securities intended to be offered by the Holders than the fraction of similar reductions imposed on such other persons or entities (other than the Company).
(e) Failure to File Registration Statement and Other Events . The Company and the Purchasers agree that the Holders will suffer damages if the Registration Statement is not filed on or prior to the Filing Date and not declared effective by the Commission on or prior to the Effectiveness Date and maintained in the manner contemplated herein during the Effectiveness Period or if certain other events occur. The Company and the Holders further agree that it would not be feasible to ascertain the extent of such damages with precision. Accordingly, if (A) the Registration Statement is not filed on or prior to the Filing Date, or (B) the Registration Statement is not declared effective by the Commission on or prior to the Effectiveness Date, or (C) the Company fails to file with the Commission a request for acceleration in accordance with Rule 461 promulgated under the Securities Act within three (3) Business Days of the date that the Company is notified (orally or in writing, whichever is earlier) by the Commission that a Registration Statement will not be "reviewed," or not subject to further review, or (D) the Registration Statement is filed with and declared effective by the Commission but thereafter ceases to be effective as to all Registrable Securities at any time prior to the expiration of the Effectiveness Period, without being succeeded immediately by a subsequent Registration Statement filed with and declared effective by the Commission, or (E) the Company has breached Section 3(n), or (F) trading in the Common Stock shall be suspended or if the Common Stock is no longer quoted on or delisted from the OTC Bulletin Board (or other principal exchange on which the Common Stock is traded) for any reason for more than three (3) Business Days in the aggregate (any such failure or breach being referred to as an " Event ," and for purposes of clauses (A) and (B) the date on which such Event occurs, or for purposes of clause (C) the date on which such three (3) Business Day period is exceeded, or for purposes of clause (D) after more than fifteen (15) Business Days, or for purposes of clause (F) the date on which such three (3) Business Day period is exceeded, being referred to as " Event Date "), the Company shall pay an amount in cash as liquidated damages to each Holder equal to two percent (2.0%) of the amount of the Holders initial investment in the Preferred Stock for each calendar month or portion thereof thereafter from the Event Date until the applicable Event is cured; provided , however , that in no event shall the amount of liquidated damages payable at any time and from time to time to any Holder pursuant to this Section 7(e) exceed an aggregate of twenty-four percent (24%) of the amount of the Holders initial investment in the Preferred Stock. Notwithstanding anything to the contrary in this paragraph (e), if (a) any of the Events described in clauses (A), (B), (C), (D) or (F) shall have occurred, (b) on or prior to the applicable Event Date, the Company shall have exercised its rights under Section 3(n) hereof and (c) the postponement or suspension permitted pursuant to such Section 3(n) shall remain effective as of such applicable Event Date, then the applicable Event Date shall be deemed instead to occur on the second Business Day following the termination of such postponement or suspension. Liquidated damages payable by the Company pursuant to this Section 7(d) shall be payable on the first (1 st ) Business Day of each thirty (30) day period following the Event Date. Notwithstanding anything to the contrary contained herein, in no event shall any liquidated damages be payable with respect to the Warrants or the Warrant Shares.
(f) Amendments and Waivers . The provisions of this Agreement, including the provisions of this sentence, may not be amended, modified or supplemented, and waivers or consents to departures from the provisions hereof may not be given, unless the same shall be in writing and signed by the Company and the Holders of seventy-five percent (75%) of the Registrable Securities outstanding.
(g) Notices . Any notice, demand, request, waiver or other communication required or permitted to be given hereunder shall be in writing and shall be effective (a) upon hand delivery, telecopy or facsimile 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 second business day following the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing, whichever shall first occur. The addresses for such communications shall be:
Any party hereto may from time to time change its address for notices by giving at least ten (10) days written notice of such changed address to the other party hereto.
(h) Successors and Assigns . This Agreement shall be binding upon and inure to the benefit of the parties and their successors and permitted assigns and shall inure to the benefit of each Holder and its successors and assigns. The Company may not assign this Agreement or any of its rights or obligations hereunder without the prior written consent of each Holder. Each Purchaser may assign its rights hereunder in the manner and to the Persons as permitted under the Purchase Agreement.
(i) Assignment of Registration Rights . The rights of each Holder hereunder, including the right to have the Company register for resale Registrable Securities in accordance with the terms of this Agreement, shall be automatically assignable by each Holder to any Person of all or a portion of the Preferred Stock, the Common Shares or the Registrable Securities if: (i) the Holder 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) following such transfer or assignment the further disposition of such securities by the transferee or assignees is restricted under the Securities Act and applicable state securities laws, (iv) at or before the time the Company receives the written notice contemplated by clause (ii) of this Section, the transferee or assignee agrees in writing with the Company to be bound by all of the provisions of this Agreement, and (v) such transfer shall have been made in accordance with the applicable requirements of the Purchase Agreement. The rights to assignment shall apply to the Holders (and to subsequent) successors and assigns.
(j) Counterparts . This Agreement may be executed in any number of counterparts, each of which when so executed shall be deemed to be an original and, all of which taken together shall constitute one and the same Agreement and shall become effective when counterparts have been signed by each party and delivered to the other parties hereto, it being understood that all parties need not sign the same counterpart. In the event that any signature is delivered by facsimile transmission, such signature shall create a valid binding obligation of the party executing (or on whose behalf such signature is executed) the same with the same force and effect as if such facsimile signature were the original thereof.
(k) Governing Law; Jurisdiction . This Agreement shall be governed by and construed in accordance with the internal laws of the State of New York, without giving effect to any of the conflicts of law principles which would result in the application of the substantive law of another jurisdiction. This Agreement shall not be interpreted or construed with any presumption against the party causing this Agreement to be drafted. The Company and the Holders agree that venue for any dispute arising under this Agreement will lie exclusively in the state or federal courts located in New York County, New York, and the parties irrevocably waive any right to raise forum non conveniens or any other argument that New York is not the proper venue. The Company and the Holders irrevocably consent to personal jurisdiction in the state and federal courts of the state of New York. The Company and the Holders consent to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing in this Section 7(k) shall affect or limit any right to serve process in any other manner permitted by law. The Company and the Holders hereby agree that the prevailing party in any suit, action or proceeding arising out of or relating to this Agreement or the Purchase Agreement, shall be entitled to reimbursement for reasonable legal fees from the non-prevailing party. The parties hereby waive all rights to a trial by jury.
(l) Cumulative Remedies . The remedies provided herein are cumulative and not exclusive of any remedies provided by law.
(m) Severability . If any term, provision, covenant or restriction of this Agreement is held to be invalid, illegal, void or unenforceable in any respect, the remainder of the terms, provisions, covenants and restrictions set forth herein shall remain in full force and effect and shall in no way be affected, impaired or invalidated, and the parties hereto shall use their reasonable efforts to find and employ an alternative means to achieve the same or substantially the same result as that contemplated by such term, provision, covenant or restriction. It is hereby stipulated and declared to be the intention of the parties that they would have executed the remaining terms, provisions, covenants and restrictions without including any of such that may be hereafter declared invalid, illegal, void or unenforceable.
(n) Headings . The headings herein are for convenience only, do not constitute a part of this Agreement and shall not be deemed to limit or affect any of the provisions hereof.
(o) Shares Held by the Company and its Affiliates . Whenever the consent or approval of Holders of a specified percentage of Registrable Securities is required hereunder, Registrable Securities held by the Company or its Affiliates (other than any Holder or transferees or successors or assigns thereof if such Holder is deemed to be an Affiliate solely by reason of its holdings of such Registrable Securities) shall not be counted in determining whether such consent or approval was given by the Holders of such required percentage.
(p) Independent Nature of Purchasers . The Company acknowledges that the obligations of each Purchaser under the Transaction Documents are several and not joint with the obligations of any other Purchaser, and no Purchaser shall be responsible in any way for the performance of the obligations of any other Purchaser under the Transaction Documents. The Company acknowledges that the decision of each Purchaser to purchase Securities pursuant to the Purchase Agreement has been made by such Purchaser independently of any other Purchaser and independently of any information, materials, statements or opinions as to the business, affairs, operations, assets, properties, liabilities, results of operations, condition (financial or otherwise) or prospects of the Company or of its Subsidiaries which may have made or given by any other Purchaser or by any agent or employee of any other Purchaser, and no Purchaser or any of its agents or employees shall have any liability to any Purchaser (or any other person) relating to or arising from any such information, materials, statements or opinions. The Company acknowledges that nothing contained herein, or in any Transaction Document, and no action taken by any Purchaser pursuant hereto or thereto (including, but not limited to, the (i) inclusion of a Purchaser in the Registration Statement and (ii) review by, and consent to, such Registration Statement by a Purchaser) shall be deemed to constitute the Purchasers as a partnership, an association, a joint venture or any other kind of entity, or create a presumption that the Purchasers are in any way acting in concert or as a group with respect to such obligations or the transactions contemplated by the Transaction Documents. The Company acknowledges that each Purchaser shall be entitled to independently protect and enforce its rights, including without limitation, the rights arising out of this Agreement or out of the other Transaction Documents, and it shall not be necessary for any other Purchaser to be joined as an additional party in any proceeding for such purpose. The Company acknowledges that for reasons of administrative convenience only, the Transaction Documents have been prepared by counsel for one of the Purchasers and such counsel does not represent all of the Purchasers. The Company acknowledges that it has elected to provide all Purchasers with the same terms and Transaction Documents for the convenience of the Company and not because it was required or requested to do so by the Purchasers. The Company acknowledges that such procedure with respect to the Transaction Documents in no way creates a presumption that the Purchasers are in any way acting in concert or as a group with respect to the Transaction Documents or the transactions contemplated hereby or thereby.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have caused this Registration Rights Agreement to be duly executed by their respective authorized persons as of the date first indicated above.
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
By:_____________________________________ Name:
Title:
VISION OPPORTUNITY MASTER FUND, LTD.
By:_____________________________________ Name:
Title:
Schedule I
Purchasers
Names and Addresses Number of Preferred Shares Dollar Amount of
of Purchasers & Warrants Purchased Investment
Vision Opportunity Master Fund, Ltd. Preferred Shares: 833,333 $1,500,000
20 W 55 th St., 5th floor Series C Warrants: 8,333,333
New York, NY 10019 Series B Warrants: 8,333,333
Schedule II
Other Securities to be Included on the Registration Statement
1. "Registrable Securities" as defined in that certain Registration Rights Agreement dated as of August 8, 2006.
Exhibit A
Plan of Distribution
The selling security holders and any of their pledgees, donees, assignees and successors-in-interest may, from time to time, sell any or all of their shares of common stock being offered under this prospectus on any stock exchange, market or trading facility on which shares of our common stock are traded or in private transactions. These sales may be at fixed or negotiated prices. The selling security holders may use any one or more of the following methods when disposing of shares:
- ordinary brokerage transactions and transactions in which the broker-dealer solicits purchasers;
- block trades in which the broker-dealer will attempt to sell the shares as agent but may position and resell a portion of the block as principal to facilitate the transaction;
- purchases by a broker-dealer as principal and resales by the broker-dealer for its account;
- an exchange distribution in accordance with the rules of the applicable exchange;
- privately negotiated transactions;
- to cover short sales made after the date that the registration statement of which this prospectus is a part is declared effective by the Commission;
- broker-dealers may agree with the selling security holders to sell a specified number of such shares at a stipulated price per share;
- a combination of any of these methods of sale; and
- any other method permitted pursuant to applicable law.
The shares may also be sold under Rule 144 under the Securities Act of 1933, as amended ("Securities Act"), if available, rather than under this prospectus. The selling security holders have the sole and absolute discretion not to accept any purchase offer or make any sale of shares if they deem the purchase price to be unsatisfactory at any particular time.
The selling security holders may pledge their shares to their brokers under the margin provisions of customer agreements. If a selling security holder defaults on a margin loan, the broker may, from time to time, offer and sell the pledged shares.
Broker-dealers engaged by the selling security holders may arrange for other broker-dealers to participate in sales. Broker-dealers may receive commissions or discounts from the selling security holders (or, if any broker-dealer acts as agent for the purchaser of shares, from the purchaser) in amounts to be negotiated, which commissions as to a particular broker or dealer may be in excess of customary commissions to the extent permitted by applicable law.
If sales of shares offered under this prospectus are made to broker-dealers as principals, we would be required to file a post-effective amendment to the registration statement of which this prospectus is a part. In the post-effective amendment, we would be required to disclose the names of any participating broker-dealers and the compensation arrangements relating to such sales.
The selling security holders and any broker-dealers or agents that are involved in selling the shares offered under this prospectus may be deemed to be "underwriters" within the meaning of the Securities Act in connection with these sales. Commissions received by these broker-dealers or agents and any profit on the resale of the shares purchased by them may be deemed to be underwriting commissions or discounts under the Securities Act. Any broker-dealers or agents that are deemed to be underwriters may not sell shares offered under this prospectus unless and until we set forth the names of the underwriters and the material details of their underwriting arrangements in a supplement to this prospectus or, if required, in a replacement prospectus included in a post-effective amendment to the registration statement of which this prospectus is a part.
The selling security holders and any other persons participating in the sale or distribution of the shares offered under this prospectus will be subject to applicable provisions of the Exchange Act, and the rules and regulations under that act, including Regulation M. These provisions may restrict activities of, and limit the timing of purchases and sales of any of the shares by, the selling security holders or any other person. Furthermore, under Regulation M, persons engaged in a distribution of securities are prohibited from simultaneously engaging in market making and other activities with respect to those securities for a specified period of time prior to the commencement of such distributions, subject to specified exceptions or exemptions. All of these limitations may affect the marketability of the shares.
If any of the shares of common stock offered for sale pursuant to this prospectus are transferred other than pursuant to a sale under this prospectus, then subsequent holders could not use this prospectus until a post-effective amendment or prospectus supplement is filed, naming such holders. We offer no assurance as to whether any of the selling security holders will sell all or any portion of the shares offered under this prospectus.
We have agreed to pay all fees and expenses we incur incident to the registration of the shares being offered under this prospectus. However, each selling security holder and purchaser is responsible for paying any discounts, commissions and similar selling expenses they incur.
We and the selling security holders have agreed to indemnify one another against certain losses, damages and liabilities arising in connection with this prospectus, including liabilities under the Securities Act.
CERTIFICATE OF DESIGNATION OF THE RELATIVE RIGHTS AND PREFERENCES
OF THE
SERIES A CONVERTIBLE PREFERRED STOCK
OF
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
The undersigned, the Chief Executive Officer of International American Technologies, Inc., a Nevada corporation (the "Company"), in accordance with the provisions of the Nevada Revised Statutes, does hereby certify that, pursuant to the authority conferred upon the Board of Directors by the Articles of Incorporation of the Company, the following resolution creating a series of preferred stock, designated as Series A Convertible Preferred Stock, was duly adopted on August 8, 2006, as follows:
RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors of the Company by provisions of the Articles of Incorporation of the Company (the "Articles of Incorporation"), there hereby is created out of the shares of the Companys preferred stock, par value $0.0001 per share, of the Company authorized in Article IV of the Articles of Incorporation (the "Preferred Stock"), a series of Preferred Stock of the Company, to be named "Series A Convertible Preferred Stock," consisting of Eight Hundred Thirty-Three Thousand Three Hundred Thirty-Three (833,333) shares, which series shall have the following designations, powers, preferences and relative and other special rights and the following qualifications, limitations and restrictions:
(A) In the event the Company, shall, at any time, from time to time, issue or sell any additional shares of Common Stock (otherwise than as provided in the foregoing subsections (i) through (v) of this Section 5(e) or pursuant to Common Stock Equivalents (hereafter defined) granted or issued prior to the Issuance Date) (the "Additional Shares of Common Stock"), at a price per share less than the Conversion Price, or without consideration, the Conversion Price then in effect upon each such issuance shall be adjusted to that price (rounded to the nearest cent) determined by multiplying the Conversion Price by a fraction:
No adjustment of the number of shares of Common Stock shall be made under paragraph (A) of Section 5(e)(vi) upon the issuance of any Additional Shares of Common Stock which are issued pursuant to the exercise of any warrants or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any Common Stock Equivalents (as defined below), if any such adjustment shall previously have been made upon the issuance of such warrants or other rights or upon the issuance of such Common Stock Equivalents (or upon the issuance of any warrant or other rights therefore) pursuant to Section 5(e)(vii).
IN WITNESS WHEREOF, the undersigned has executed and subscribed this Certificate and does affirm the foregoing as true this ___ day of August, 2006.
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
By: _________________________________
Name:
Title:
EXHIBIT I
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designation of the Relative Rights and Preferences of the Series A Preferred Stock of International American Technologies, Inc. (the "Certificate of Designation"). In accordance with and pursuant to the Certificate of Designation, the undersigned hereby elects to convert the number of shares of Series A Preferred Stock, par value $0.0001 per share (the "Preferred Shares"), of International American Technologies, Inc., a Nevada corporation (the "Company"), indicated below into shares of Common Stock, par value $0.0001 per share (the "Common Stock"), of the Company, by tendering the stock certificate(s) representing the share(s) of Preferred Shares specified below as of the date specified below.
Date of Conversion:
Number of Preferred Shares to be converted:
Stock certificate no(s). of Preferred Shares to be converted:
The Common Stock have been sold pursuant to the Registration Statement: YES ____ NO____
Please confirm the following information:
Conversion Price:
Number of shares of Common Stock
to be issued:
Number of shares of Common Stock beneficially owned or deemed beneficially owned by the Holder on the Date of Conversion: _________________________
Please issue the Common Stock into which the Preferred Shares are being converted and, if applicable, any check drawn on an account of the Company in the following name and to the following address:
Issue to:
Facsimile Number:
Authorization:
By:
Title:
Dated:
CERTIFICATE OF DESIGNATION OF THE RELATIVE RIGHTS AND PREFERENCES
OF THE
SERIES B CONVERTIBLE PREFERRED STOCK
OF
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
The undersigned, the Chief Executive Officer of International American Technologies, Inc., a Nevada corporation (the "Company"), in accordance with the provisions of the Nevada Revised Statutes, does hereby certify that, pursuant to the authority conferred upon the Board of Directors by the Articles of Incorporation of the Company, the following resolution creating a series of preferred stock, designated as Series B Convertible Preferred Stock, was duly adopted on September 29, 2006, as follows:
RESOLVED, that pursuant to the authority expressly granted to and vested in the Board of Directors of the Company by provisions of the Articles of Incorporation of the Company (the "Articles of Incorporation"), there hereby is created out of the shares of the Companys preferred stock, par value $0.0001 per share, of the Company authorized in Article IV of the Articles of Incorporation (the "Preferred Stock"), a series of Preferred Stock of the Company, to be named "Series B Convertible Preferred Stock," consisting of Eight Hundred Thirty-Three Thousand Three Hundred Thirty-Three (833,333) shares, which series shall have the following designations, powers, preferences and relative and other special rights and the following qualifications, limitations and restrictions:
(A) In the event the Company, shall, at any time, from time to time, issue or sell any additional shares of Common Stock (otherwise than as provided in the foregoing subsections (i) through (v) of this Section 5(e) or pursuant to Common Stock Equivalents (hereafter defined) granted or issued prior to the Issuance Date) (the "Additional Shares of Common Stock"), at a price per share less than the Conversion Price, or without consideration, the Conversion Price then in effect upon each such issuance shall be adjusted to that price (rounded to the nearest cent) determined by multiplying the Conversion Price by a fraction:
No adjustment of the number of shares of Common Stock shall be made under paragraph (A) of Section 5(e)(vi) upon the issuance of any Additional Shares of Common Stock which are issued pursuant to the exercise of any warrants or other subscription or purchase rights or pursuant to the exercise of any conversion or exchange rights in any Common Stock Equivalents (as defined below), if any such adjustment shall previously have been made upon the issuance of such warrants or other rights or upon the issuance of such Common Stock Equivalents (or upon the issuance of any warrant or other rights therefore) pursuant to Section 5(e)(vii).
IN WITNESS WHEREOF, the undersigned has executed and subscribed this Certificate and does affirm the foregoing as true this 29th day of September, 2006.
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
By: _________________________________
Name:
Title:
EXHIBIT I
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
CONVERSION NOTICE
Reference is made to the Certificate of Designation of the Relative Rights and Preferences of the Series B Preferred Stock of International American Technologies, Inc. (the "Certificate of Designation"). In accordance with and pursuant to the Certificate of Designation, the undersigned hereby elects to convert the number of shares of Series B Preferred Stock, par value $0.0001 per share (the "Preferred Shares"), of International American Technologies, Inc., a Nevada corporation (the "Company"), indicated below into shares of Common Stock, par value $0.0001 per share (the "Common Stock"), of the Company, by tendering the stock certificate(s) representing the share(s) of Preferred Shares specified below as of the date specified below.
Date of Conversion:
Number of Preferred Shares to be converted:
Stock certificate no(s). of Preferred Shares to be converted:
The Common Stock have been sold pursuant to the Registration Statement: YES ____ NO____
Please confirm the following information:
Conversion Price:
Number of shares of Common Stock
to be issued:
Number of shares of Common Stock beneficially owned or deemed beneficially owned by the Holder on the Date of Conversion: _________________________
Please issue the Common Stock into which the Preferred Shares are being converted and, if applicable, any check drawn on an account of the Company in the following name and to the following address:
Issue to:
Facsimile Number:
Authorization:
By:
Title:
Dated:
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR THE ISSUER SHALL HAVE RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
SERIES A WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
Expires August 8, 2011
No.: W-A-06-01 Number of Shares: 5,555,555
Date of Issuance: August 8, 2006
FOR VALUE RECEIVED, the undersigned, International American Technologies, Inc., a Nevada corporation (together with its successors and assigns, the " Issuer "), hereby certifies that Vision Opportunity Master Fund, Ltd. or its registered assigns is entitled to subscribe for and purchase, during the Term (as hereinafter defined), up to Five Million Five Hundred Fifty-Five Thousand Five Hundred Fifty-Five (5,555,555) shares (subject to adjustment as hereinafter provided) of the duly authorized, validly issued, fully paid and non-assessable Common Stock of the Issuer, at an exercise price per share equal to the Warrant Price then in effect, subject, however, to the provisions and upon the terms and conditions hereinafter set forth. Capitalized terms used in this Warrant and not otherwise defined herein shall have the respective meanings specified in Section 8 hereof.
1. Term . The term of this Warrant shall commence on August 8, 2006 and shall expire at 6:00 p.m., eastern time, on August 8, 2011 (such period being the " Term ").
(a) Time of Exercise . The purchase rights represented by this Warrant may be exercised in whole or in part during the Term.
(b) Method of Exercise . The Holder hereof may exercise this Warrant, in whole or in part, by the surrender of this Warrant (with the exercise form attached hereto duly executed) at the principal office of the Issuer, and by the payment to the Issuer of an amount of consideration therefor equal to the Warrant Price in effect on the date of such exercise multiplied by the number of shares of Warrant Stock with respect to which this Warrant is then being exercised, payable at such Holder's election (i) by certified or official bank check or by wire transfer to an account designated by the Issuer, (ii) by "cashless exercise" in accordance with the provisions of subsection (c) of this Section 2, but only when a registration statement under the Securities Act providing for the resale of the Warrant Stock is not then in effect, or (iii) by a combination of the foregoing methods of payment selected by the Holder of this Warrant.
(c) Cashless Exercise . Notwithstanding any provisions herein to the contrary and commencing one (1) year following the Original Issue Date if (i) the Per Share Market Value of one share of Common Stock is greater than the Warrant Price (at the date of calculation as set forth below) and (ii) a registration statement under the Securities Act providing for the resale of the Warrant Stock is not then in effect by the date such registration statement is required to be effective pursuant to the Registration Rights Agreement (as defined in the Purchase Agreement) or not effective at any time during the Effectiveness Period (as defined in the Registration Rights Agreement) in accordance with the terms of the Registration Rights Agreement, unless the registration statement is not effective as a result of the Issuer exercising its rights under Section 3(n) of the Registration Rights Agreement, in lieu of exercising this Warrant by payment of cash, the Holder may exercise this Warrant by a cashless exercise and shall receive the number of shares of Common Stock equal to an amount (as determined below) by surrender of this Warrant at the principal office of the Issuer together with the properly endorsed Notice of Exercise in which event the Issuer shall issue to the Holder a number of shares of Common Stock computed using the following formula:
X = Y - (A)(Y)
B
Where X = the number of shares of Common Stock to be issued to the Holder.
Y = the number of shares of Common Stock purchasable upon exercise of all of the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised.
A = the Warrant Price.
B = the Per Share Market Value of one share of Common Stock.
(d) Issuance of Stock Certificates . In the event of any exercise of this Warrant in accordance with and subject to the terms and conditions hereof, certificates for the shares of Warrant Stock so purchased shall be dated the date of such exercise and delivered to the Holder hereof within a reasonable time, not exceeding three (3) Trading Days after such exercise (the " Delivery Date ") or, at the request of the Holder (provided that a registration statement under the Securities Act providing for the resale of the Warrant Stock is then in effect), issued and delivered to the Depository Trust Company (" DTC ") account on the Holders behalf via the Deposit Withdrawal Agent Commission System (" DWAC ") within a reasonable time, not exceeding three (3) Trading Days after such exercise, and the Holder hereof shall be deemed for all purposes to be the holder of the shares of Warrant Stock so purchased as of the date of such exercise. Notwithstanding the foregoing to the contrary, the Issuer or its transfer agent shall only be obligated to issue and deliver the shares to the DTC on a holders behalf via DWAC if such exercise is in connection with a sale and the Issuer and its transfer agent are participating in DTC through the DWAC system. The Holder shall deliver this original Warrant, or an indemnification undertaking with respect to such Warrant in the case of its loss, theft or destruction, at such time that this Warrant is fully exercised. With respect to partial exercises of this Warrant, the Issuer shall keep written records for the Holder of the number of shares of Warrant Stock exercised as of each date of exercise.
(e) Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Exercise . In addition to any other rights available to the Holder, if the Issuer fails to cause its transfer agent to transmit to the Holder a certificate or certificates representing the Warrant Stock pursuant to an exercise on or before the Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Stock which the Holder anticipated receiving upon such exercise (a " Buy-In" ), then the Issuer shall (1) pay in cash to the Holder the amount by which (x) the Holders total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of shares of Warrant Stock that the Issuer was required to deliver to the Holder in connection with the exercise at issue times (B) the price at which the sell order giving rise to such purchase obligation was executed, and (2) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of shares of Warrant Stock for which such exercise was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Issuer timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (1) of the immediately preceding sentence the Issuer shall be required to pay the Holder $1,000. The Holder shall provide the Issuer written notice indicating the amounts payable to the Holder in respect of the Buy-In, together with applicable confirmations and other evidence reasonably requested by the Issuer. Nothing herein shall limit a Holders right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Issuers failure to timely deliver certificates representing shares of Common Stock upon exercise of this Warrant as required pursuant to the terms hereof.
(f) Transferability of Warrant . Subject to Section 2(h) hereof, this Warrant may be transferred by a Holder, in whole or in part, without the consent of the Issuer. If transferred pursuant to this paragraph, this Warrant may be transferred on the books of the Issuer by the Holder hereof in person or by duly authorized attorney, upon surrender of this Warrant at the principal office of the Issuer, properly endorsed (by the Holder executing an assignment in the form attached hereto) and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer. This Warrant is exchangeable at the principal office of the Issuer for Warrants to purchase the same aggregate number of shares of Warrant Stock, each new Warrant to represent the right to purchase such number of shares of Warrant Stock as the Holder hereof shall designate at the time of such exchange. All Warrants issued on transfers or exchanges shall be dated the Original Issue Date and shall be identical with this Warrant except as to the number of shares of Warrant Stock issuable pursuant thereto.
(g) Continuing Rights of Holder . The Issuer will, at the time of or at any time after each exercise of this Warrant, upon the request of the Holder hereof, acknowledge in writing the extent, if any, of its continuing obligation to afford to such Holder all rights to which such Holder shall continue to be entitled after such exercise in accordance with the terms of this Warrant, provided that if any such Holder shall fail to make any such request, the failure shall not affect the continuing obligation of the Issuer to afford such rights to such Holder.
(h) Compliance with Securities Laws.
(i) The Holder of this Warrant, by acceptance hereof, acknowledges that this Warrant and the shares of Warrant Stock to be issued upon exercise hereof are being acquired solely for the Holder's own account and not as a nominee for any other party, and for investment, and that the Holder will not offer, sell or otherwise dispose of this Warrant or any shares of Warrant Stock to be issued upon exercise hereof except pursuant to an effective registration statement, or an exemption from registration, under the Securities Act and any applicable state securities laws.
(ii) Except as provided in paragraph (iii) below, this Warrant and all certificates representing shares of Warrant Stock issued upon exercise hereof shall be stamped or imprinted with a legend in substantially the following form:
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR THE ISSUER SHALL HAVE RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
(iii) The Issuer agrees to reissue this Warrant or certificates representing any of the Warrant Stock, without the legend set forth above if at such time, prior to making any transfer of any such securities, the Holder shall give written notice to the Issuer describing the manner and terms of such transfer. Such proposed transfer will not be effected until: (a) either (i) the Issuer has received an opinion of counsel reasonably satisfactory to the Issuer, to the effect that the registration of such securities under the Securities Act is not required in connection with such proposed transfer, (ii) a registration statement under the Securities Act covering such proposed disposition has been filed by the Issuer with the Securities and Exchange Commission and has become effective under the Securities Act, (iii) the Issuer has received other evidence reasonably satisfactory to the Issuer that such registration and qualification under the Securities Act and state securities laws are not required, or (iv) the Holder provides the Issuer with reasonable assurances that such security can be sold pursuant to Rule 144 under the Securities Act; and (b) either (i) the Issuer has received an opinion of counsel reasonably satisfactory to the Issuer, to the effect that registration or qualification under the securities or "blue sky" laws of any state is not required in connection with such proposed disposition, or (ii) compliance with applicable state securities or "blue sky" laws has been effected or a valid exemption exists with respect thereto. The Issuer will respond to any such notice from a holder within three (3) Trading Days. In the case of any proposed transfer under this Section 2(h), the Issuer will use reasonable efforts to comply with any such applicable state securities or "blue sky" laws, but shall in no event be required, (x) to qualify to do business in any state where it is not then qualified, (y) to take any action that would subject it to tax or to the general service of process in any state where it is not then subject, or (z) to comply with state securities or "blue sky" laws of any state for which registration by coordination is unavailable to the Issuer. The restrictions on transfer contained in this Section 2(h) shall be in addition to, and not by way of limitation of, any other restrictions on transfer contained in any other section of this Warrant. Whenever a certificate representing the Warrant Stock is required to be issued to a the Holder without a legend, in lieu of delivering physical certificates representing the Warrant Stock, the Issuer shall cause its transfer agent to electronically transmit the Warrant Stock to the Holder by crediting the account of the Holder's Prime Broker with DTC through its DWAC system (to the extent not inconsistent with any provisions of this Warrant or the Purchase Agreement).
(i) Accredited Investor Status . In no event may the Holder exercise this Warrant in whole or in part unless the Holder is an "accredited investor" as defined in Regulation D under the Securities Act.
3. Stock Fully Paid; Reservation and Listing of Shares; Covenants .
(a) Stock Fully Paid . The Issuer represents, warrants, covenants and agrees that all shares of Warrant Stock which may be issued upon the exercise of this Warrant or otherwise hereunder will, when issued in accordance with the terms of this Warrant, be duly authorized, validly issued, fully paid and non-assessable and free from all taxes, liens and charges created by or through the Issuer. The Issuer further covenants and agrees that during the period within which this Warrant may be exercised, the Issuer will at all times have authorized and reserved for the purpose of the issuance upon exercise of this Warrant a number of authorized but unissued shares of Common Stock equal to at least one hundred twenty (120%) of the number of shares of Common Stock issuable upon exercise of this Warrant without regard to any limitations on exercise.
(b) Reservation . If any shares of Common Stock required to be reserved for issuance upon exercise of this Warrant or as otherwise provided hereunder require registration or qualification with any Governmental Authority under any federal or state law before such shares may be so issued, the Issuer will in good faith use its best efforts as expeditiously as possible at its expense to cause such shares to be duly registered or qualified. If the Issuer shall list any shares of Common Stock on any securities exchange or market it will, at its expense, list thereon, and maintain and increase when necessary such listing, of, all shares of Warrant Stock from time to time issued upon exercise of this Warrant or as otherwise provided hereunder (provided that such Warrant Stock has been registered pursuant to a registration statement under the Securities Act then in effect), and, to the extent permissible under the applicable securities exchange rules, all unissued shares of Warrant Stock which are at any time issuable hereunder, so long as any shares of Common Stock shall be so listed. The Issuer will also so list on each securities exchange or market, and will maintain such listing of, any other securities which the Holder of this Warrant shall be entitled to receive upon the exercise of this Warrant if at the time any securities of the same class shall be listed on such securities exchange or market by the Issuer.
(c) Covenants . The Issuer shall not by any action including, without limitation, amending the Articles of Incorporation or the by-laws of the Issuer, or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other 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 hereof against dilution (to the extent specifically provided herein) or impairment. Without limiting the generality of the foregoing, the Issuer will (i) not permit the par value, if any, of its Common Stock to exceed the then effective Warrant Price, (ii) not amend or modify any provision of the Articles of Incorporation or by-laws of the Issuer in any manner that would adversely affect the rights of the Holders of the Warrants, (iii) take all such action as may be reasonably necessary in order that the Issuer may validly and legally issue fully paid and nonassessable shares of Common Stock, free and clear of any liens, claims, encumbrances and restrictions (other than as provided herein) upon the exercise of this Warrant, and (iv) use its best efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be reasonably necessary to enable the Issuer to perform its obligations under this Warrant.
(d) Loss, Theft, Destruction of Warrants . Upon receipt of evidence satisfactory to the Issuer of the ownership of and the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction, upon receipt of indemnity or security satisfactory to the Issuer or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Issuer will make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing the right to purchase the same number of shares of Common Stock.
(e) Payment of Taxes . The Issuer will pay any documentary stamp taxes attributable to the initial issuance of the Warrant Stock issuable upon exercise of this Warrant; provided , however , that the Issuer shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificates representing Warrant Stock in a name other than that of the Holder in respect to which such shares are issued.
4. Adjustment of Warrant Price . The price at which such shares of Warrant Stock may be purchased upon exercise of this Warrant shall be subject to adjustment from time to time as set forth in this Section 4. The Issuer shall give the Holder notice of any event described below which requires an adjustment pursuant to this Section 4 in accordance with the notice provisions set forth in Section 5.
(a) Recapitalization, Reorganization, Reclassification, Consolidation, Merger or Sale .
(i) In case the Issuer after the Original Issue Date shall do any of the following (each, a " Triggering Event "): (a) consolidate or merge with or into any other Person and the Issuer shall not be the continuing or surviving corporation of such consolidation or merger, or (b) permit any other Person to consolidate with or merge into the Issuer and the Issuer shall be the continuing or surviving Person but, in connection with such consolidation or merger, any Capital Stock of the Issuer shall be changed into or exchanged for Securities of any other Person or cash or any other property, or (c) transfer all or substantially all of its properties or assets to any other Person, or (d) effect a capital reorganization or reclassification of its Capital Stock, then, and in the case of each such Triggering Event, proper provision shall be made so that, upon the basis and the terms and in the manner provided in this Warrant, the Holder of this Warrant shall be entitled upon the exercise hereof at any time after the consummation of such Triggering Event, to the extent this Warrant is not exercised prior to such Triggering Event, to receive at the Warrant Price in effect at the time immediately prior to the consummation of such Triggering Event in lieu of the Common Stock issuable upon such exercise of this Warrant prior to such Triggering Event, the Securities, cash and property to which such Holder would have been entitled upon the consummation of such Triggering Event if such Holder had exercised the rights represented by this Warrant immediately prior thereto (including the right of a shareholder to elect the type of consideration it will receive upon a Triggering Event), subject to adjustments (subsequent to such corporate action) as nearly equivalent as possible to the adjustments provided for elsewhere in this Section 4; provided , however , in the event that the Per Share Market Value is less than the Warrant Price at the time of such Triggering Event, the Holder shall receive an amount in cash equal to the value of this Warrant calculated in accordance with the Black-Scholes formula. Notwithstanding the foregoing to the contrary, this Section 4(a)(i) shall only apply if the surviving entity pursuant to any such Triggering Event is a company that has a class of equity securities registered pursuant to the Securities Exchange Act of 1934, as amended, and its common stock is listed or quoted on a national securities exchange, national automated quotation system or the OTC Bulletin Board. In the event that the surviving entity pursuant to any such Triggering Event is not a public company that is registered pursuant to the Securities Exchange Act of 1934, as amended, or its common stock is not listed or quoted on a national securities exchange, national automated quotation system or the OTC Bulletin Board, then the Holder shall have the right to demand that the Issuer pay to the Holder an amount in cash equal to the value of this Warrant calculated in accordance with the Black-Scholes formula.
(ii) Notwithstanding anything contained in this Warrant to the contrary and so long as the surviving entity pursuant to any Triggering Event is a company that has a class of equity securities registered pursuant to the Securities Exchange Act of 1934, as amended, and its common stock is listed or quoted on a national securities exchange, national automated quotation system or the OTC Bulletin Board, a Triggering Event shall not be deemed to have occurred if, prior to the consummation thereof, each Person (other than the Issuer) which may be required to deliver any Securities, cash or property upon the exercise of this Warrant as provided herein shall assume, by written instrument delivered to, and reasonably satisfactory to, the Holder of this Warrant, (A) the obligations of the Issuer under this Warrant (and if the Issuer shall survive the consummation of such Triggering Event, such assumption shall be in addition to, and shall not release the Issuer from, any continuing obligations of the Issuer under this Warrant) and (B) the obligation to deliver to such Holder such Securities, cash or property as, in accordance with the foregoing provisions of this subsection (a), such Holder shall be entitled to receive, and such Person shall have similarly delivered to such Holder an opinion of counsel for such Person, which counsel shall be reasonably satisfactory to such Holder, or in the alternative, a written acknowledgement executed by the President or Chief Financial Officer of the Issuer, stating that this Warrant shall thereafter continue in full force and effect and the terms hereof (including, without limitation, all of the provisions of this subsection (a)) shall be applicable to the Securities, cash or property which such Person may be required to deliver upon any exercise of this Warrant or the exercise of any rights pursuant hereto.
(b) Stock Dividends, Subdivisions and Combinations . If at any time the Issuer shall:
(i) make or issue or set a record date for the holders of the Common Stock for the purpose of entitling them to receive a dividend payable in, or other distribution of, shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or
(iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock,
then (1) the number of shares of Common Stock for which this Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of Common Stock for which this Warrant is exercisable immediately prior to the occurrence of such event would own or be entitled to receive after the happening of such event, and (2) the Warrant Price then in effect shall be adjusted to equal (A) the Warrant Price then in effect multiplied by the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment divided by (B) the number of shares of Common Stock for which this Warrant is exercisable immediately after such adjustment.
(c) Certain Other Distributions . If at any time the Issuer shall make or issue or set a record date for the holders of the Common Stock for the purpose of entitling them to receive any dividend or other distribution of:
(i) cash (other than a cash dividend payable out of earnings or earned surplus legally available for the payment of dividends under the laws of the jurisdiction of incorporation of the Issuer),
(ii) any evidences of its indebtedness, any shares of stock of any class or any other securities or property of any nature whatsoever (other than cash, Common Stock Equivalents or Additional Shares of Common Stock), or
(iii) any warrants or other rights to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property of any nature whatsoever (other than cash, Common Stock Equivalents or Additional Shares of Common Stock),
then (1) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such adjustment multiplied by a fraction (A) the numerator of which shall be the Per Share Market Value of Common Stock at the date of taking such record and (B) the denominator of which shall be such Per Share Market Value minus the amount allocable to one share of Common Stock of any such cash so distributable and of the fair value (as determined in good faith by the Board of Directors of the Issuer and supported by an opinion from an investment banking firm mutually agreed upon by the Issuer and the Holder) of any and all such evidences of indebtedness, shares of stock, other securities or property or warrants or other subscription or purchase rights so distributable, and (2) the Warrant Price then in effect shall be adjusted to equal (A) the Warrant Price then in effect multiplied by the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment divided by (B) the number of shares of Common Stock for which this Warrant is exercisable immediately after such adjustment. A reclassification of the Common Stock (other than a change in par value, or from par value to no par value or from no par value to par value) into shares of Common Stock and shares of any other class of stock shall be deemed a distribution by the Issuer to the holders of its Common Stock of such shares of such other class of stock within the meaning of this Section 4(c) and, if the outstanding shares of Common Stock shall be changed into a larger or smaller number of shares of Common Stock as a part of such reclassification, such change shall be deemed a subdivision or combination, as the case may be, of the outstanding shares of Common Stock within the meaning of Section 4(b).
(d) Issuance of Additional Shares of Common Stock .
(i) In the event the Issuer shall at any time following the Original Issue Date issue any Additional Shares of Common Stock (otherwise than as provided in the foregoing subsections (a) through (c) of this Section 4), at a price per share less than the Warrant Price then in effect or without consideration, then the Warrant Price upon each such issuance shall be adjusted to that price determined by multiplying the Warrant Price then in effect by a fraction:
(A) the numerator of which shall be equal to the sum of (x) the number of shares of Outstanding Common Stock immediately prior to the issuance of such Additional Shares of Common Stock plus (y) the number of shares of Common Stock (rounded to the nearest whole share) which the aggregate consideration for the total number of such Additional Shares of Common Stock so issued would purchase at a price per share equal to the Warrant Price then in effect, and
(B) the denominator of which shall be equal to the number of shares of Outstanding Common Stock immediately after the issuance of such Additional Shares of Common Stock.
(ii) No adjustment of the number of shares of Common Stock for which this Warrant shall be exercisable shall be made under paragraph (i) of Section 4(d) upon the issuance of any Additional Shares of Common Stock which are issued pursuant to the exercise of any Common Stock Equivalents, if any such adjustment shall previously have been made upon the issuance of such Common Stock Equivalents (or upon the issuance of any warrant or other rights therefor) pursuant to Section 4(e).
(h) Other Provisions applicable to Adjustments under this Section . The following provisions shall be applicable to the making of adjustments of the number of shares of Common Stock for which this Warrant is exercisable and the Warrant Price then in effect provided for in this Section 4:
(i) Computation of Consideration . To the extent that any Additional Shares of Common Stock or any Common Stock Equivalents (or any warrants or other rights therefor) shall be issued for cash consideration, the consideration received by the Issuer therefor shall be the amount of the cash received by the Issuer therefor, or, if such Additional Shares of Common Stock or Common Stock Equivalents are offered by the Issuer for subscription, the subscription price, or, if such Additional Shares of Common Stock or Common Stock Equivalents are sold to underwriters or dealers for public offering without a subscription offering, the initial public offering price (in any such case subtracting any amounts paid or receivable for accrued interest or accrued dividends and without taking into account any compensation, discounts or expenses paid or incurred by the Issuer for and in the underwriting of, or otherwise in connection with, the issuance thereof). In connection with any merger or consolidation in which the Issuer is the surviving corporation (other than any consolidation or merger in which the previously outstanding shares of Common Stock of the Issuer shall be changed to or exchanged for the stock or other securities of another corporation), the amount of consideration therefore shall be, deemed to be the fair value, as determined reasonably and in good faith by the Board, of such portion of the assets and business of the nonsurviving corporation as the Board may determine to be attributable to such shares of Common Stock or Common Stock Equivalents, as the case may be. The consideration for any Additional Shares of Common Stock issuable pursuant to any warrants or other rights to subscribe for or purchase the same shall be the consideration received by the Issuer for issuing such warrants or other rights plus the additional consideration payable to the Issuer upon exercise of such warrants or other rights. The consideration for any Additional Shares of Common Stock issuable pursuant to the terms of any Common Stock Equivalents shall be the consideration received by the Issuer for issuing warrants or other rights to subscribe for or purchase such Common Stock Equivalents, plus the consideration paid or payable to the Issuer in respect of the subscription for or purchase of such Common Stock Equivalents, plus the additional consideration, if any, payable to the Issuer upon the exercise of the right of conversion or exchange in such Common Stock Equivalents. In the event of any consolidation or merger of the Issuer in which the Issuer is not the surviving corporation or in which the previously outstanding shares of Common Stock of the Issuer shall be changed into or exchanged for the stock or other securities of another corporation, or in the event of any sale of all or substantially all of the assets of the Issuer for stock or other securities of any corporation, the Issuer shall be deemed to have issued a number of shares of its Common Stock for stock or securities or other property of the other corporation computed on the basis of the actual exchange ratio on which the transaction was predicated, and for a consideration equal to the fair market value on the date of such transaction of all such stock or securities or other property of the other corporation. In the event any consideration received by the Issuer for any securities consists of property other than cash, the fair market value thereof at the time of issuance or as otherwise applicable shall be as determined in good faith by the Board. In the event Common Stock is issued with other shares or securities or other assets of the Issuer for consideration which covers both, the consideration computed as provided in this Section 4(h)(i) shall be allocated among such securities and assets as determined in good faith by the Board.
(ii) When Adjustments to Be Made . The adjustments required by this Section 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except that any adjustment of the number of shares of Common Stock for which this Warrant is exercisable that would otherwise be required may be postponed (except in the case of a subdivision or combination of shares of the Common Stock, as provided for in Section 4(b)) up to, but not beyond the date of exercise if such adjustment either by itself or with other adjustments not previously made adds or subtracts less than one percent (1%) of the shares of Common Stock for which this Warrant is exercisable immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount (except as aforesaid) which is postponed shall be carried forward and made as soon as such adjustment, together with other adjustments required by this Section 4 and not previously made, would result in a minimum adjustment or on the date of exercise. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence.
(iii) Fractional Interests . In computing adjustments under this Section 4, fractional interests in Common Stock shall be taken into account to the nearest one one-hundredth (1/100 th ) of a share.
(iv) When Adjustment Not Required . If the Issuer shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or distribution or subscription or purchase rights and shall, thereafter and before the distribution to stockholders thereof, legally abandon its plan to pay or deliver such dividend, distribution, subscription or purchase rights, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled.
(i) Form of Warrant after Adjustments . The form of this Warrant need not be changed because of any adjustments in the Warrant Price or the number and kind of Securities purchasable upon the exercise of this Warrant.
(j) Escrow of Warrant Stock . If after any property becomes distributable pursuant to this Section 4 by reason of the taking of any record of the holders of Common Stock, but prior to the occurrence of the event for which such record is taken, and the Holder exercises this Warrant, any shares of Common Stock issuable upon exercise by reason of such adjustment shall be deemed the last shares of Common Stock for which this Warrant is exercised (notwithstanding any other provision to the contrary herein) and such shares or other property shall be held in escrow for the Holder by the Issuer to be issued to the Holder upon and to the extent that the event actually takes place, upon payment of the current Warrant Price. Notwithstanding any other provision to the contrary herein, if the event for which such record was taken fails to occur or is rescinded, then such escrowed shares shall be cancelled by the Issuer and escrowed property returned.
5. Notice of Adjustments . Whenever the Warrant Price or Warrant Share Number shall be adjusted pursuant to Section 4 hereof (for purposes of this Section 5, each an " adjustment "), the Issuer shall cause its Chief Financial Officer to prepare and execute a certificate setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated (including a description of the basis on which the Board made any determination hereunder), and the Warrant Price and Warrant Share Number after giving effect to such adjustment, and shall cause copies of such certificate to be delivered to the Holder of this Warrant promptly after each adjustment. Any dispute between the Issuer and the Holder of this Warrant with respect to the matters set forth in such certificate may at the option of the Holder of this Warrant be submitted to a national or regional accounting firm reasonably acceptable to the Issuer and the Holder, provided that the Issuer shall have ten (10) days after receipt of notice from such Holder of its selection of such firm to object thereto, in which case such Holder shall select another such firm and the Issuer shall have no such right of objection. The firm selected by the Holder of this Warrant as provided in the preceding sentence shall be instructed to deliver a written opinion as to such matters to the Issuer and such Holder within thirty (30) days after submission to it of such dispute. Such opinion shall be final and binding on the parties hereto. The costs and expenses of the initial accounting firm shall be paid equally by the Issuer and the Holder and, in the case of an objection by the Issuer, the costs and expenses of the subsequent accounting firm shall be paid in full by the Issuer.
6. Fractional Shares . No fractional shares of Warrant Stock will be issued in connection with any exercise hereof, but in lieu of such fractional shares, the Issuer shall round the number of shares to be issued upon exercise up to the nearest whole number of shares.
" Additional Shares of Common Stock " means all shares of Common Stock issued by the Issuer after the Original Issue Date, and all shares of Other Common, if any, issued by the Issuer after the Original Issue Date, except: (i) securities issued (other than for cash) in connection with a merger, acquisition, or consolidation, (ii) securities issued pursuant to the conversion or exercise of convertible or exercisable securities issued or outstanding on or prior to the date of the Purchase Agreement or issued pursuant to the Purchase Agreement (so long as the conversion or exercise price in such securities are not amended to lower such price and/or adversely affect the Holders), (iii) the Warrant Stock, (iv) securities issued in connection with bona fide strategic license agreements or other partnering arrangements so long as such issuances are not for the purpose of raising capital, (v) Common Stock issued or the issuance or grants of options to purchase Common Stock pursuant to the Issuers stock option plans and employee stock purchase plans outstanding as they exist on the date of the Purchase Agreement, and (vi) any warrants issued to the placement agent and its designees for the transactions contemplated by the Purchase Agreement.
" Articles of Incorporation " means the Articles of Incorporation of the Issuer as in effect on the Original Issue Date, and as hereafter from time to time amended, modified, supplemented or restated in accordance with the terms hereof and thereof and pursuant to applicable law.
" Board " shall mean the Board of Directors of the Issuer.
" Capital Stock " means and includes (i) any and all shares, interests, participations or other equivalents of or interests in (however designated) corporate stock, including, without limitation, shares of preferred or preference stock, (ii) all partnership interests (whether general or limited) in any Person which is a partnership, (iii) all membership interests or limited liability company interests in any limited liability company, and (iv) all equity or ownership interests in any Person of any other type.
" Common Stock " means the Common Stock, $0.0001 par value per share, of the Issuer and any other Capital Stock into which such stock may hereafter be changed.
" Common Stock Equivalent " means any Convertible Security or warrant, option or other right to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Security.
" Convertible Securities " means evidences of Indebtedness, shares of Capital Stock or other Securities which are or may be at any time convertible into or exchangeable for Additional Shares of Common Stock. The term "Convertible Security" means one of the Convertible Securities.
" Governmental Authority " means any governmental, regulatory or self-regulatory entity, department, body, official, authority, commission, board, agency or instrumentality, whether federal, state or local, and whether domestic or foreign.
" Holders " mean the Persons who shall from time to time own any Warrant. The term "Holder" means one of the Holders.
" Independent Appraiser " means a nationally recognized or major regional investment banking firm or firm of independent certified public accountants of recognized standing (which may be the firm that regularly examines the financial statements of the Issuer) that is regularly engaged in the business of appraising the Capital Stock or assets of corporations or other entities as going concerns, and which is not affiliated with either the Issuer or the Holder of any Warrant.
" Issuer " means International America Technologies, Inc., a Nevada corporation, and its successors.
" Majority Holders " means at any time the Holders of Warrants exercisable for a majority of the shares of Warrant Stock issuable under the Warrants at the time outstanding.
" Original Issue Date " means August 8, 2006.
" OTC Bulletin Board " means the over-the-counter electronic bulletin board.
" Other Common " means any other Capital Stock of the Issuer of any class which shall be authorized at any time after the date of this Warrant (other than Common Stock) and which shall have the right to participate in the distribution of earnings and assets of the Issuer without limitation as to amount.
" Outstanding Common Stock " means, at any given time, the aggregate amount of outstanding shares of Common Stock, assuming full exercise, conversion or exchange (as applicable) of all options, warrants and other Securities which are convertible into or exercisable or exchangeable for, and any right to subscribe for, shares of Common Stock that are outstanding at such time.
" Person " means an individual, corporation, limited liability company, partnership, joint stock company, trust, unincorporated organization, joint venture, Governmental Authority or other entity of whatever nature.
" Per Share Market Value " means on any particular date (a) the last closing bid price per share of the Common Stock on such date on the OTC Bulletin Board or another registered national stock exchange on which the Common Stock is then listed, or if there is no such price on such date, then the closing bid price on such exchange or quotation system on the date nearest preceding such date, or (b) if the Common Stock is not listed then on the OTC Bulletin Board or any registered national stock exchange, the last closing bid price for a share of Common Stock in the over-the-counter market, as reported by the OTC Bulletin Board or in the National Quotation Bureau Incorporated or similar organization or agency succeeding to its functions of reporting prices) at the close of business on such date, or (c) if the Common Stock is not then reported by the OTC Bulletin Board or the National Quotation Bureau Incorporated (or similar organization or agency succeeding to its functions of reporting prices), then the average of the "Pink Sheet" quotes for the five (5) Trading Days preceding such date of determination, or (d) if the Common Stock is not then publicly traded the fair market value of a share of Common Stock as determined by an Independent Appraiser selected in good faith by the Majority Holders; provided , however , that the Issuer, after receipt of the determination by such Independent Appraiser, shall have the right to select an additional Independent Appraiser, in which case, the fair market value shall be equal to the average of the determinations by each such Independent Appraiser; and provided , further that all determinations of the Per Share Market Value shall be appropriately adjusted for any stock dividends, stock splits or other similar transactions during such period. The determination of fair market value by an Independent Appraiser shall be based upon the fair market value of the Issuer determined on a going concern basis as between a willing buyer and a willing seller and taking into account all relevant factors determinative of value, and shall be final and binding on all parties. In determining the fair market value of any shares of Common Stock, no consideration shall be given to any restrictions on transfer of the Common Stock imposed by agreement or by federal or state securities laws, or to the existence or absence of, or any limitations on, voting rights.
" Purchase Agreement " means the Series A Preferred Stock Purchase Agreement dated as of August 8, 2006, among the Issuer and the Purchasers.
" Purchasers " means the purchasers of the Preferred Stock and the Warrants issued by the Issuer pursuant to the Purchase Agreement.
" Securities " means any debt or equity securities of the Issuer, whether now or hereafter authorized, any instrument convertible into or exchangeable for Securities or a Security, and any option, warrant or other right to purchase or acquire any Security. "Security" means one of the Securities.
" Securities Act " means the Securities Act of 1933, as amended, or any similar federal statute then in effect.
" Subsidiary " means any corporation at least 50% of whose outstanding Voting Stock shall at the time be owned directly or indirectly by the Issuer or by one or more of its Subsidiaries, or by the Issuer and one or more of its Subsidiaries.
" Term " has the meaning specified in Section 1 hereof.
" Trading Day " means (a) a day on which the Common Stock is traded on the OTC Bulletin Board, or (b) if the Common Stock is not traded on the OTC Bulletin Board, a day on which the Common Stock is quoted in the over-the-counter market as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding its functions of reporting prices); provided , however , that in the event that the Common Stock is not listed or quoted as set forth in (a) or (b) hereof, then Trading Day shall mean any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the State of New York are authorized or required by law or other government action to close.
" Voting Stock " means, as applied to the Capital Stock of any corporation, Capital Stock of any class or classes (however designated) having ordinary voting power for the election of a majority of the members of the Board of Directors (or other governing body) of such corporation, other than Capital Stock having such power only by reason of the happening of a contingency.
" Warrants " means the Warrants issued and sold pursuant to the Purchase Agreement, including, without limitation, this Warrant, and any other warrants of like tenor issued in substitution or exchange for any thereof pursuant to the provisions of Section 2(c), 2(d) or 2(e) hereof or of any of such other Warrants.
" Warrant Price " initially means $0.18, as such price may be adjusted from time to time as shall result from the adjustments specified in this Warrant, including Section 4 hereto.
" Warrant Share Number " means at any time the aggregate number of shares of Warrant Stock which may at such time be purchased upon exercise of this Warrant, after giving effect to all prior adjustments and increases to such number made or required to be made under the terms hereof.
" Warrant Stock " means Common Stock issuable upon exercise of any Warrant or Warrants or otherwise issuable pursuant to any Warrant or Warrants.
9. Other Notices . In case at any time:
(A) the Issuer shall make any distributions to the holders of Common Stock; or
(B) the Issuer shall authorize the granting to all holders of its Common Stock of rights to subscribe for or purchase any shares of Capital Stock of any class or other rights; or
(C) there shall be any reclassification of the Capital Stock of the Issuer; or
(D) there shall be any capital reorganization by the Issuer; or
(E) there shall be any (i) consolidation or merger involving the Issuer or (ii) sale, transfer or other disposition of all or substantially all of the Issuer's property, assets or business (except a merger or other reorganization in which the Issuer shall be the surviving corporation and its shares of Capital Stock shall continue to be outstanding and unchanged and except a consolidation, merger, sale, transfer or other disposition involving a wholly-owned Subsidiary); or
(F) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Issuer or any partial liquidation of the Issuer or distribution to holders of Common Stock;
then, in each of such cases, the Issuer shall give written notice to the Holder of the date on which (i) the books of the Issuer shall close or a record shall be taken for such dividend, distribution or subscription rights or (ii) such reorganization, reclassification, consolidation, merger, disposition, dissolution, liquidation or winding-up, as the case may be, shall take place. Such notice also shall specify the date as of which the holders of Common Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their certificates for Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, disposition, dissolution, liquidation or winding-up, as the case may be. Such notice shall be given at least twenty (20) days prior to the action in question and not less than ten (10) days prior to the record date or the date on which the Issuer's transfer books are closed in respect thereto. This Warrant entitles the Holder to receive copies of all financial and other information distributed or required to be distributed to the holders of the Common Stock.
10. Amendment and Waiver . Any term, covenant, agreement or condition in this Warrant may be amended, or compliance therewith may be waived (either generally or in a particular instance and either retroactively or prospectively), by a written instrument or written instruments executed by the Issuer and the Majority Holders; provided , however , that no such amendment or waiver shall reduce the Warrant Share Number, increase the Warrant Price, shorten the period during which this Warrant may be exercised or modify any provision of this Section 10 without the consent of the Holder of this Warrant. No consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of this Warrant unless the same consideration is also offered to all holders of the Warrants.
11. Governing Law; Jurisdiction . This Warrant shall be governed by and construed in accordance with the internal laws of the State of New York, without giving effect to any of the conflicts of law principles which would result in the application of the substantive law of another jurisdiction. This Warrant shall not be interpreted or construed with any presumption against the party causing this Warrant to be drafted. The Issuer and the Holder agree that venue for any dispute arising under this Warrant will lie exclusively in the state or federal courts located in New York County, New York, and the parties irrevocably waive any right to raise forum non conveniens or any other argument that New York is not the proper venue. The Issuer and the Holder irrevocably consent to personal jurisdiction in the state and federal courts of the state of New York. The Issuer and the Holder consent to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Warrant and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing in this Section 11 shall affect or limit any right to serve process in any other manner permitted by law. The Issuer and the Holder hereby agree that the prevailing party in any suit, action or proceeding arising out of or relating to this Warrant or the Purchase Agreement, shall be entitled to reimbursement for reasonable legal fees from the non-prevailing party. The parties hereby waive all rights to a trial by jury.
If to the Issuer: International American Technologies, Inc.
601 Cien Street Suite 235
Kemah, Texas 77565-3077
Attention: Chief Executive Officer
Tel. No.: (281) 334-9479
Fax No.: (281) ___-____
with copies (which copies
shall not constitute notice)
to: _________________________
_________________________
_________________________
Attention: ______________
Tel. No.: (___) ___-____
Fax No.: (___) ___-____
If to any Holder: At the address of such Holder set forth on Exhibit A to this Agreement, with copies to Holders counsel as set forth on Exhibit A or as specified in writing by such Holder with copies to:
with copies (which copies
shall not constitute notice)
to: Kramer Levin Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, New York 10036
Attention: Christopher S. Auguste
Tel. No.: (212) 715-9100
Fax No.: (212) 715-8000
Any party hereto may from time to time change its address for notices by giving written notice of such changed address to the other party hereto.
13. Warrant Agent . The Issuer may, by written notice to each Holder of this Warrant, appoint an agent having an office in New York, New York for the purpose of issuing shares of Warrant Stock on the exercise of this Warrant pursuant to subsection (b) of Section 2 hereof, exchanging this Warrant pursuant to subsection (d) of Section 2 hereof or replacing this Warrant pursuant to subsection (d) of Section 3 hereof, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent.
14. Remedies . The Issuer stipulates that the remedies at law of the Holder of this Warrant in the event of any default or threatened default by the Issuer in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate and that, to the fullest extent permitted by law, such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise.
15. Successors and Assigns . This Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors and assigns of the Issuer, the Holder hereof and (to the extent provided herein) the Holders of Warrant Stock issued pursuant hereto, and shall be enforceable by any such Holder or Holder of Warrant Stock.
16. Modification and Severability . If, in any action before any court or agency legally empowered to enforce any provision contained herein, any provision hereof is found to be unenforceable, then such provision shall be deemed modified to the extent necessary to make it enforceable by such court or agency. If any such provision is not enforceable as set forth in the preceding sentence, the unenforceability of such provision shall not affect the other provisions of this Warrant, but this Warrant shall be construed as if such unenforceable provision had never been contained herein.
17. Headings . The headings of the Sections of this Warrant are for convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.
18. Registration Rights . The Holder of this Warrant is entitled to the benefit of certain registration rights with respect to the shares of Warrant Stock issuable upon the exercise of this Warrant pursuant to that certain Registration Rights Agreement, of even date herewith, by and among the Company and Persons listed on Schedule I thereto (the " Registration Rights Agreement ") and the registration rights with respect to the shares of Warrant Stock issuable upon the exercise of this Warrant by any subsequent Holder may only be assigned in accordance with the terms and provisions of the Registrations Rights Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Issuer has executed this Series A Warrant as of the day and year first above written.
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
By:
Name:
Title:
EXERCISE FORM
SERIES A WARRANT
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
The undersigned _______________, pursuant to the provisions of the within Warrant, hereby elects to purchase _____ shares of Common Stock of International American Technologies, Inc. covered by the within Warrant.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
Number of shares of Common Stock beneficially owned or deemed beneficially owned by the Holder on the date of Exercise: _________________________
The undersigned is an "accredited investor" as defined in Regulation D under the Securities Act of 1933, as amended.
The undersigned intends that payment of the Warrant Price shall be made as (check one):
Cash Exercise_______
Cashless Exercise_______
If the Holder has elected a Cash Exercise, the Holder shall pay the sum of $________ by certified or official bank check (or via wire transfer) to the Issuer in accordance with the terms of the Warrant.
If the Holder has elected a Cashless Exercise, a certificate shall be issued to the Holder for the number of shares equal to the whole number portion of the product of the calculation set forth below, which is ___________. The Company shall pay a cash adjustment in respect of the fractional portion of the product of the calculation set forth below in an amount equal to the product of the fractional portion of such product and the Per Share Market Value on the date of exercise, which product is ____________.
X = Y - (A)(Y)
B
Where:
The number of Ordinary Shares to be issued to the Holder __________________("X").
The number of Ordinary Shares purchasable upon exercise of all of the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised ___________________________ ("Y").
The Warrant Price ______________ ("A").
The Per Share Market Value of one Ordinary Share _______________________ ("B").
ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto __________________ the within Warrant and all rights evidenced thereby and does irrevocably constitute and appoint _____________, attorney, to transfer the said Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto __________________ the right to purchase _________ shares of Warrant Stock evidenced by the within Warrant together with all rights therein, and does irrevocably constitute and appoint ___________________, attorney, to transfer that part of the said Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-___ canceled (or transferred or exchanged) this _____ day of ___________, _____, shares of Common Stock issued therefor in the name of _______________, Warrant No. W-_____ issued for ____ shares of Common Stock in the name of _______________.
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR THE ISSUER SHALL HAVE RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
SERIES B WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
Expires August 8, 2008
No.: W-B-06-03 Number of Shares: 8,333,333
Date of Issuance: August 8, 2006
FOR VALUE RECEIVED, the undersigned, International American Technologies, Inc., a Nevada corporation (together with its successors and assigns, the " Issuer "), hereby certifies that Vision Opportunity Master Fund, Ltd. or its registered assigns is entitled to subscribe for and purchase, during the Term (as hereinafter defined), up to Eight Million Three Hundred Thirty-Three Thousand Three Hundred Thirty-Three (8,333,333) shares (subject to adjustment as hereinafter provided) of the duly authorized, validly issued, fully paid and non-assessable Common Stock of the Issuer, at an exercise price per share equal to the Warrant Price then in effect, subject, however, to the provisions and upon the terms and conditions hereinafter set forth. Capitalized terms used in this Warrant and not otherwise defined herein shall have the respective meanings specified in Section 8 hereof.
1. Term . The term of this Warrant shall commence on August 8, 2006 and shall expire at 6:00 p.m., eastern time, on August 8, 2008 (such period being the " Term ").
(a) Time of Exercise . The purchase rights represented by this Warrant may be exercised in whole or in part during the Term.
(b) Method of Exercise . The Holder hereof may exercise this Warrant, in whole or in part, by the surrender of this Warrant (with the exercise form attached hereto duly executed) at the principal office of the Issuer, and by the payment to the Issuer of an amount of consideration therefor equal to the Warrant Price in effect on the date of such exercise multiplied by the number of shares of Warrant Stock with respect to which this Warrant is then being exercised, payable at such Holder's election (i) by certified or official bank check or by wire transfer to an account designated by the Issuer, (ii) by "cashless exercise" in accordance with the provisions of subsection (c) of this Section 2, but only when a registration statement under the Securities Act providing for the resale of the Warrant Stock is not then in effect, or (iii) by a combination of the foregoing methods of payment selected by the Holder of this Warrant.
(c) Cashless Exercise . Notwithstanding any provisions herein to the contrary and commencing one (1) year following the Original Issue Date if (i) the Per Share Market Value of one share of Common Stock is greater than the Warrant Price (at the date of calculation as set forth below) and (ii) a registration statement under the Securities Act providing for the resale of the Warrant Stock is not then in effect by the date such registration statement is required to be effective pursuant to the Registration Rights Agreement (as defined in the Purchase Agreement) or not effective at any time during the Effectiveness Period (as defined in the Registration Rights Agreement) in accordance with the terms of the Registration Rights Agreement, unless the registration statement is not effective as a result of the Issuer exercising its rights under Section 3(n) of the Registration Rights Agreement, in lieu of exercising this Warrant by payment of cash, the Holder may exercise this Warrant by a cashless exercise and shall receive the number of shares of Common Stock equal to an amount (as determined below) by surrender of this Warrant at the principal office of the Issuer together with the properly endorsed Notice of Exercise in which event the Issuer shall issue to the Holder a number of shares of Common Stock computed using the following formula:
X = Y - (A)(Y)
B
Where X = the number of shares of Common Stock to be issued to the Holder.
Y = the number of shares of Common Stock purchasable upon exercise of all of the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised.
A = the Warrant Price.
B = the Per Share Market Value of one share of Common Stock.
(d) Issuance of Stock Certificates . In the event of any exercise of this Warrant in accordance with and subject to the terms and conditions hereof, certificates for the shares of Warrant Stock so purchased shall be dated the date of such exercise and delivered to the Holder hereof within a reasonable time, not exceeding three (3) Trading Days after such exercise (the " Delivery Date ") or, at the request of the Holder (provided that a registration statement under the Securities Act providing for the resale of the Warrant Stock is then in effect), issued and delivered to the Depository Trust Company (" DTC ") account on the Holders behalf via the Deposit Withdrawal Agent Commission System (" DWAC ") within a reasonable time, not exceeding three (3) Trading Days after such exercise, and the Holder hereof shall be deemed for all purposes to be the holder of the shares of Warrant Stock so purchased as of the date of such exercise. Notwithstanding the foregoing to the contrary, the Issuer or its transfer agent shall only be obligated to issue and deliver the shares to the DTC on a holders behalf via DWAC if such exercise is in connection with a sale and the Issuer and its transfer agent are participating in DTC through the DWAC system. The Holder shall deliver this original Warrant, or an indemnification undertaking with respect to such Warrant in the case of its loss, theft or destruction, at such time that this Warrant is fully exercised. With respect to partial exercises of this Warrant, the Issuer shall keep written records for the Holder of the number of shares of Warrant Stock exercised as of each date of exercise.
(e) Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Exercise . In addition to any other rights available to the Holder, if the Issuer fails to cause its transfer agent to transmit to the Holder a certificate or certificates representing the Warrant Stock pursuant to an exercise on or before the Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Stock which the Holder anticipated receiving upon such exercise (a " Buy-In" ), then the Issuer shall (1) pay in cash to the Holder the amount by which (x) the Holders total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of shares of Warrant Stock that the Issuer was required to deliver to the Holder in connection with the exercise at issue times (B) the price at which the sell order giving rise to such purchase obligation was executed, and (2) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of shares of Warrant Stock for which such exercise was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Issuer timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (1) of the immediately preceding sentence the Issuer shall be required to pay the Holder $1,000. The Holder shall provide the Issuer written notice indicating the amounts payable to the Holder in respect of the Buy-In, together with applicable confirmations and other evidence reasonably requested by the Issuer. Nothing herein shall limit a Holders right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Issuers failure to timely deliver certificates representing shares of Common Stock upon exercise of this Warrant as required pursuant to the terms hereof.
(f) Transferability of Warrant . Subject to Section 2(h) hereof, this Warrant may be transferred by a Holder, in whole or in part, without the consent of the Issuer. If transferred pursuant to this paragraph, this Warrant may be transferred on the books of the Issuer by the Holder hereof in person or by duly authorized attorney, upon surrender of this Warrant at the principal office of the Issuer, properly endorsed (by the Holder executing an assignment in the form attached hereto) and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer. This Warrant is exchangeable at the principal office of the Issuer for Warrants to purchase the same aggregate number of shares of Warrant Stock, each new Warrant to represent the right to purchase such number of shares of Warrant Stock as the Holder hereof shall designate at the time of such exchange. All Warrants issued on transfers or exchanges shall be dated the Original Issue Date and shall be identical with this Warrant except as to the number of shares of Warrant Stock issuable pursuant thereto.
(g) Continuing Rights of Holder . The Issuer will, at the time of or at any time after each exercise of this Warrant, upon the request of the Holder hereof, acknowledge in writing the extent, if any, of its continuing obligation to afford to such Holder all rights to which such Holder shall continue to be entitled after such exercise in accordance with the terms of this Warrant, provided that if any such Holder shall fail to make any such request, the failure shall not affect the continuing obligation of the Issuer to afford such rights to such Holder.
(h) Compliance with Securities Laws.
(i) The Holder of this Warrant, by acceptance hereof, acknowledges that this Warrant and the shares of Warrant Stock to be issued upon exercise hereof are being acquired solely for the Holder's own account and not as a nominee for any other party, and for investment, and that the Holder will not offer, sell or otherwise dispose of this Warrant or any shares of Warrant Stock to be issued upon exercise hereof except pursuant to an effective registration statement, or an exemption from registration, under the Securities Act and any applicable state securities laws.
(ii) Except as provided in paragraph (iii) below, this Warrant and all certificates representing shares of Warrant Stock issued upon exercise hereof shall be stamped or imprinted with a legend in substantially the following form:
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR THE ISSUER SHALL HAVE RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
(iii) The Issuer agrees to reissue this Warrant or certificates representing any of the Warrant Stock, without the legend set forth above if at such time, prior to making any transfer of any such securities, the Holder shall give written notice to the Issuer describing the manner and terms of such transfer. Such proposed transfer will not be effected until: (a) either (i) the Issuer has received an opinion of counsel reasonably satisfactory to the Issuer, to the effect that the registration of such securities under the Securities Act is not required in connection with such proposed transfer, (ii) a registration statement under the Securities Act covering such proposed disposition has been filed by the Issuer with the Securities and Exchange Commission and has become effective under the Securities Act, (iii) the Issuer has received other evidence reasonably satisfactory to the Issuer that such registration and qualification under the Securities Act and state securities laws are not required, or (iv) the Holder provides the Issuer with reasonable assurances that such security can be sold pursuant to Rule 144 under the Securities Act; and (b) either (i) the Issuer has received an opinion of counsel reasonably satisfactory to the Issuer, to the effect that registration or qualification under the securities or "blue sky" laws of any state is not required in connection with such proposed disposition, or (ii) compliance with applicable state securities or "blue sky" laws has been effected or a valid exemption exists with respect thereto. The Issuer will respond to any such notice from a holder within three (3) Trading Days. In the case of any proposed transfer under this Section 2(h), the Issuer will use reasonable efforts to comply with any such applicable state securities or "blue sky" laws, but shall in no event be required, (x) to qualify to do business in any state where it is not then qualified, (y) to take any action that would subject it to tax or to the general service of process in any state where it is not then subject, or (z) to comply with state securities or "blue sky" laws of any state for which registration by coordination is unavailable to the Issuer. The restrictions on transfer contained in this Section 2(h) shall be in addition to, and not by way of limitation of, any other restrictions on transfer contained in any other section of this Warrant. Whenever a certificate representing the Warrant Stock is required to be issued to a the Holder without a legend, in lieu of delivering physical certificates representing the Warrant Stock, the Issuer shall cause its transfer agent to electronically transmit the Warrant Stock to the Holder by crediting the account of the Holder's Prime Broker with DTC through its DWAC system (to the extent not inconsistent with any provisions of this Warrant or the Purchase Agreement).
(i) Accredited Investor Status . In no event may the Holder exercise this Warrant in whole or in part unless the Holder is an "accredited investor" as defined in Regulation D under the Securities Act.
3. Stock Fully Paid; Reservation and Listing of Shares; Covenants .
(a) Stock Fully Paid . The Issuer represents, warrants, covenants and agrees that all shares of Warrant Stock which may be issued upon the exercise of this Warrant or otherwise hereunder will, when issued in accordance with the terms of this Warrant, be duly authorized, validly issued, fully paid and non-assessable and free from all taxes, liens and charges created by or through the Issuer. The Issuer further covenants and agrees that during the period within which this Warrant may be exercised, the Issuer will at all times have authorized and reserved for the purpose of the issuance upon exercise of this Warrant a number of authorized but unissued shares of Common Stock equal to at least one hundred twenty (120%) of the number of shares of Common Stock issuable upon exercise of this Warrant without regard to any limitations on exercise.
(b) Reservation . If any shares of Common Stock required to be reserved for issuance upon exercise of this Warrant or as otherwise provided hereunder require registration or qualification with any Governmental Authority under any federal or state law before such shares may be so issued, the Issuer will in good faith use its best efforts as expeditiously as possible at its expense to cause such shares to be duly registered or qualified. If the Issuer shall list any shares of Common Stock on any securities exchange or market it will, at its expense, list thereon, and maintain and increase when necessary such listing, of, all shares of Warrant Stock from time to time issued upon exercise of this Warrant or as otherwise provided hereunder (provided that such Warrant Stock has been registered pursuant to a registration statement under the Securities Act then in effect), and, to the extent permissible under the applicable securities exchange rules, all unissued shares of Warrant Stock which are at any time issuable hereunder, so long as any shares of Common Stock shall be so listed. The Issuer will also so list on each securities exchange or market, and will maintain such listing of, any other securities which the Holder of this Warrant shall be entitled to receive upon the exercise of this Warrant if at the time any securities of the same class shall be listed on such securities exchange or market by the Issuer.
(c) Covenants . The Issuer shall not by any action including, without limitation, amending the Articles of Incorporation or the by-laws of the Issuer, or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other 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 hereof against dilution (to the extent specifically provided herein) or impairment. Without limiting the generality of the foregoing, the Issuer will (i) not permit the par value, if any, of its Common Stock to exceed the then effective Warrant Price, (ii) not amend or modify any provision of the Articles of Incorporation or by-laws of the Issuer in any manner that would adversely affect the rights of the Holders of the Warrants, (iii) take all such action as may be reasonably necessary in order that the Issuer may validly and legally issue fully paid and nonassessable shares of Common Stock, free and clear of any liens, claims, encumbrances and restrictions (other than as provided herein) upon the exercise of this Warrant, and (iv) use its best efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be reasonably necessary to enable the Issuer to perform its obligations under this Warrant.
(d) Loss, Theft, Destruction of Warrants . Upon receipt of evidence satisfactory to the Issuer of the ownership of and the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction, upon receipt of indemnity or security satisfactory to the Issuer or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Issuer will make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing the right to purchase the same number of shares of Common Stock.
(e) Payment of Taxes . The Issuer will pay any documentary stamp taxes attributable to the initial issuance of the Warrant Stock issuable upon exercise of this Warrant; provided , however , that the Issuer shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificates representing Warrant Stock in a name other than that of the Holder in respect to which such shares are issued.
4. Adjustment of Warrant Price . The price at which such shares of Warrant Stock may be purchased upon exercise of this Warrant shall be subject to adjustment from time to time as set forth in this Section 4. The Issuer shall give the Holder notice of any event described below which requires an adjustment pursuant to this Section 4 in accordance with the notice provisions set forth in Section 5.
(a) Recapitalization, Reorganization, Reclassification, Consolidation, Merger or Sale .
(i) In case the Issuer after the Original Issue Date shall do any of the following (each, a " Triggering Event "): (a) consolidate or merge with or into any other Person and the Issuer shall not be the continuing or surviving corporation of such consolidation or merger, or (b) permit any other Person to consolidate with or merge into the Issuer and the Issuer shall be the continuing or surviving Person but, in connection with such consolidation or merger, any Capital Stock of the Issuer shall be changed into or exchanged for Securities of any other Person or cash or any other property, or (c) transfer all or substantially all of its properties or assets to any other Person, or (d) effect a capital reorganization or reclassification of its Capital Stock, then, and in the case of each such Triggering Event, proper provision shall be made so that, upon the basis and the terms and in the manner provided in this Warrant, the Holder of this Warrant shall be entitled upon the exercise hereof at any time after the consummation of such Triggering Event, to the extent this Warrant is not exercised prior to such Triggering Event, to receive at the Warrant Price in effect at the time immediately prior to the consummation of such Triggering Event in lieu of the Common Stock issuable upon such exercise of this Warrant prior to such Triggering Event, the Securities, cash and property to which such Holder would have been entitled upon the consummation of such Triggering Event if such Holder had exercised the rights represented by this Warrant immediately prior thereto (including the right of a shareholder to elect the type of consideration it will receive upon a Triggering Event), subject to adjustments (subsequent to such corporate action) as nearly equivalent as possible to the adjustments provided for elsewhere in this Section 4; provided , however , in the event that the Per Share Market Value is less than the Warrant Price at the time of such Triggering Event, the Holder shall receive an amount in cash equal to the value of this Warrant calculated in accordance with the Black-Scholes formula. Notwithstanding the foregoing to the contrary, this Section 4(a)(i) shall only apply if the surviving entity pursuant to any such Triggering Event is a company that has a class of equity securities registered pursuant to the Securities Exchange Act of 1934, as amended, and its common stock is listed or quoted on a national securities exchange, national automated quotation system or the OTC Bulletin Board. In the event that the surviving entity pursuant to any such Triggering Event is not a public company that is registered pursuant to the Securities Exchange Act of 1934, as amended, or its common stock is not listed or quoted on a national securities exchange, national automated quotation system or the OTC Bulletin Board, then the Holder shall have the right to demand that the Issuer pay to the Holder an amount in cash equal to the value of this Warrant calculated in accordance with the Black-Scholes formula.
(ii) Notwithstanding anything contained in this Warrant to the contrary and so long as the surviving entity pursuant to any Triggering Event is a company that has a class of equity securities registered pursuant to the Securities Exchange Act of 1934, as amended, and its common stock is listed or quoted on a national securities exchange, national automated quotation system or the OTC Bulletin Board, a Triggering Event shall not be deemed to have occurred if, prior to the consummation thereof, each Person (other than the Issuer) which may be required to deliver any Securities, cash or property upon the exercise of this Warrant as provided herein shall assume, by written instrument delivered to, and reasonably satisfactory to, the Holder of this Warrant, (A) the obligations of the Issuer under this Warrant (and if the Issuer shall survive the consummation of such Triggering Event, such assumption shall be in addition to, and shall not release the Issuer from, any continuing obligations of the Issuer under this Warrant) and (B) the obligation to deliver to such Holder such Securities, cash or property as, in accordance with the foregoing provisions of this subsection (a), such Holder shall be entitled to receive, and such Person shall have similarly delivered to such Holder an opinion of counsel for such Person, which counsel shall be reasonably satisfactory to such Holder, or in the alternative, a written acknowledgement executed by the President or Chief Financial Officer of the Issuer, stating that this Warrant shall thereafter continue in full force and effect and the terms hereof (including, without limitation, all of the provisions of this subsection (a)) shall be applicable to the Securities, cash or property which such Person may be required to deliver upon any exercise of this Warrant or the exercise of any rights pursuant hereto.
(b) Stock Dividends, Subdivisions and Combinations . If at any time the Issuer shall:
(i) make or issue or set a record date for the holders of the Common Stock for the purpose of entitling them to receive a dividend payable in, or other distribution of, shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or
(iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock,
then (1) the number of shares of Common Stock for which this Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of Common Stock for which this Warrant is exercisable immediately prior to the occurrence of such event would own or be entitled to receive after the happening of such event, and (2) the Warrant Price then in effect shall be adjusted to equal (A) the Warrant Price then in effect multiplied by the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment divided by (B) the number of shares of Common Stock for which this Warrant is exercisable immediately after such adjustment.
(c) Certain Other Distributions . If at any time the Issuer shall make or issue or set a record date for the holders of the Common Stock for the purpose of entitling them to receive any dividend or other distribution of:
(i) cash (other than a cash dividend payable out of earnings or earned surplus legally available for the payment of dividends under the laws of the jurisdiction of incorporation of the Issuer),
(ii) any evidences of its indebtedness, any shares of stock of any class or any other securities or property of any nature whatsoever (other than cash, Common Stock Equivalents or Additional Shares of Common Stock), or
(iii) any warrants or other rights to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property of any nature whatsoever (other than cash, Common Stock Equivalents or Additional Shares of Common Stock),
then (1) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such adjustment multiplied by a fraction (A) the numerator of which shall be the Per Share Market Value of Common Stock at the date of taking such record and (B) the denominator of which shall be such Per Share Market Value minus the amount allocable to one share of Common Stock of any such cash so distributable and of the fair value (as determined in good faith by the Board of Directors of the Issuer and supported by an opinion from an investment banking firm mutually agreed upon by the Issuer and the Holder) of any and all such evidences of indebtedness, shares of stock, other securities or property or warrants or other subscription or purchase rights so distributable, and (2) the Warrant Price then in effect shall be adjusted to equal (A) the Warrant Price then in effect multiplied by the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment divided by (B) the number of shares of Common Stock for which this Warrant is exercisable immediately after such adjustment. A reclassification of the Common Stock (other than a change in par value, or from par value to no par value or from no par value to par value) into shares of Common Stock and shares of any other class of stock shall be deemed a distribution by the Issuer to the holders of its Common Stock of such shares of such other class of stock within the meaning of this Section 4(c) and, if the outstanding shares of Common Stock shall be changed into a larger or smaller number of shares of Common Stock as a part of such reclassification, such change shall be deemed a subdivision or combination, as the case may be, of the outstanding shares of Common Stock within the meaning of Section 4(b).
(d) Issuance of Additional Shares of Common Stock .
(i) In the event the Issuer shall at any time following the Original Issue Date issue any Additional Shares of Common Stock (otherwise than as provided in the foregoing subsections (a) through (c) of this Section 4), at a price per share less than the Warrant Price then in effect or without consideration, then the Warrant Price upon each such issuance shall be adjusted to that price determined by multiplying the Warrant Price then in effect by a fraction:
(A) the numerator of which shall be equal to the sum of (x) the number of shares of Outstanding Common Stock immediately prior to the issuance of such Additional Shares of Common Stock plus (y) the number of shares of Common Stock (rounded to the nearest whole share) which the aggregate consideration for the total number of such Additional Shares of Common Stock so issued would purchase at a price per share equal to the Warrant Price then in effect, and
(B) the denominator of which shall be equal to the number of shares of Outstanding Common Stock immediately after the issuance of such Additional Shares of Common Stock.
(ii) No adjustment of the number of shares of Common Stock for which this Warrant shall be exercisable shall be made under paragraph (i) of Section 4(d) upon the issuance of any Additional Shares of Common Stock which are issued pursuant to the exercise of any Common Stock Equivalents, if any such adjustment shall previously have been made upon the issuance of such Common Stock Equivalents (or upon the issuance of any warrant or other rights therefor) pursuant to Section 4(e).
(h) Other Provisions applicable to Adjustments under this Section . The following provisions shall be applicable to the making of adjustments of the number of shares of Common Stock for which this Warrant is exercisable and the Warrant Price then in effect provided for in this Section 4:
(i) Computation of Consideration . To the extent that any Additional Shares of Common Stock or any Common Stock Equivalents (or any warrants or other rights therefor) shall be issued for cash consideration, the consideration received by the Issuer therefor shall be the amount of the cash received by the Issuer therefor, or, if such Additional Shares of Common Stock or Common Stock Equivalents are offered by the Issuer for subscription, the subscription price, or, if such Additional Shares of Common Stock or Common Stock Equivalents are sold to underwriters or dealers for public offering without a subscription offering, the initial public offering price (in any such case subtracting any amounts paid or receivable for accrued interest or accrued dividends and without taking into account any compensation, discounts or expenses paid or incurred by the Issuer for and in the underwriting of, or otherwise in connection with, the issuance thereof). In connection with any merger or consolidation in which the Issuer is the surviving corporation (other than any consolidation or merger in which the previously outstanding shares of Common Stock of the Issuer shall be changed to or exchanged for the stock or other securities of another corporation), the amount of consideration therefore shall be, deemed to be the fair value, as determined reasonably and in good faith by the Board, of such portion of the assets and business of the nonsurviving corporation as the Board may determine to be attributable to such shares of Common Stock or Common Stock Equivalents, as the case may be. The consideration for any Additional Shares of Common Stock issuable pursuant to any warrants or other rights to subscribe for or purchase the same shall be the consideration received by the Issuer for issuing such warrants or other rights plus the additional consideration payable to the Issuer upon exercise of such warrants or other rights. The consideration for any Additional Shares of Common Stock issuable pursuant to the terms of any Common Stock Equivalents shall be the consideration received by the Issuer for issuing warrants or other rights to subscribe for or purchase such Common Stock Equivalents, plus the consideration paid or payable to the Issuer in respect of the subscription for or purchase of such Common Stock Equivalents, plus the additional consideration, if any, payable to the Issuer upon the exercise of the right of conversion or exchange in such Common Stock Equivalents. In the event of any consolidation or merger of the Issuer in which the Issuer is not the surviving corporation or in which the previously outstanding shares of Common Stock of the Issuer shall be changed into or exchanged for the stock or other securities of another corporation, or in the event of any sale of all or substantially all of the assets of the Issuer for stock or other securities of any corporation, the Issuer shall be deemed to have issued a number of shares of its Common Stock for stock or securities or other property of the other corporation computed on the basis of the actual exchange ratio on which the transaction was predicated, and for a consideration equal to the fair market value on the date of such transaction of all such stock or securities or other property of the other corporation. In the event any consideration received by the Issuer for any securities consists of property other than cash, the fair market value thereof at the time of issuance or as otherwise applicable shall be as determined in good faith by the Board. In the event Common Stock is issued with other shares or securities or other assets of the Issuer for consideration which covers both, the consideration computed as provided in this Section 4(h)(i) shall be allocated among such securities and assets as determined in good faith by the Board.
(ii) When Adjustments to Be Made . The adjustments required by this Section 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except that any adjustment of the number of shares of Common Stock for which this Warrant is exercisable that would otherwise be required may be postponed (except in the case of a subdivision or combination of shares of the Common Stock, as provided for in Section 4(b)) up to, but not beyond the date of exercise if such adjustment either by itself or with other adjustments not previously made adds or subtracts less than one percent (1%) of the shares of Common Stock for which this Warrant is exercisable immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount (except as aforesaid) which is postponed shall be carried forward and made as soon as such adjustment, together with other adjustments required by this Section 4 and not previously made, would result in a minimum adjustment or on the date of exercise. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence.
(iii) Fractional Interests . In computing adjustments under this Section 4, fractional interests in Common Stock shall be taken into account to the nearest one one-hundredth (1/100 th ) of a share.
(iv) When Adjustment Not Required . If the Issuer shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or distribution or subscription or purchase rights and shall, thereafter and before the distribution to stockholders thereof, legally abandon its plan to pay or deliver such dividend, distribution, subscription or purchase rights, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled.
(i) Form of Warrant after Adjustments . The form of this Warrant need not be changed because of any adjustments in the Warrant Price or the number and kind of Securities purchasable upon the exercise of this Warrant.
(j) Escrow of Warrant Stock . If after any property becomes distributable pursuant to this Section 4 by reason of the taking of any record of the holders of Common Stock, but prior to the occurrence of the event for which such record is taken, and the Holder exercises this Warrant, any shares of Common Stock issuable upon exercise by reason of such adjustment shall be deemed the last shares of Common Stock for which this Warrant is exercised (notwithstanding any other provision to the contrary herein) and such shares or other property shall be held in escrow for the Holder by the Issuer to be issued to the Holder upon and to the extent that the event actually takes place, upon payment of the current Warrant Price. Notwithstanding any other provision to the contrary herein, if the event for which such record was taken fails to occur or is rescinded, then such escrowed shares shall be cancelled by the Issuer and escrowed property returned.
5. Notice of Adjustments . Whenever the Warrant Price or Warrant Share Number shall be adjusted pursuant to Section 4 hereof (for purposes of this Section 5, each an " adjustment "), the Issuer shall cause its Chief Financial Officer to prepare and execute a certificate setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated (including a description of the basis on which the Board made any determination hereunder), and the Warrant Price and Warrant Share Number after giving effect to such adjustment, and shall cause copies of such certificate to be delivered to the Holder of this Warrant promptly after each adjustment. Any dispute between the Issuer and the Holder of this Warrant with respect to the matters set forth in such certificate may at the option of the Holder of this Warrant be submitted to a national or regional accounting firm reasonably acceptable to the Issuer and the Holder, provided that the Issuer shall have ten (10) days after receipt of notice from such Holder of its selection of such firm to object thereto, in which case such Holder shall select another such firm and the Issuer shall have no such right of objection. The firm selected by the Holder of this Warrant as provided in the preceding sentence shall be instructed to deliver a written opinion as to such matters to the Issuer and such Holder within thirty (30) days after submission to it of such dispute. Such opinion shall be final and binding on the parties hereto. The costs and expenses of the initial accounting firm shall be paid equally by the Issuer and the Holder and, in the case of an objection by the Issuer, the costs and expenses of the subsequent accounting firm shall be paid in full by the Issuer.
6. Fractional Shares . No fractional shares of Warrant Stock will be issued in connection with any exercise hereof, but in lieu of such fractional shares, the Issuer shall round the number of shares to be issued upon exercise up to the nearest whole number of shares.
" Additional Shares of Common Stock " means all shares of Common Stock issued by the Issuer after the Original Issue Date, and all shares of Other Common, if any, issued by the Issuer after the Original Issue Date, except: (i) securities issued (other than for cash) in connection with a merger, acquisition, or consolidation, (ii) securities issued pursuant to the conversion or exercise of convertible or exercisable securities issued or outstanding on or prior to the date of the Purchase Agreement or issued pursuant to the Purchase Agreement (so long as the conversion or exercise price in such securities are not amended to lower such price and/or adversely affect the Holders), (iii) the Warrant Stock, (iv) securities issued in connection with bona fide strategic license agreements or other partnering arrangements so long as such issuances are not for the purpose of raising capital, (v) Common Stock issued or the issuance or grants of options to purchase Common Stock pursuant to the Issuers stock option plans and employee stock purchase plans outstanding as they exist on the date of the Purchase Agreement, and (vi) any warrants issued to the placement agent and its designees for the transactions contemplated by the Purchase Agreement.
" Articles of Incorporation " means the Articles of Incorporation of the Issuer as in effect on the Original Issue Date, and as hereafter from time to time amended, modified, supplemented or restated in accordance with the terms hereof and thereof and pursuant to applicable law.
" Board " shall mean the Board of Directors of the Issuer.
" Capital Stock " means and includes (i) any and all shares, interests, participations or other equivalents of or interests in (however designated) corporate stock, including, without limitation, shares of preferred or preference stock, (ii) all partnership interests (whether general or limited) in any Person which is a partnership, (iii) all membership interests or limited liability company interests in any limited liability company, and (iv) all equity or ownership interests in any Person of any other type.
" Common Stock " means the Common Stock, $0.0001 par value per share, of the Issuer and any other Capital Stock into which such stock may hereafter be changed.
" Common Stock Equivalent " means any Convertible Security or warrant, option or other right to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Security.
" Convertible Securities " means evidences of Indebtedness, shares of Capital Stock or other Securities which are or may be at any time convertible into or exchangeable for Additional Shares of Common Stock. The term "Convertible Security" means one of the Convertible Securities.
" Governmental Authority " means any governmental, regulatory or self-regulatory entity, department, body, official, authority, commission, board, agency or instrumentality, whether federal, state or local, and whether domestic or foreign.
" Holders " mean the Persons who shall from time to time own any Warrant. The term "Holder" means one of the Holders.
" Independent Appraiser " means a nationally recognized or major regional investment banking firm or firm of independent certified public accountants of recognized standing (which may be the firm that regularly examines the financial statements of the Issuer) that is regularly engaged in the business of appraising the Capital Stock or assets of corporations or other entities as going concerns, and which is not affiliated with either the Issuer or the Holder of any Warrant.
" Issuer " means International America Technologies, Inc., a Nevada corporation, and its successors.
" Majority Holders " means at any time the Holders of Warrants exercisable for a majority of the shares of Warrant Stock issuable under the Warrants at the time outstanding.
" Original Issue Date " means August 8, 2006.
" OTC Bulletin Board " means the over-the-counter electronic bulletin board.
" Other Common " means any other Capital Stock of the Issuer of any class which shall be authorized at any time after the date of this Warrant (other than Common Stock) and which shall have the right to participate in the distribution of earnings and assets of the Issuer without limitation as to amount.
" Outstanding Common Stock " means, at any given time, the aggregate amount of outstanding shares of Common Stock, assuming full exercise, conversion or exchange (as applicable) of all options, warrants and other Securities which are convertible into or exercisable or exchangeable for, and any right to subscribe for, shares of Common Stock that are outstanding at such time.
" Person " means an individual, corporation, limited liability company, partnership, joint stock company, trust, unincorporated organization, joint venture, Governmental Authority or other entity of whatever nature.
" Per Share Market Value " means on any particular date (a) the last closing bid price per share of the Common Stock on such date on the OTC Bulletin Board or another registered national stock exchange on which the Common Stock is then listed, or if there is no such price on such date, then the closing bid price on such exchange or quotation system on the date nearest preceding such date, or (b) if the Common Stock is not listed then on the OTC Bulletin Board or any registered national stock exchange, the last closing bid price for a share of Common Stock in the over-the-counter market, as reported by the OTC Bulletin Board or in the National Quotation Bureau Incorporated or similar organization or agency succeeding to its functions of reporting prices) at the close of business on such date, or (c) if the Common Stock is not then reported by the OTC Bulletin Board or the National Quotation Bureau Incorporated (or similar organization or agency succeeding to its functions of reporting prices), then the average of the "Pink Sheet" quotes for the five (5) Trading Days preceding such date of determination, or (d) if the Common Stock is not then publicly traded the fair market value of a share of Common Stock as determined by an Independent Appraiser selected in good faith by the Majority Holders; provided , however , that the Issuer, after receipt of the determination by such Independent Appraiser, shall have the right to select an additional Independent Appraiser, in which case, the fair market value shall be equal to the average of the determinations by each such Independent Appraiser; and provided , further that all determinations of the Per Share Market Value shall be appropriately adjusted for any stock dividends, stock splits or other similar transactions during such period. The determination of fair market value by an Independent Appraiser shall be based upon the fair market value of the Issuer determined on a going concern basis as between a willing buyer and a willing seller and taking into account all relevant factors determinative of value, and shall be final and binding on all parties. In determining the fair market value of any shares of Common Stock, no consideration shall be given to any restrictions on transfer of the Common Stock imposed by agreement or by federal or state securities laws, or to the existence or absence of, or any limitations on, voting rights.
" Purchase Agreement " means the Series B Preferred Stock Purchase Agreement dated as of September __, 2006, among the Issuer and the Purchasers.
" Purchasers " means the purchasers of the Preferred Stock and the Warrants issued by the Issuer pursuant to the Purchase Agreement.
" Securities " means any debt or equity securities of the Issuer, whether now or hereafter authorized, any instrument convertible into or exchangeable for Securities or a Security, and any option, warrant or other right to purchase or acquire any Security. "Security" means one of the Securities.
" Securities Act " means the Securities Act of 1933, as amended, or any similar federal statute then in effect.
" Subsidiary " means any corporation at least 50% of whose outstanding Voting Stock shall at the time be owned directly or indirectly by the Issuer or by one or more of its Subsidiaries, or by the Issuer and one or more of its Subsidiaries.
" Term " has the meaning specified in Section 1 hereof.
" Trading Day " means (a) a day on which the Common Stock is traded on the OTC Bulletin Board, or (b) if the Common Stock is not traded on the OTC Bulletin Board, a day on which the Common Stock is quoted in the over-the-counter market as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding its functions of reporting prices); provided , however , that in the event that the Common Stock is not listed or quoted as set forth in (a) or (b) hereof, then Trading Day shall mean any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the State of New York are authorized or required by law or other government action to close.
" Voting Stock " means, as applied to the Capital Stock of any corporation, Capital Stock of any class or classes (however designated) having ordinary voting power for the election of a majority of the members of the Board of Directors (or other governing body) of such corporation, other than Capital Stock having such power only by reason of the happening of a contingency.
" Warrants " means the Warrants issued and sold pursuant to the Purchase Agreement, including, without limitation, this Warrant, and any other warrants of like tenor issued in substitution or exchange for any thereof pursuant to the provisions of Section 2(c), 2(d) or 2(e) hereof or of any of such other Warrants.
" Warrant Price " initially means $0.18, as such price may be adjusted from time to time as shall result from the adjustments specified in this Warrant, including Section 4 hereto.
" Warrant Share Number " means at any time the aggregate number of shares of Warrant Stock which may at such time be purchased upon exercise of this Warrant, after giving effect to all prior adjustments and increases to such number made or required to be made under the terms hereof.
" Warrant Stock " means Common Stock issuable upon exercise of any Warrant or Warrants or otherwise issuable pursuant to any Warrant or Warrants.
9. Other Notices . In case at any time:
(A) the Issuer shall make any distributions to the holders of Common Stock; or
(B) the Issuer shall authorize the granting to all holders of its Common Stock of rights to subscribe for or purchase any shares of Capital Stock of any class or other rights; or
(C) there shall be any reclassification of the Capital Stock of the Issuer; or
(D) there shall be any capital reorganization by the Issuer; or
(E) there shall be any (i) consolidation or merger involving the Issuer or (ii) sale, transfer or other disposition of all or substantially all of the Issuer's property, assets or business (except a merger or other reorganization in which the Issuer shall be the surviving corporation and its shares of Capital Stock shall continue to be outstanding and unchanged and except a consolidation, merger, sale, transfer or other disposition involving a wholly-owned Subsidiary); or
(F) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Issuer or any partial liquidation of the Issuer or distribution to holders of Common Stock;
then, in each of such cases, the Issuer shall give written notice to the Holder of the date on which (i) the books of the Issuer shall close or a record shall be taken for such dividend, distribution or subscription rights or (ii) such reorganization, reclassification, consolidation, merger, disposition, dissolution, liquidation or winding-up, as the case may be, shall take place. Such notice also shall specify the date as of which the holders of Common Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their certificates for Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, disposition, dissolution, liquidation or winding-up, as the case may be. Such notice shall be given at least twenty (20) days prior to the action in question and not less than ten (10) days prior to the record date or the date on which the Issuer's transfer books are closed in respect thereto. This Warrant entitles the Holder to receive copies of all financial and other information distributed or required to be distributed to the holders of the Common Stock.
10. Amendment and Waiver . Any term, covenant, agreement or condition in this Warrant may be amended, or compliance therewith may be waived (either generally or in a particular instance and either retroactively or prospectively), by a written instrument or written instruments executed by the Issuer and the Majority Holders; provided , however , that no such amendment or waiver shall reduce the Warrant Share Number, increase the Warrant Price, shorten the period during which this Warrant may be exercised or modify any provision of this Section 10 without the consent of the Holder of this Warrant. No consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of this Warrant unless the same consideration is also offered to all holders of the Warrants.
11. Governing Law; Jurisdiction . This Warrant shall be governed by and construed in accordance with the internal laws of the State of New York, without giving effect to any of the conflicts of law principles which would result in the application of the substantive law of another jurisdiction. This Warrant shall not be interpreted or construed with any presumption against the party causing this Warrant to be drafted. The Issuer and the Holder agree that venue for any dispute arising under this Warrant will lie exclusively in the state or federal courts located in New York County, New York, and the parties irrevocably waive any right to raise forum non conveniens or any other argument that New York is not the proper venue. The Issuer and the Holder irrevocably consent to personal jurisdiction in the state and federal courts of the state of New York. The Issuer and the Holder consent to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Warrant and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing in this Section 11 shall affect or limit any right to serve process in any other manner permitted by law. The Issuer and the Holder hereby agree that the prevailing party in any suit, action or proceeding arising out of or relating to this Warrant or the Purchase Agreement, shall be entitled to reimbursement for reasonable legal fees from the non-prevailing party. The parties hereby waive all rights to a trial by jury.
If to the Issuer: International American Technologies, Inc.
601 Cien Street Suite 235
Kemah, Texas 77565-3077
Attention: Chief Executive Officer
Tel. No.: (281) 334-9479
Fax No.: (281) 334-9508
with copies (which copies
shall not constitute notice)
to: Office of Richard Rubin
115 East 57
th
Street, Suite 1118
New York, New York 10022
Attention: Richard Rubin
Tel. No.: (646) 202-9680
Fax No.: (646) 202-9681
If to any Holder: At the address of such Holder set forth on Exhibit A to this Agreement, with copies to Holders counsel as set forth on Exhibit A or as specified in writing by such Holder with copies to:
with copies (which copies
shall not constitute notice)
to: Kramer Levin Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, New York 10036
Attention: Christopher S. Auguste
Tel. No.: (212) 715-9100
Fax No.: (212) 715-8000
Any party hereto may from time to time change its address for notices by giving written notice of such changed address to the other party hereto.
13. Warrant Agent . The Issuer may, by written notice to each Holder of this Warrant, appoint an agent having an office in New York, New York for the purpose of issuing shares of Warrant Stock on the exercise of this Warrant pursuant to subsection (b) of Section 2 hereof, exchanging this Warrant pursuant to subsection (d) of Section 2 hereof or replacing this Warrant pursuant to subsection (d) of Section 3 hereof, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent.
14. Remedies . The Issuer stipulates that the remedies at law of the Holder of this Warrant in the event of any default or threatened default by the Issuer in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate and that, to the fullest extent permitted by law, such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise.
15. Successors and Assigns . This Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors and assigns of the Issuer, the Holder hereof and (to the extent provided herein) the Holders of Warrant Stock issued pursuant hereto, and shall be enforceable by any such Holder or Holder of Warrant Stock.
16. Modification and Severability . If, in any action before any court or agency legally empowered to enforce any provision contained herein, any provision hereof is found to be unenforceable, then such provision shall be deemed modified to the extent necessary to make it enforceable by such court or agency. If any such provision is not enforceable as set forth in the preceding sentence, the unenforceability of such provision shall not affect the other provisions of this Warrant, but this Warrant shall be construed as if such unenforceable provision had never been contained herein.
17. Headings . The headings of the Sections of this Warrant are for convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.
18. Registration Rights . The Holder of this Warrant is entitled to the benefit of certain registration rights with respect to the shares of Warrant Stock issuable upon the exercise of this Warrant pursuant to that certain Registration Rights Agreement, of even date herewith, by and among the Company and Persons listed on Schedule I thereto (the " Registration Rights Agreement ") and the registration rights with respect to the shares of Warrant Stock issuable upon the exercise of this Warrant by any subsequent Holder may only be assigned in accordance with the terms and provisions of the Registrations Rights Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Issuer has executed this Series B Warrant as of the day and year first above written.
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
By:
Name:
Title:
EXERCISE FORM
SERIES B WARRANT
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
The undersigned _______________, pursuant to the provisions of the within Warrant, hereby elects to purchase _____ shares of Common Stock of International American Technologies, Inc. covered by the within Warrant.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
Number of shares of Common Stock beneficially owned or deemed beneficially owned by the Holder on the date of Exercise: _________________________
The undersigned is an "accredited investor" as defined in Regulation D under the Securities Act of 1933, as amended.
The undersigned intends that payment of the Warrant Price shall be made as (check one):
Cash Exercise_______
Cashless Exercise_______
If the Holder has elected a Cash Exercise, the Holder shall pay the sum of $________ by certified or official bank check (or via wire transfer) to the Issuer in accordance with the terms of the Warrant.
If the Holder has elected a Cashless Exercise, a certificate shall be issued to the Holder for the number of shares equal to the whole number portion of the product of the calculation set forth below, which is ___________. The Company shall pay a cash adjustment in respect of the fractional portion of the product of the calculation set forth below in an amount equal to the product of the fractional portion of such product and the Per Share Market Value on the date of exercise, which product is ____________.
X = Y - (A)(Y)
B
Where:
The number of Ordinary Shares to be issued to the Holder __________________("X").
The number of Ordinary Shares purchasable upon exercise of all of the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised ___________________________ ("Y").
The Warrant Price ______________ ("A").
The Per Share Market Value of one Ordinary Share _______________________ ("B").
ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto __________________ the within Warrant and all rights evidenced thereby and does irrevocably constitute and appoint _____________, attorney, to transfer the said Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto __________________ the right to purchase _________ shares of Warrant Stock evidenced by the within Warrant together with all rights therein, and does irrevocably constitute and appoint ___________________, attorney, to transfer that part of the said Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-___ canceled (or transferred or exchanged) this _____ day of ___________, _____, shares of Common Stock issued therefor in the name of _______________, Warrant No. W-_____ issued for ____ shares of Common Stock in the name of _______________.
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR THE ISSUER SHALL HAVE RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
SERIES C WARRANT TO PURCHASE
SHARES OF COMMON STOCK
OF
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
Expires September 29, 2011
No.: W-C-06-01 Number of Shares: 8,333,333
Date of Issuance: September 29, 2006
FOR VALUE RECEIVED, the undersigned, International American Technologies, Inc., a Nevada corporation (together with its successors and assigns, the " Issuer "), hereby certifies that Vision Opportunity Master Fund, Ltd. or its registered assigns is entitled to subscribe for and purchase, during the Term (as hereinafter defined), up to Eight Million Three Hundred Thirty-Three Thousand Three Hundred Thirty-Three (8,333,333) shares (subject to adjustment as hereinafter provided) of the duly authorized, validly issued, fully paid and non-assessable Common Stock of the Issuer, at an exercise price per share equal to the Warrant Price then in effect, subject, however, to the provisions and upon the terms and conditions hereinafter set forth. Capitalized terms used in this Warrant and not otherwise defined herein shall have the respective meanings specified in Section 8 hereof.
1. Term . The term of this Warrant shall commence on September 29, 2006 and shall expire at 6:00 p.m., eastern time, on September 29, 2011 (such period being the " Term ").
(a) Time of Exercise . The purchase rights represented by this Warrant may be exercised in whole or in part during the Term.
(b) Method of Exercise . The Holder hereof may exercise this Warrant, in whole or in part, by the surrender of this Warrant (with the exercise form attached hereto duly executed) at the principal office of the Issuer, and by the payment to the Issuer of an amount of consideration therefor equal to the Warrant Price in effect on the date of such exercise multiplied by the number of shares of Warrant Stock with respect to which this Warrant is then being exercised, payable at such Holder's election (i) by certified or official bank check or by wire transfer to an account designated by the Issuer, (ii) by "cashless exercise" in accordance with the provisions of subsection (c) of this Section 2, but only when a registration statement under the Securities Act providing for the resale of the Warrant Stock is not then in effect, or (iii) by a combination of the foregoing methods of payment selected by the Holder of this Warrant.
(c) Cashless Exercise . Notwithstanding any provisions herein to the contrary and commencing one (1) year following the Original Issue Date if (i) the Per Share Market Value of one share of Common Stock is greater than the Warrant Price (at the date of calculation as set forth below) and (ii) a registration statement under the Securities Act providing for the resale of the Warrant Stock is not then in effect by the date such registration statement is required to be effective pursuant to the Registration Rights Agreement (as defined in the Purchase Agreement) or not effective at any time during the Effectiveness Period (as defined in the Registration Rights Agreement) in accordance with the terms of the Registration Rights Agreement, unless the registration statement is not effective as a result of the Issuer exercising its rights under Section 3(n) of the Registration Rights Agreement, in lieu of exercising this Warrant by payment of cash, the Holder may exercise this Warrant by a cashless exercise and shall receive the number of shares of Common Stock equal to an amount (as determined below) by surrender of this Warrant at the principal office of the Issuer together with the properly endorsed Notice of Exercise in which event the Issuer shall issue to the Holder a number of shares of Common Stock computed using the following formula:
X = Y - (A)(Y)
B
Where X = the number of shares of Common Stock to be issued to the Holder.
Y = the number of shares of Common Stock purchasable upon exercise of all of the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised.
A = the Warrant Price.
B = the Per Share Market Value of one share of Common Stock.
(d) Issuance of Stock Certificates . In the event of any exercise of this Warrant in accordance with and subject to the terms and conditions hereof, certificates for the shares of Warrant Stock so purchased shall be dated the date of such exercise and delivered to the Holder hereof within a reasonable time, not exceeding three (3) Trading Days after such exercise (the " Delivery Date ") or, at the request of the Holder (provided that a registration statement under the Securities Act providing for the resale of the Warrant Stock is then in effect), issued and delivered to the Depository Trust Company (" DTC ") account on the Holders behalf via the Deposit Withdrawal Agent Commission System (" DWAC ") within a reasonable time, not exceeding three (3) Trading Days after such exercise, and the Holder hereof shall be deemed for all purposes to be the holder of the shares of Warrant Stock so purchased as of the date of such exercise. Notwithstanding the foregoing to the contrary, the Issuer or its transfer agent shall only be obligated to issue and deliver the shares to the DTC on a holders behalf via DWAC if such exercise is in connection with a sale and the Issuer and its transfer agent are participating in DTC through the DWAC system. The Holder shall deliver this original Warrant, or an indemnification undertaking with respect to such Warrant in the case of its loss, theft or destruction, at such time that this Warrant is fully exercised. With respect to partial exercises of this Warrant, the Issuer shall keep written records for the Holder of the number of shares of Warrant Stock exercised as of each date of exercise.
(e) Compensation for Buy-In on Failure to Timely Deliver Certificates Upon Exercise . In addition to any other rights available to the Holder, if the Issuer fails to cause its transfer agent to transmit to the Holder a certificate or certificates representing the Warrant Stock pursuant to an exercise on or before the Delivery Date, and if after such date the Holder is required by its broker to purchase (in an open market transaction or otherwise) shares of Common Stock to deliver in satisfaction of a sale by the Holder of the Warrant Stock which the Holder anticipated receiving upon such exercise (a " Buy-In" ), then the Issuer shall (1) pay in cash to the Holder the amount by which (x) the Holders total purchase price (including brokerage commissions, if any) for the shares of Common Stock so purchased exceeds (y) the amount obtained by multiplying (A) the number of shares of Warrant Stock that the Issuer was required to deliver to the Holder in connection with the exercise at issue times (B) the price at which the sell order giving rise to such purchase obligation was executed, and (2) at the option of the Holder, either reinstate the portion of the Warrant and equivalent number of shares of Warrant Stock for which such exercise was not honored or deliver to the Holder the number of shares of Common Stock that would have been issued had the Issuer timely complied with its exercise and delivery obligations hereunder. For example, if the Holder purchases Common Stock having a total purchase price of $11,000 to cover a Buy-In with respect to an attempted exercise of shares of Common Stock with an aggregate sale price giving rise to such purchase obligation of $10,000, under clause (1) of the immediately preceding sentence the Issuer shall be required to pay the Holder $1,000. The Holder shall provide the Issuer written notice indicating the amounts payable to the Holder in respect of the Buy-In, together with applicable confirmations and other evidence reasonably requested by the Issuer. Nothing herein shall limit a Holders right to pursue any other remedies available to it hereunder, at law or in equity including, without limitation, a decree of specific performance and/or injunctive relief with respect to the Issuers failure to timely deliver certificates representing shares of Common Stock upon exercise of this Warrant as required pursuant to the terms hereof.
(f) Transferability of Warrant . Subject to Section 2(h) hereof, this Warrant may be transferred by a Holder, in whole or in part, without the consent of the Issuer. If transferred pursuant to this paragraph, this Warrant may be transferred on the books of the Issuer by the Holder hereof in person or by duly authorized attorney, upon surrender of this Warrant at the principal office of the Issuer, properly endorsed (by the Holder executing an assignment in the form attached hereto) and upon payment of any necessary transfer tax or other governmental charge imposed upon such transfer. This Warrant is exchangeable at the principal office of the Issuer for Warrants to purchase the same aggregate number of shares of Warrant Stock, each new Warrant to represent the right to purchase such number of shares of Warrant Stock as the Holder hereof shall designate at the time of such exchange. All Warrants issued on transfers or exchanges shall be dated the Original Issue Date and shall be identical with this Warrant except as to the number of shares of Warrant Stock issuable pursuant thereto.
(g) Continuing Rights of Holder . The Issuer will, at the time of or at any time after each exercise of this Warrant, upon the request of the Holder hereof, acknowledge in writing the extent, if any, of its continuing obligation to afford to such Holder all rights to which such Holder shall continue to be entitled after such exercise in accordance with the terms of this Warrant, provided that if any such Holder shall fail to make any such request, the failure shall not affect the continuing obligation of the Issuer to afford such rights to such Holder.
(h) Compliance with Securities Laws.
(i) The Holder of this Warrant, by acceptance hereof, acknowledges that this Warrant and the shares of Warrant Stock to be issued upon exercise hereof are being acquired solely for the Holder's own account and not as a nominee for any other party, and for investment, and that the Holder will not offer, sell or otherwise dispose of this Warrant or any shares of Warrant Stock to be issued upon exercise hereof except pursuant to an effective registration statement, or an exemption from registration, under the Securities Act and any applicable state securities laws.
(ii) Except as provided in paragraph (iii) below, this Warrant and all certificates representing shares of Warrant Stock issued upon exercise hereof shall be stamped or imprinted with a legend in substantially the following form:
THIS WARRANT AND THE SHARES OF COMMON STOCK ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF UNLESS REGISTERED UNDER THE SECURITIES ACT AND UNDER APPLICABLE STATE SECURITIES LAWS OR THE ISSUER SHALL HAVE RECEIVED AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT REGISTRATION OF SUCH SECURITIES UNDER THE SECURITIES ACT AND UNDER THE PROVISIONS OF APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED.
(iii) The Issuer agrees to reissue this Warrant or certificates representing any of the Warrant Stock, without the legend set forth above if at such time, prior to making any transfer of any such securities, the Holder shall give written notice to the Issuer describing the manner and terms of such transfer. Such proposed transfer will not be effected until: (a) either (i) the Issuer has received an opinion of counsel reasonably satisfactory to the Issuer, to the effect that the registration of such securities under the Securities Act is not required in connection with such proposed transfer, (ii) a registration statement under the Securities Act covering such proposed disposition has been filed by the Issuer with the Securities and Exchange Commission and has become effective under the Securities Act, (iii) the Issuer has received other evidence reasonably satisfactory to the Issuer that such registration and qualification under the Securities Act and state securities laws are not required, or (iv) the Holder provides the Issuer with reasonable assurances that such security can be sold pursuant to Rule 144 under the Securities Act; and (b) either (i) the Issuer has received an opinion of counsel reasonably satisfactory to the Issuer, to the effect that registration or qualification under the securities or "blue sky" laws of any state is not required in connection with such proposed disposition, or (ii) compliance with applicable state securities or "blue sky" laws has been effected or a valid exemption exists with respect thereto. The Issuer will respond to any such notice from a holder within three (3) Trading Days. In the case of any proposed transfer under this Section 2(h), the Issuer will use reasonable efforts to comply with any such applicable state securities or "blue sky" laws, but shall in no event be required, (x) to qualify to do business in any state where it is not then qualified, (y) to take any action that would subject it to tax or to the general service of process in any state where it is not then subject, or (z) to comply with state securities or "blue sky" laws of any state for which registration by coordination is unavailable to the Issuer. The restrictions on transfer contained in this Section 2(h) shall be in addition to, and not by way of limitation of, any other restrictions on transfer contained in any other section of this Warrant. Whenever a certificate representing the Warrant Stock is required to be issued to a the Holder without a legend, in lieu of delivering physical certificates representing the Warrant Stock, the Issuer shall cause its transfer agent to electronically transmit the Warrant Stock to the Holder by crediting the account of the Holder's Prime Broker with DTC through its DWAC system (to the extent not inconsistent with any provisions of this Warrant or the Purchase Agreement).
(i) Accredited Investor Status . In no event may the Holder exercise this Warrant in whole or in part unless the Holder is an "accredited investor" as defined in Regulation D under the Securities Act.
3. Stock Fully Paid; Reservation and Listing of Shares; Covenants .
(a) Stock Fully Paid . The Issuer represents, warrants, covenants and agrees that all shares of Warrant Stock which may be issued upon the exercise of this Warrant or otherwise hereunder will, when issued in accordance with the terms of this Warrant, be duly authorized, validly issued, fully paid and non-assessable and free from all taxes, liens and charges created by or through the Issuer. The Issuer further covenants and agrees that during the period within which this Warrant may be exercised, the Issuer will at all times have authorized and reserved for the purpose of the issuance upon exercise of this Warrant a number of authorized but unissued shares of Common Stock equal to at least one hundred twenty (120%) of the number of shares of Common Stock issuable upon exercise of this Warrant without regard to any limitations on exercise.
(b) Reservation . If any shares of Common Stock required to be reserved for issuance upon exercise of this Warrant or as otherwise provided hereunder require registration or qualification with any Governmental Authority under any federal or state law before such shares may be so issued, the Issuer will in good faith use its best efforts as expeditiously as possible at its expense to cause such shares to be duly registered or qualified. If the Issuer shall list any shares of Common Stock on any securities exchange or market it will, at its expense, list thereon, and maintain and increase when necessary such listing, of, all shares of Warrant Stock from time to time issued upon exercise of this Warrant or as otherwise provided hereunder (provided that such Warrant Stock has been registered pursuant to a registration statement under the Securities Act then in effect), and, to the extent permissible under the applicable securities exchange rules, all unissued shares of Warrant Stock which are at any time issuable hereunder, so long as any shares of Common Stock shall be so listed. The Issuer will also so list on each securities exchange or market, and will maintain such listing of, any other securities which the Holder of this Warrant shall be entitled to receive upon the exercise of this Warrant if at the time any securities of the same class shall be listed on such securities exchange or market by the Issuer.
(c) Covenants . The Issuer shall not by any action including, without limitation, amending the Articles of Incorporation or the by-laws of the Issuer, or through any reorganization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other 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 hereof against dilution (to the extent specifically provided herein) or impairment. Without limiting the generality of the foregoing, the Issuer will (i) not permit the par value, if any, of its Common Stock to exceed the then effective Warrant Price, (ii) not amend or modify any provision of the Articles of Incorporation or by-laws of the Issuer in any manner that would adversely affect the rights of the Holders of the Warrants, (iii) take all such action as may be reasonably necessary in order that the Issuer may validly and legally issue fully paid and nonassessable shares of Common Stock, free and clear of any liens, claims, encumbrances and restrictions (other than as provided herein) upon the exercise of this Warrant, and (iv) use its best efforts to obtain all such authorizations, exemptions or consents from any public regulatory body having jurisdiction thereof as may be reasonably necessary to enable the Issuer to perform its obligations under this Warrant.
(d) Loss, Theft, Destruction of Warrants . Upon receipt of evidence satisfactory to the Issuer of the ownership of and the loss, theft, destruction or mutilation of any Warrant and, in the case of any such loss, theft or destruction, upon receipt of indemnity or security satisfactory to the Issuer or, in the case of any such mutilation, upon surrender and cancellation of such Warrant, the Issuer will make and deliver, in lieu of such lost, stolen, destroyed or mutilated Warrant, a new Warrant of like tenor and representing the right to purchase the same number of shares of Common Stock.
(e) Payment of Taxes . The Issuer will pay any documentary stamp taxes attributable to the initial issuance of the Warrant Stock issuable upon exercise of this Warrant; provided , however , that the Issuer shall not be required to pay any tax or taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificates representing Warrant Stock in a name other than that of the Holder in respect to which such shares are issued.
4. Adjustment of Warrant Price . The price at which such shares of Warrant Stock may be purchased upon exercise of this Warrant shall be subject to adjustment from time to time as set forth in this Section 4. The Issuer shall give the Holder notice of any event described below which requires an adjustment pursuant to this Section 4 in accordance with the notice provisions set forth in Section 5.
(a) Recapitalization, Reorganization, Reclassification, Consolidation, Merger or Sale .
(i) In case the Issuer after the Original Issue Date shall do any of the following (each, a " Triggering Event "): (a) consolidate or merge with or into any other Person and the Issuer shall not be the continuing or surviving corporation of such consolidation or merger, or (b) permit any other Person to consolidate with or merge into the Issuer and the Issuer shall be the continuing or surviving Person but, in connection with such consolidation or merger, any Capital Stock of the Issuer shall be changed into or exchanged for Securities of any other Person or cash or any other property, or (c) transfer all or substantially all of its properties or assets to any other Person, or (d) effect a capital reorganization or reclassification of its Capital Stock, then, and in the case of each such Triggering Event, proper provision shall be made so that, upon the basis and the terms and in the manner provided in this Warrant, the Holder of this Warrant shall be entitled upon the exercise hereof at any time after the consummation of such Triggering Event, to the extent this Warrant is not exercised prior to such Triggering Event, to receive at the Warrant Price in effect at the time immediately prior to the consummation of such Triggering Event in lieu of the Common Stock issuable upon such exercise of this Warrant prior to such Triggering Event, the Securities, cash and property to which such Holder would have been entitled upon the consummation of such Triggering Event if such Holder had exercised the rights represented by this Warrant immediately prior thereto (including the right of a shareholder to elect the type of consideration it will receive upon a Triggering Event), subject to adjustments (subsequent to such corporate action) as nearly equivalent as possible to the adjustments provided for elsewhere in this Section 4; provided , however , in the event that the Per Share Market Value is less than the Warrant Price at the time of such Triggering Event, the Holder shall receive an amount in cash equal to the value of this Warrant calculated in accordance with the Black-Scholes formula. Notwithstanding the foregoing to the contrary, this Section 4(a)(i) shall only apply if the surviving entity pursuant to any such Triggering Event is a company that has a class of equity securities registered pursuant to the Securities Exchange Act of 1934, as amended, and its common stock is listed or quoted on a national securities exchange, national automated quotation system or the OTC Bulletin Board. In the event that the surviving entity pursuant to any such Triggering Event is not a public company that is registered pursuant to the Securities Exchange Act of 1934, as amended, or its common stock is not listed or quoted on a national securities exchange, national automated quotation system or the OTC Bulletin Board, then the Holder shall have the right to demand that the Issuer pay to the Holder an amount in cash equal to the value of this Warrant calculated in accordance with the Black-Scholes formula.
(ii) Notwithstanding anything contained in this Warrant to the contrary and so long as the surviving entity pursuant to any Triggering Event is a company that has a class of equity securities registered pursuant to the Securities Exchange Act of 1934, as amended, and its common stock is listed or quoted on a national securities exchange, national automated quotation system or the OTC Bulletin Board, a Triggering Event shall not be deemed to have occurred if, prior to the consummation thereof, each Person (other than the Issuer) which may be required to deliver any Securities, cash or property upon the exercise of this Warrant as provided herein shall assume, by written instrument delivered to, and reasonably satisfactory to, the Holder of this Warrant, (A) the obligations of the Issuer under this Warrant (and if the Issuer shall survive the consummation of such Triggering Event, such assumption shall be in addition to, and shall not release the Issuer from, any continuing obligations of the Issuer under this Warrant) and (B) the obligation to deliver to such Holder such Securities, cash or property as, in accordance with the foregoing provisions of this subsection (a), such Holder shall be entitled to receive, and such Person shall have similarly delivered to such Holder an opinion of counsel for such Person, which counsel shall be reasonably satisfactory to such Holder, or in the alternative, a written acknowledgement executed by the President or Chief Financial Officer of the Issuer, stating that this Warrant shall thereafter continue in full force and effect and the terms hereof (including, without limitation, all of the provisions of this subsection (a)) shall be applicable to the Securities, cash or property which such Person may be required to deliver upon any exercise of this Warrant or the exercise of any rights pursuant hereto.
(b) Stock Dividends, Subdivisions and Combinations . If at any time the Issuer shall:
(i) make or issue or set a record date for the holders of the Common Stock for the purpose of entitling them to receive a dividend payable in, or other distribution of, shares of Common Stock,
(ii) subdivide its outstanding shares of Common Stock into a larger number of shares of Common Stock, or
(iii) combine its outstanding shares of Common Stock into a smaller number of shares of Common Stock,
then (1) the number of shares of Common Stock for which this Warrant is exercisable immediately after the occurrence of any such event shall be adjusted to equal the number of shares of Common Stock which a record holder of the same number of shares of Common Stock for which this Warrant is exercisable immediately prior to the occurrence of such event would own or be entitled to receive after the happening of such event, and (2) the Warrant Price then in effect shall be adjusted to equal (A) the Warrant Price then in effect multiplied by the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment divided by (B) the number of shares of Common Stock for which this Warrant is exercisable immediately after such adjustment.
(c) Certain Other Distributions . If at any time the Issuer shall make or issue or set a record date for the holders of the Common Stock for the purpose of entitling them to receive any dividend or other distribution of:
(i) cash (other than a cash dividend payable out of earnings or earned surplus legally available for the payment of dividends under the laws of the jurisdiction of incorporation of the Issuer),
(ii) any evidences of its indebtedness, any shares of stock of any class or any other securities or property of any nature whatsoever (other than cash, Common Stock Equivalents or Additional Shares of Common Stock), or
(iii) any warrants or other rights to subscribe for or purchase any evidences of its indebtedness, any shares of stock of any class or any other securities or property of any nature whatsoever (other than cash, Common Stock Equivalents or Additional Shares of Common Stock),
then (1) the number of shares of Common Stock for which this Warrant is exercisable shall be adjusted to equal the product of the number of shares of Common Stock for which this Warrant is exercisable immediately prior to such adjustment multiplied by a fraction (A) the numerator of which shall be the Per Share Market Value of Common Stock at the date of taking such record and (B) the denominator of which shall be such Per Share Market Value minus the amount allocable to one share of Common Stock of any such cash so distributable and of the fair value (as determined in good faith by the Board of Directors of the Issuer and supported by an opinion from an investment banking firm mutually agreed upon by the Issuer and the Holder) of any and all such evidences of indebtedness, shares of stock, other securities or property or warrants or other subscription or purchase rights so distributable, and (2) the Warrant Price then in effect shall be adjusted to equal (A) the Warrant Price then in effect multiplied by the number of shares of Common Stock for which this Warrant is exercisable immediately prior to the adjustment divided by (B) the number of shares of Common Stock for which this Warrant is exercisable immediately after such adjustment. A reclassification of the Common Stock (other than a change in par value, or from par value to no par value or from no par value to par value) into shares of Common Stock and shares of any other class of stock shall be deemed a distribution by the Issuer to the holders of its Common Stock of such shares of such other class of stock within the meaning of this Section 4(c) and, if the outstanding shares of Common Stock shall be changed into a larger or smaller number of shares of Common Stock as a part of such reclassification, such change shall be deemed a subdivision or combination, as the case may be, of the outstanding shares of Common Stock within the meaning of Section 4(b).
(d) Issuance of Additional Shares of Common Stock .
(i) In the event the Issuer shall at any time following the Original Issue Date issue any Additional Shares of Common Stock (otherwise than as provided in the foregoing subsections (a) through (c) of this Section 4), at a price per share less than the Warrant Price then in effect or without consideration, then the Warrant Price upon each such issuance shall be adjusted to that price determined by multiplying the Warrant Price then in effect by a fraction:
(A) the numerator of which shall be equal to the sum of (x) the number of shares of Outstanding Common Stock immediately prior to the issuance of such Additional Shares of Common Stock plus (y) the number of shares of Common Stock (rounded to the nearest whole share) which the aggregate consideration for the total number of such Additional Shares of Common Stock so issued would purchase at a price per share equal to the Warrant Price then in effect, and
(B) the denominator of which shall be equal to the number of shares of Outstanding Common Stock immediately after the issuance of such Additional Shares of Common Stock.
(ii) No adjustment of the number of shares of Common Stock for which this Warrant shall be exercisable shall be made under paragraph (i) of Section 4(d) upon the issuance of any Additional Shares of Common Stock which are issued pursuant to the exercise of any Common Stock Equivalents, if any such adjustment shall previously have been made upon the issuance of such Common Stock Equivalents (or upon the issuance of any warrant or other rights therefor) pursuant to Section 4(e).
(h) Other Provisions applicable to Adjustments under this Section . The following provisions shall be applicable to the making of adjustments of the number of shares of Common Stock for which this Warrant is exercisable and the Warrant Price then in effect provided for in this Section 4:
(i) Computation of Consideration . To the extent that any Additional Shares of Common Stock or any Common Stock Equivalents (or any warrants or other rights therefor) shall be issued for cash consideration, the consideration received by the Issuer therefor shall be the amount of the cash received by the Issuer therefor, or, if such Additional Shares of Common Stock or Common Stock Equivalents are offered by the Issuer for subscription, the subscription price, or, if such Additional Shares of Common Stock or Common Stock Equivalents are sold to underwriters or dealers for public offering without a subscription offering, the initial public offering price (in any such case subtracting any amounts paid or receivable for accrued interest or accrued dividends and without taking into account any compensation, discounts or expenses paid or incurred by the Issuer for and in the underwriting of, or otherwise in connection with, the issuance thereof). In connection with any merger or consolidation in which the Issuer is the surviving corporation (other than any consolidation or merger in which the previously outstanding shares of Common Stock of the Issuer shall be changed to or exchanged for the stock or other securities of another corporation), the amount of consideration therefore shall be, deemed to be the fair value, as determined reasonably and in good faith by the Board, of such portion of the assets and business of the nonsurviving corporation as the Board may determine to be attributable to such shares of Common Stock or Common Stock Equivalents, as the case may be. The consideration for any Additional Shares of Common Stock issuable pursuant to any warrants or other rights to subscribe for or purchase the same shall be the consideration received by the Issuer for issuing such warrants or other rights plus the additional consideration payable to the Issuer upon exercise of such warrants or other rights. The consideration for any Additional Shares of Common Stock issuable pursuant to the terms of any Common Stock Equivalents shall be the consideration received by the Issuer for issuing warrants or other rights to subscribe for or purchase such Common Stock Equivalents, plus the consideration paid or payable to the Issuer in respect of the subscription for or purchase of such Common Stock Equivalents, plus the additional consideration, if any, payable to the Issuer upon the exercise of the right of conversion or exchange in such Common Stock Equivalents. In the event of any consolidation or merger of the Issuer in which the Issuer is not the surviving corporation or in which the previously outstanding shares of Common Stock of the Issuer shall be changed into or exchanged for the stock or other securities of another corporation, or in the event of any sale of all or substantially all of the assets of the Issuer for stock or other securities of any corporation, the Issuer shall be deemed to have issued a number of shares of its Common Stock for stock or securities or other property of the other corporation computed on the basis of the actual exchange ratio on which the transaction was predicated, and for a consideration equal to the fair market value on the date of such transaction of all such stock or securities or other property of the other corporation. In the event any consideration received by the Issuer for any securities consists of property other than cash, the fair market value thereof at the time of issuance or as otherwise applicable shall be as determined in good faith by the Board. In the event Common Stock is issued with other shares or securities or other assets of the Issuer for consideration which covers both, the consideration computed as provided in this Section 4(h)(i) shall be allocated among such securities and assets as determined in good faith by the Board.
(ii) When Adjustments to Be Made . The adjustments required by this Section 4 shall be made whenever and as often as any specified event requiring an adjustment shall occur, except that any adjustment of the number of shares of Common Stock for which this Warrant is exercisable that would otherwise be required may be postponed (except in the case of a subdivision or combination of shares of the Common Stock, as provided for in Section 4(b)) up to, but not beyond the date of exercise if such adjustment either by itself or with other adjustments not previously made adds or subtracts less than one percent (1%) of the shares of Common Stock for which this Warrant is exercisable immediately prior to the making of such adjustment. Any adjustment representing a change of less than such minimum amount (except as aforesaid) which is postponed shall be carried forward and made as soon as such adjustment, together with other adjustments required by this Section 4 and not previously made, would result in a minimum adjustment or on the date of exercise. For the purpose of any adjustment, any specified event shall be deemed to have occurred at the close of business on the date of its occurrence.
(iii) Fractional Interests . In computing adjustments under this Section 4, fractional interests in Common Stock shall be taken into account to the nearest one one-hundredth (1/100 th ) of a share.
(iv) When Adjustment Not Required . If the Issuer shall take a record of the holders of its Common Stock for the purpose of entitling them to receive a dividend or distribution or subscription or purchase rights and shall, thereafter and before the distribution to stockholders thereof, legally abandon its plan to pay or deliver such dividend, distribution, subscription or purchase rights, then thereafter no adjustment shall be required by reason of the taking of such record and any such adjustment previously made in respect thereof shall be rescinded and annulled.
(i) Form of Warrant after Adjustments . The form of this Warrant need not be changed because of any adjustments in the Warrant Price or the number and kind of Securities purchasable upon the exercise of this Warrant.
(j) Escrow of Warrant Stock . If after any property becomes distributable pursuant to this Section 4 by reason of the taking of any record of the holders of Common Stock, but prior to the occurrence of the event for which such record is taken, and the Holder exercises this Warrant, any shares of Common Stock issuable upon exercise by reason of such adjustment shall be deemed the last shares of Common Stock for which this Warrant is exercised (notwithstanding any other provision to the contrary herein) and such shares or other property shall be held in escrow for the Holder by the Issuer to be issued to the Holder upon and to the extent that the event actually takes place, upon payment of the current Warrant Price. Notwithstanding any other provision to the contrary herein, if the event for which such record was taken fails to occur or is rescinded, then such escrowed shares shall be cancelled by the Issuer and escrowed property returned.
5. Notice of Adjustments . Whenever the Warrant Price or Warrant Share Number shall be adjusted pursuant to Section 4 hereof (for purposes of this Section 5, each an " adjustment "), the Issuer shall cause its Chief Financial Officer to prepare and execute a certificate setting forth, in reasonable detail, the event requiring the adjustment, the amount of the adjustment, the method by which such adjustment was calculated (including a description of the basis on which the Board made any determination hereunder), and the Warrant Price and Warrant Share Number after giving effect to such adjustment, and shall cause copies of such certificate to be delivered to the Holder of this Warrant promptly after each adjustment. Any dispute between the Issuer and the Holder of this Warrant with respect to the matters set forth in such certificate may at the option of the Holder of this Warrant be submitted to a national or regional accounting firm reasonably acceptable to the Issuer and the Holder, provided that the Issuer shall have ten (10) days after receipt of notice from such Holder of its selection of such firm to object thereto, in which case such Holder shall select another such firm and the Issuer shall have no such right of objection. The firm selected by the Holder of this Warrant as provided in the preceding sentence shall be instructed to deliver a written opinion as to such matters to the Issuer and such Holder within thirty (30) days after submission to it of such dispute. Such opinion shall be final and binding on the parties hereto. The costs and expenses of the initial accounting firm shall be paid equally by the Issuer and the Holder and, in the case of an objection by the Issuer, the costs and expenses of the subsequent accounting firm shall be paid in full by the Issuer.
6. Fractional Shares . No fractional shares of Warrant Stock will be issued in connection with any exercise hereof, but in lieu of such fractional shares, the Issuer shall round the number of shares to be issued upon exercise up to the nearest whole number of shares.
" Additional Shares of Common Stock " means all shares of Common Stock issued by the Issuer after the Original Issue Date, and all shares of Other Common, if any, issued by the Issuer after the Original Issue Date, except: (i) securities issued (other than for cash) in connection with a merger, acquisition, or consolidation, (ii) securities issued pursuant to the conversion or exercise of convertible or exercisable securities issued or outstanding on or prior to the date of the Purchase Agreement or issued pursuant to the Purchase Agreement (so long as the conversion or exercise price in such securities are not amended to lower such price and/or adversely affect the Holders), (iii) the Warrant Stock, (iv) securities issued in connection with bona fide strategic license agreements or other partnering arrangements so long as such issuances are not for the purpose of raising capital, (v) Common Stock issued or the issuance or grants of options to purchase Common Stock pursuant to the Issuers stock option plans and employee stock purchase plans outstanding as they exist on the date of the Purchase Agreement, and (vi) any warrants issued to the placement agent and its designees for the transactions contemplated by the Purchase Agreement.
" Articles of Incorporation " means the Articles of Incorporation of the Issuer as in effect on the Original Issue Date, and as hereafter from time to time amended, modified, supplemented or restated in accordance with the terms hereof and thereof and pursuant to applicable law.
" Board " shall mean the Board of Directors of the Issuer.
" Capital Stock " means and includes (i) any and all shares, interests, participations or other equivalents of or interests in (however designated) corporate stock, including, without limitation, shares of preferred or preference stock, (ii) all partnership interests (whether general or limited) in any Person which is a partnership, (iii) all membership interests or limited liability company interests in any limited liability company, and (iv) all equity or ownership interests in any Person of any other type.
" Common Stock " means the Common Stock, $0.0001 par value per share, of the Issuer and any other Capital Stock into which such stock may hereafter be changed.
" Common Stock Equivalent " means any Convertible Security or warrant, option or other right to subscribe for or purchase any Additional Shares of Common Stock or any Convertible Security.
" Convertible Securities " means evidences of Indebtedness, shares of Capital Stock or other Securities which are or may be at any time convertible into or exchangeable for Additional Shares of Common Stock. The term "Convertible Security" means one of the Convertible Securities.
" Governmental Authority " means any governmental, regulatory or self-regulatory entity, department, body, official, authority, commission, board, agency or instrumentality, whether federal, state or local, and whether domestic or foreign.
" Holders " mean the Persons who shall from time to time own any Warrant. The term "Holder" means one of the Holders.
" Independent Appraiser " means a nationally recognized or major regional investment banking firm or firm of independent certified public accountants of recognized standing (which may be the firm that regularly examines the financial statements of the Issuer) that is regularly engaged in the business of appraising the Capital Stock or assets of corporations or other entities as going concerns, and which is not affiliated with either the Issuer or the Holder of any Warrant.
" Issuer " means International American Technologies, Inc., a Nevada corporation, and its successors.
" Majority Holders " means at any time the Holders of Warrants exercisable for a majority of the shares of Warrant Stock issuable under the Warrants at the time outstanding.
" Original Issue Date " means September 29, 2006.
" OTC Bulletin Board " means the over-the-counter electronic bulletin board.
" Other Common " means any other Capital Stock of the Issuer of any class which shall be authorized at any time after the date of this Warrant (other than Common Stock) and which shall have the right to participate in the distribution of earnings and assets of the Issuer without limitation as to amount.
" Outstanding Common Stock " means, at any given time, the aggregate amount of outstanding shares of Common Stock, assuming full exercise, conversion or exchange (as applicable) of all options, warrants and other Securities which are convertible into or exercisable or exchangeable for, and any right to subscribe for, shares of Common Stock that are outstanding at such time.
" Person " means an individual, corporation, limited liability company, partnership, joint stock company, trust, unincorporated organization, joint venture, Governmental Authority or other entity of whatever nature.
" Per Share Market Value " means on any particular date (a) the last closing bid price per share of the Common Stock on such date on the OTC Bulletin Board or another registered national stock exchange on which the Common Stock is then listed, or if there is no such price on such date, then the closing bid price on such exchange or quotation system on the date nearest preceding such date, or (b) if the Common Stock is not listed then on the OTC Bulletin Board or any registered national stock exchange, the last closing bid price for a share of Common Stock in the over-the-counter market, as reported by the OTC Bulletin Board or in the National Quotation Bureau Incorporated or similar organization or agency succeeding to its functions of reporting prices) at the close of business on such date, or (c) if the Common Stock is not then reported by the OTC Bulletin Board or the National Quotation Bureau Incorporated (or similar organization or agency succeeding to its functions of reporting prices), then the average of the "Pink Sheet" quotes for the five (5) Trading Days preceding such date of determination, or (d) if the Common Stock is not then publicly traded the fair market value of a share of Common Stock as determined by an Independent Appraiser selected in good faith by the Majority Holders; provided , however , that the Issuer, after receipt of the determination by such Independent Appraiser, shall have the right to select an additional Independent Appraiser, in which case, the fair market value shall be equal to the average of the determinations by each such Independent Appraiser; and provided , further that all determinations of the Per Share Market Value shall be appropriately adjusted for any stock dividends, stock splits or other similar transactions during such period. The determination of fair market value by an Independent Appraiser shall be based upon the fair market value of the Issuer determined on a going concern basis as between a willing buyer and a willing seller and taking into account all relevant factors determinative of value, and shall be final and binding on all parties. In determining the fair market value of any shares of Common Stock, no consideration shall be given to any restrictions on transfer of the Common Stock imposed by agreement or by federal or state securities laws, or to the existence or absence of, or any limitations on, voting rights.
" Purchase Agreement " means the Series B Convertible Preferred Stock Purchase Agreement dated as of September 29, 2006, among the Issuer and the Purchasers.
" Purchasers " means the purchasers of the Series B Convertible Preferred Stock and the Warrants issued by the Issuer pursuant to the Purchase Agreement.
" Securities " means any debt or equity securities of the Issuer, whether now or hereafter authorized, any instrument convertible into or exchangeable for Securities or a Security, and any option, warrant or other right to purchase or acquire any Security. "Security" means one of the Securities.
" Securities Act " means the Securities Act of 1933, as amended, or any similar federal statute then in effect.
" Subsidiary " means any corporation at least 50% of whose outstanding Voting Stock shall at the time be owned directly or indirectly by the Issuer or by one or more of its Subsidiaries, or by the Issuer and one or more of its Subsidiaries.
" Term " has the meaning specified in Section 1 hereof.
" Trading Day " means (a) a day on which the Common Stock is traded on the OTC Bulletin Board, or (b) if the Common Stock is not traded on the OTC Bulletin Board, a day on which the Common Stock is quoted in the over-the-counter market as reported by the National Quotation Bureau Incorporated (or any similar organization or agency succeeding its functions of reporting prices); provided , however , that in the event that the Common Stock is not listed or quoted as set forth in (a) or (b) hereof, then Trading Day shall mean any day except Saturday, Sunday and any day which shall be a legal holiday or a day on which banking institutions in the State of New York are authorized or required by law or other government action to close.
" Voting Stock " means, as applied to the Capital Stock of any corporation, Capital Stock of any class or classes (however designated) having ordinary voting power for the election of a majority of the members of the Board of Directors (or other governing body) of such corporation, other than Capital Stock having such power only by reason of the happening of a contingency.
" Warrants " means the Warrants issued and sold pursuant to the Purchase Agreement, including, without limitation, this Warrant, and any other warrants of like tenor issued in substitution or exchange for any thereof pursuant to the provisions of Section 2(c), 2(d) or 2(e) hereof or of any of such other Warrants.
" Warrant Price " initially means $0.50, as such price may be adjusted from time to time as shall result from the adjustments specified in this Warrant, including Section 4 hereto.
" Warrant Share Number " means at any time the aggregate number of shares of Warrant Stock which may at such time be purchased upon exercise of this Warrant, after giving effect to all prior adjustments and increases to such number made or required to be made under the terms hereof.
" Warrant Stock " means Common Stock issuable upon exercise of any Warrant or Warrants or otherwise issuable pursuant to any Warrant or Warrants.
9. Other Notices . In case at any time:
(A) the Issuer shall make any distributions to the holders of Common Stock; or
(B) the Issuer shall authorize the granting to all holders of its Common Stock of rights to subscribe for or purchase any shares of Capital Stock of any class or other rights; or
(C) there shall be any reclassification of the Capital Stock of the Issuer; or
(D) there shall be any capital reorganization by the Issuer; or
(E) there shall be any (i) consolidation or merger involving the Issuer or (ii) sale, transfer or other disposition of all or substantially all of the Issuer's property, assets or business (except a merger or other reorganization in which the Issuer shall be the surviving corporation and its shares of Capital Stock shall continue to be outstanding and unchanged and except a consolidation, merger, sale, transfer or other disposition involving a wholly-owned Subsidiary); or
(F) there shall be a voluntary or involuntary dissolution, liquidation or winding-up of the Issuer or any partial liquidation of the Issuer or distribution to holders of Common Stock;
then, in each of such cases, the Issuer shall give written notice to the Holder of the date on which (i) the books of the Issuer shall close or a record shall be taken for such dividend, distribution or subscription rights or (ii) such reorganization, reclassification, consolidation, merger, disposition, dissolution, liquidation or winding-up, as the case may be, shall take place. Such notice also shall specify the date as of which the holders of Common Stock of record shall participate in such dividend, distribution or subscription rights, or shall be entitled to exchange their certificates for Common Stock for securities or other property deliverable upon such reorganization, reclassification, consolidation, merger, disposition, dissolution, liquidation or winding-up, as the case may be. Such notice shall be given at least twenty (20) days prior to the action in question and not less than ten (10) days prior to the record date or the date on which the Issuer's transfer books are closed in respect thereto. This Warrant entitles the Holder to receive copies of all financial and other information distributed or required to be distributed to the holders of the Common Stock.
10. Amendment and Waiver . Any term, covenant, agreement or condition in this Warrant may be amended, or compliance therewith may be waived (either generally or in a particular instance and either retroactively or prospectively), by a written instrument or written instruments executed by the Issuer and the Majority Holders; provided , however , that no such amendment or waiver shall reduce the Warrant Share Number, increase the Warrant Price, shorten the period during which this Warrant may be exercised or modify any provision of this Section 10 without the consent of the Holder of this Warrant. No consideration shall be offered or paid to any person to amend or consent to a waiver or modification of any provision of this Warrant unless the same consideration is also offered to all holders of the Warrants.
11. Governing Law; Jurisdiction . This Warrant shall be governed by and construed in accordance with the internal laws of the State of New York, without giving effect to any of the conflicts of law principles which would result in the application of the substantive law of another jurisdiction. This Warrant shall not be interpreted or construed with any presumption against the party causing this Warrant to be drafted. The Issuer and the Holder agree that venue for any dispute arising under this Warrant will lie exclusively in the state or federal courts located in New York County, New York, and the parties irrevocably waive any right to raise forum non conveniens or any other argument that New York is not the proper venue. The Issuer and the Holder irrevocably consent to personal jurisdiction in the state and federal courts of the state of New York. The Issuer and the Holder consent to process being served in any such suit, action or proceeding by mailing a copy thereof to such party at the address in effect for notices to it under this Warrant and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing in this Section 11 shall affect or limit any right to serve process in any other manner permitted by law. The Issuer and the Holder hereby agree that the prevailing party in any suit, action or proceeding arising out of or relating to this Warrant or the Purchase Agreement, shall be entitled to reimbursement for reasonable legal fees from the non-prevailing party. The parties hereby waive all rights to a trial by jury.
If to the Issuer: International American Technologies, Inc.
601 Cien Street Suite 235
Kemah, Texas 77565-3077
Attention: Chief Executive Officer
Tel. No.: (281) 334-9479
Fax No.: (281) 334-9508
with copies (which copies
shall not constitute notice)
to: Office of Richard Rubin
115 East 57
th
Street, Suite 1118
New York, New York 10022
Attention: Richard Rubin
Tel. No.: (646) 202-9680
Fax No.: (646) 202-9681
If to any Holder: At the address of such Holder set forth on Exhibit A to this Agreement, with copies to Holders counsel as set forth on Exhibit A or as specified in writing by such Holder with copies to:
with copies (which copies
shall not constitute notice)
to: Kramer Levin Naftalis & Frankel LLP
1177 Avenue of the Americas
New York, New York 10036
Attention: Christopher S. Auguste
Tel. No.: (212) 715-9100
Fax No.: (212) 715-8000
Any party hereto may from time to time change its address for notices by giving written notice of such changed address to the other party hereto.
13. Warrant Agent . The Issuer may, by written notice to each Holder of this Warrant, appoint an agent having an office in New York, New York for the purpose of issuing shares of Warrant Stock on the exercise of this Warrant pursuant to subsection (b) of Section 2 hereof, exchanging this Warrant pursuant to subsection (d) of Section 2 hereof or replacing this Warrant pursuant to subsection (d) of Section 3 hereof, or any of the foregoing, and thereafter any such issuance, exchange or replacement, as the case may be, shall be made at such office by such agent.
14. Remedies . The Issuer stipulates that the remedies at law of the Holder of this Warrant in the event of any default or threatened default by the Issuer in the performance of or compliance with any of the terms of this Warrant are not and will not be adequate and that, to the fullest extent permitted by law, such terms may be specifically enforced by a decree for the specific performance of any agreement contained herein or by an injunction against a violation of any of the terms hereof or otherwise.
15. Successors and Assigns . This Warrant and the rights evidenced hereby shall inure to the benefit of and be binding upon the successors and assigns of the Issuer, the Holder hereof and (to the extent provided herein) the Holders of Warrant Stock issued pursuant hereto, and shall be enforceable by any such Holder or Holder of Warrant Stock.
16. Modification and Severability . If, in any action before any court or agency legally empowered to enforce any provision contained herein, any provision hereof is found to be unenforceable, then such provision shall be deemed modified to the extent necessary to make it enforceable by such court or agency. If any such provision is not enforceable as set forth in the preceding sentence, the unenforceability of such provision shall not affect the other provisions of this Warrant, but this Warrant shall be construed as if such unenforceable provision had never been contained herein.
17. Headings . The headings of the Sections of this Warrant are for convenience of reference only and shall not, for any purpose, be deemed a part of this Warrant.
18. Registration Rights . The Holder of this Warrant is entitled to the benefit of certain registration rights with respect to the shares of Warrant Stock issuable upon the exercise of this Warrant pursuant to that certain Registration Rights Agreement, of even date herewith, by and among the Company and Persons listed on Schedule I thereto (the " Registration Rights Agreement ") and the registration rights with respect to the shares of Warrant Stock issuable upon the exercise of this Warrant by any subsequent Holder may only be assigned in accordance with the terms and provisions of the Registrations Rights Agreement.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the Issuer has executed this Series C Warrant as of the day and year first above written.
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
By:
Name:
Title:
EXERCISE FORM
SERIES C WARRANT
INTERNATIONAL AMERICAN TECHNOLOGIES, INC.
The undersigned _______________, pursuant to the provisions of the within Warrant, hereby elects to purchase _____ shares of Common Stock of International American Technologies, Inc. covered by the within Warrant.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
Number of shares of Common Stock beneficially owned or deemed beneficially owned by the Holder on the date of Exercise: _________________________
The undersigned is an "accredited investor" as defined in Regulation D under the Securities Act of 1933, as amended.
The undersigned intends that payment of the Warrant Price shall be made as (check one):
Cash Exercise_______
Cashless Exercise_______
If the Holder has elected a Cash Exercise, the Holder shall pay the sum of $________ by certified or official bank check (or via wire transfer) to the Issuer in accordance with the terms of the Warrant.
If the Holder has elected a Cashless Exercise, a certificate shall be issued to the Holder for the number of shares equal to the whole number portion of the product of the calculation set forth below, which is ___________. The Company shall pay a cash adjustment in respect of the fractional portion of the product of the calculation set forth below in an amount equal to the product of the fractional portion of such product and the Per Share Market Value on the date of exercise, which product is ____________.
X = Y - (A)(Y)
B
Where:
The number of Ordinary Shares to be issued to the Holder __________________("X").
The number of Ordinary Shares purchasable upon exercise of all of the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being exercised ___________________________ ("Y").
The Warrant Price ______________ ("A").
The Per Share Market Value of one Ordinary Share _______________________ ("B").
ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto __________________ the within Warrant and all rights evidenced thereby and does irrevocably constitute and appoint _____________, attorney, to transfer the said Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
PARTIAL ASSIGNMENT
FOR VALUE RECEIVED, _________________ hereby sells, assigns and transfers unto __________________ the right to purchase _________ shares of Warrant Stock evidenced by the within Warrant together with all rights therein, and does irrevocably constitute and appoint ___________________, attorney, to transfer that part of the said Warrant on the books of the within named corporation.
Dated: _________________ Signature ___________________________
Address _____________________
_____________________
FOR USE BY THE ISSUER ONLY:
This Warrant No. W-___ canceled (or transferred or exchanged) this _____ day of ___________, _____, shares of Common Stock issued therefor in the name of _______________, Warrant No. W-_____ issued for ____ shares of Common Stock in the name of _______________.
LAW OFFICES OF THOMAS J. CRAFT, JR., PA
11000 Prosperity Farms Road-Suite 101
Palm Beach Gardens, FL 33410
(561) 543-2233 Fax: (646) 202-9679
November 21, 2006
International American Technologies, Inc.
601 Cien Street, Suite 235
Kemah, TX 77565
Re: Registration Statement on Form SB-2
Gentlemen:
I have acted as counsel to International American Technologies, Inc., (the "Registrant") in connection with the preparation and filing with the Securities and Exchange Commission ("SEC") of a registration statement on Form SB-2 (the "Registration Statement") under the Securities Act of 1933, as amended (the "Act"), relating to the sale by Vision Opportunity Master Fund, Ltd., the selling shareholder of up to 44,999,999 shares of the Registrants common stock ("Common Stock"). This opinion is submitted pursuant to the applicable rules of the SEC with respect to the Registration Statement.
In connection therewith, I have examined and relied upon originals or copies, certified, conformed or otherwise identified to my satisfaction, of such records, documents, certificates or other instruments delivered to the undersigned by the Registrant as I deemed necessary or appropriate to enable me to render the opinions expressed hereinbelow, including but not limited to: Registrants Articles of Incorporation, as amended; Registrants Bylaws; the Series A and Series B Convertible Preferred Stock Purchase Agreements; the Series A, B and C Warrants; and the Registration Rights Agreements. In all such examinations, I have assumed the genuineness of all signatures on original documents and the conformity to originals or certified documents of all copies submitted to the undersigned as conformed, Photostat or other copies. As to various matters of fact material to my opinions, I have relied upon representations of the officers and directors of the Registrant and its subsidiaries without independently verifying the accuracy of such documents, records and instruments.
Based upon the foregoing, I am of the opinion that: the shares of Common Stock underlying the Series A and Series B Convertible Preferred Stock and issuable upon the exercise of the Series A, B and C Warrants that are being offered by the selling shareholder, when sold in the manner provided in the Registration Statement, will be legally issued, fully paid and non-assessable; and the Common Stock being registered pursuant to the Registration Statement have been validly authorized.
I am a member of the Bar of the State of Florida and express no opinion on any law other than the laws of the State of Florida, Nevada corporate law, where applicable , and applicable federal security laws of the United States. I have rendered no opinion, whether by implication or otherwise, as to any other matters relating to the Registrant or the Common Stock.
I hereby consent to the filing of this opinion as an exhibit to the Registration Statement and the use of my name under the caption "Legal Matters" in the prospectus comprising part of the Registration Statement.
Sincerely,
/s/ Thomas J. Craft, Jr., PC
EMPLOYMENT AGREEMENT
EMPLOYMENT AGREEMENT, dated this ___________day of _________, 2005, between Hammonds Technical Services, Inc., currently having its principal place of business at 15760 West Hardy Road, Suite 400, Houston, Texas 77060
(the "Company") and Mr. Carl Hammonds, (the "Executive").
WHEREAS, the Company desires to employ the Executive and the Executive desires to be employed by the Company as President, a wholly owned subsidiary of American International Industries or its subsidiaries.
WHEREAS, the Executive is willing to enter into an agreement with the Company upon the terms and conditions herein set forth;
NOW, THEREFORE, in consideration of the premises and covenants herein contained, the parties hereto agree as follows:
1. Term of the Agreement . Subject to the terms and conditions hereof, the term of employment of the Executive under this Employment Agreement shall be for the period commencing on the date hereof (the "Commencement Date") and terminating sixty months later, unless sooner terminated as provided in accordance with the provisions of Section 5 here of. (Such term of employment is herein sometimes called the "Employment Term").
2. Employment . As of the Commencement Date, the Company hereby agrees to employ the Executive and the Executive hereby accepts such employment and agrees to perform his duties and responsibilities hereunder in accordance with the terms and conditions hereinafter set forth.
3. Duties and Responsibilities . The Executive shall serve as President of Hammonds during the Employment Term. The Executive shall report to and be subject to the direction of the Chief Executive Officer of the American International Industries, Inc. or its subsidiaries and shall perform duties which are consistent with his current title and position and such other duties as may be assigned to him from time to time by the CEO which are consistent with his position of management and leadership. During the Employment Term, the Executive shall devote his full time, skill, energy and attention to the business of Hammonds and shall perform his duties in a diligent, trustworthy, loyal and businesslike manner.
4. Compensation and Benefits During the Employment Term .
a. The Executive's base compensation shall be at the rate of $7,500.00 per month, for the term of this Agreement, payable in regular installments in accordance with Hammond's payroll practices, less applicable withholding for income and employment taxes as required by law and other deductions as to which the Executive may agree. Such base compensation shall be subject to increases as and when determined by the Company and its 51% owner at their sole discretion.
b. In addition to the Executive's base compensation, the Executive will be entitled to a royalty payment of 1% for all ODV products manufactured by Hammonds. This royalty will not apply to products manufactured by third parties or any subsequent licensing agreement.
c. The Executive shall be entitled to reimbursement of all reasonable, ordinary and necessary business-related expenses incurred by him in the course of his duties and upon compliance with the Company's procedures for submitting such expenses.
5. Termination . Termination of this agreement may occur in the event of death or disability under Section 5 (a) or 5 (b); with cause under Section 5 (c); or for good reason under Section 5(d). Any other termination shall constitute a breach of this agreement.
a. The Company shall have the right to terminate the employment of the Executive under this Agreement for disability in the event the Executive suffers an injury, illness or incapacity of such character as to substantially disable him from performing his duties without reasonable accommodation by the Company for a period of sixty (60) or more consecutive days. The Company must give Executive at least thirty (30) days written notice of its intent to terminate the Agreement under this paragraph. If Executive begins receiving disability payments pursuant to a disability policy paid for by Hammonds, the Executive shall assign such benefits to the Company for all periods during which he is receiving salary payments under this Agreement.
b. This Agreement shall terminate upon the death of the Executive.
c. The Company may terminate this Agreement at any time for "Good Cause" because of (i) Executive's material breach of any term of this Agreement, (ii) Executive's willful misconduct which is materially injurious to the Company, monetarily or otherwise; (iii) Executive's gross negligence in the performance of his duties; or (iv) Executive's failure to perform his essential duties or comply with reasonable directions of the CEO. Notwithstanding the foregoing, the Company shall not terminate this Agreement pursuant to any provision in this Section 5(c) unless the Company shall first have delivered to Executive a notice which specifically identifies Executive's breach or misconduct and the Executive shall not have cured the same within fifteen (15)days after receipt of such notice.
d. The Executive may resign from his employment for "Good Reason" if:
(i) he is assigned, without his express written consent, any duties inconsistent with his positions, duties, responsibilities, authority and status with the Company as of the date hereof,
(ii) his reporting responsibilities or titles in effect as of the date hereof are diminished.
6. Revealing of Trade Secrets, etc. Executive acknowledges the interest of the Company in maintaining the confidentiality of information related to its business and shall not at any time during the Employment Term or thereafter, directly or indirectly, reveal or cause to be revealed to any person or entity the supplier lists, customer lists or other confidential business information of the Company unless such disclosure is (i) to an employee of the Company or its subsidiaries; or (ii) to a person to whom disclosure is reasonably necessary or appropriate in connection with the performance of his/her duties as an employee of the Company; or (iii) authorized in writing by the Company; or (iv) required by any Court or administrative agency
. The parties acknowledge that it is not the intention of this paragraph to include within its subject matter (a) information not proprietary to the Company; (b) information which is then in the public domain; or (c) information required to be disclosed by law.
7. Arbitration. If a dispute should arise regarding this agreement, all claims, disputes, controversies, differences or other matters in question arising out of this relationship shall be settled finally, completely and conclusively by arbitration before a single arbitrator in Harris County, Texas, in accordance with the Commercial Arbitration Rules of the American Arbitration Association (the "Rules"). Arbitration shall be initiated by written demand. A decision of the arbitrator shall be final, conclusive and binding on the Company and the Executive, and judgment for enforcement and other benefits may be entered in the District Court of Harris County, Texas.
The parties agree that either party may specifically enforce this section, and submission to arbitration may be compelled only in the District Court of Harris County, Texas . The parties further acknowledge and agree that the decision of the arbitrator may be specifically enforced by either party in any court of competent jurisdiction. The parties are entitled to be represented by legal counsel at any arbitration hearing, and each party shall be responsible for its own attorneys' fees. Other than the initial filing fee, the Company agrees to bear all costs of the arbitration process. The prevailing party shall be entitled to recover reasonable and necessary attorney's fees from the non prevailing party.
8. Covenant Not to Compete .
a. Executive's Acknowledgement. Executive agrees and acknowledges that in order to assure that the Company will retain its value as a going concern, it is necessary that the Executive not utilize his special knowledge of the business and his relationships with customers and suppliers to compete with the Hammonds. Executive further acknowledges that;
b. the Company is and will be engaged in the business of manufacturing and selling of Hammond's proprietary products.
c. Executive will occupy a position of trust and confidence with the Company prior to the date of the Agreement and, during such period and Executive's employment under this Agreement, Executive has, and will become familiar with the Hammonds's trade secrets and with other proprietary and confidential information concerning the Hammonds;
d. The agreements and covenants contained in this Section 8 are essential to protect the Company and the goodwill of the business; and
e. Executive's employment with the the Company has special, unique and extraordinary value to the Hammonds and Hammonds would be irreparably damaged if the Executive were to provide services to any person or entity in violation of the provisions of this agreement.
9. Competitive Activities . Executive hereby agrees that for a period commencing on the date hereof and ending one year following the later of termination of the Executive's employment with the Company for whatever reason, and the conclusion of the period, if any, during which the Company is making payments to the Executive, he will not, within sixty (60) miles of the Company's operations (the "Territory"), directly or indirectly, as employee, agent, consultant, stockholder, director, co-partner or in any other executive or representative capacity, own, operate, manage, control, engage in, invest in or participate in any manner in, act as a consultant or advisor to, render services for or otherwise assist any person or entity that engages in or owns, invests in, operates, manages or controls any venture or enterprise that directly or indirectly engages or proposes to engage in the business of the manufacturing, distribution or sale of products manufactured, distributed, sold or licensed, or products proposed at the time of such termination to be manufactured, distributed, sold or licensed, by the Company at the time of termination; however, nothing contained herein shall be construed to prevent Executive from investing in the stock of any competing corporation listed on a national securities exchange or traded in the over the counter market, but only if Executive is not involved in the business of said corporation and if Executive and his associates promulgated under the Securities Exchange Act of 1934, as in effect on the date hereof, collectively, do not own more than an aggregate of two percent of the stock of such corporation. With respect to the Territory, Executive specifically acknowledges that Hammonds has conducted the business throughout those areas comprising the Territory and that the Company intends to continue to expand the business throughout the Territory.
10. Severance. In the event that the Company terminates this Agreement without "Good Cause," or the Executive resigns from his employment for "Good Reason," the Company agrees to pay the Employee the following compensation (the "Severance Pay"):
a. Amount and Terms of Payment. In the event that the Company terminates this Agreement without "Good Cause," as defined in Paragraph (5)(c) above, or the Executive resigns from his employment for "Good Reason," as defined in Paragraph (5)(d) above, the Company agrees to pay the Employee Severance Pay in an amount equal to either $90,000, or the present value of the salary and bonus payments due over the remainder of the Employment Term, whichever is greater. Such Severance Pay shall be paid in a lump sum within thirty (30) days after such termination becomes effective
.
b. Exceptions . Severance Pay shall not be payable under this section in any of the following circumstances:
(1) In the event that this Agreement is terminated as a result of the death or disability of the Employee, as provided in Paragraphs (5)(a) and (b) above; or
(2) In the event that this Agreement is terminated for "Good Cause," as defined in Paragraph 5(c); or
(3) In the event of the Employee's voluntary resignation without Good Reason, as defined in Paragraph (5)(d) above.
12. Survival. In the event that this Agreement shall be terminated, then notwithstanding such termination, the obligations of the Executive pursuant to Sections 6 and 8 of this agreement shall survive such termination.
13. Contents of Agreement, Parties in Interest, Assignment, etc. This Agreement sets forth the entire understanding of the parties hereto with respect to the subject matter hereof. All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective heirs, representatives, successors and assigns of the parties hereto, except that the duties and responsibilities of the Executive here under which are of a personal matter shall neither be assigned nor transferred in whole or in part by the Executive. This Agreement shall not be amended except by written instrument duly executed by the parties.
14. Severability . If any term or provision of this Agreement shall be held to be invalid or unenforceable for any reason, such term or provision shall be ineffective to the extent of such invalidity or unenforceability without invalidating the remaining terms and provisions hereof, and this Agreement shall be construed as if such invalid or unenforceable term or provision had not been contained herein.
15. Notices . Any notice, request, instruction or other document to be given hereunder by any party to the other party shall be in writing and shall be deemed to have been duly given when delivered personally or five day's after dispatch by registered or certified mail, postage prepaid, return receipt requested, to the party to whom the same is so given or made.
In WITNESS WHEREOF, the parties hereto have caused this Agreement to be duly executed and delivered as of the day and year first above written.
Hammonds Technical Services Inc.
Accepted By: _____________________________
Mr. Carl Hammonds, Executive
Approved by American International Industries and or its Subsidiary a 51% owner.
By: ______________________________
Mr. Daniel Dror, Chairman & CEO
American International Industries, Inc
Exhibit 23(i)
CONSENT OF REGISTERED PUBLIC ACCOUNTING FIRM
We hereby consent to the incorporation in the Registration Statement on Form SB-2 or our report dated April 17, 2006 relating to the consolidated financial statements of International American Technologies, Inc. and to the reference to this firm under the caption "Experts" in the Prospectus.
/s/ Thomas Leger & Co., L.L.P.
Thomas Leger & Co., L.L.P.
Houston, TX
November 21, 2006
Exhibit 23(ii)
CONSENT OF REGISTERED PUBLIC ACCOUNTING FIRM
I hereby consent to the incorporation in the Registration Statement on Form SB-2 or my report dated March 15, 2005 relating to the consolidated financial statements of International American Technologies, Inc. and to the reference to my firm under the caption "Experts" in the Prospectus.
/s/ R. E. Bassie & Co.
R. E. Bassie & Co.
Houston, TX
November 21, 2006