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▇▇▇▇▇▇, INC.
WITH
THE PURCHASERS LISTED
ON
EXHIBIT "A" HERETO
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CONVERTIBLE SUBORDINATED NOTE PURCHASE AGREEMENT
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Dated as of October 31, 2001
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▇▇▇▇▇▇, INC.
------------
As of October 31, 2001
To the Purchasers set forth
on Exhibit "A" to this Agreement
Dear Sirs:
▇▇▇▇▇▇, INC., a New York corporation (the "Company"), agrees
with each Purchaser as follows:
1. AUTHORIZATION OF CONVERTIBLE NOTES.
The Company has authorized the issuance and sale
of an aggregate of up to $15,000,000 principal amount of its 4% Convertible
Subordinated Notes due August 31, 2006 (the "Convertible Notes"). The
Convertible Notes are convertible into shares of the Company's Common Stock, par
value $.02 per share (such shares to be issued upon conversion of the
Convertible Notes being hereinafter referred to herein as the "Shares"), at the
Conversion Price defined in Article 24 of this Agreement. The Convertible Notes
are to be sold pursuant to this Agreement to the purchasers listed on Exhibit
"A" to this Agreement (the "Purchasers"). Interest on the Convertible Notes is
payable semi- annually on the last day of December and June in each year,
commencing on December 31, 2001 (which first interest payment shall be for the
period from and including the Closing Date specified in Article 3 through
December 31, 2001), at the interest rate specified in the form of Convertible
Note attached hereto as Exhibit "B".
2. SALE AND PURCHASE OF CONVERTIBLE NOTES.
Subject to the terms and conditions hereof, the
Company will sell to each Purchaser, and each Purchaser will purchase from the
Company, on the Closing Date specified in Article 3, a Convertible Note or Notes
in the aggregate principal amount set forth opposite such Purchaser's name on
Exhibit "A" hereto, at a purchase price of 100% of such principal amount.
3. CLOSING.
The closing (the "Closing") of the purchase and
sale of the Convertible Notes will take place at the offices of ▇▇▇▇ ▇▇▇▇▇▇▇,
P.C., ▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇, at 10:00 a.m., New
York City time, on October 31, 2001 or such other time and date as shall be
mutually agreed upon by the Purchasers and the Company. Such time and date is
herein called the "Closing Date."
On the Closing Date, in the case of Purchasers
that are present at the Closing, or within one (1) Business Day after the
Closing, in the case of all other Purchasers, the Company shall deliver to each
Purchaser a Convertible Note or Notes, dated the Closing Date, in the aggregate
principal amount set forth opposite such Purchaser's name on Exhibit "A" hereto,
each such Convertible Note to be registered in the name of the Purchaser or its
nominee, against delivery by the Purchaser to the Company of a certified or
official bank check(s) or wire transfer(s) in an aggregate amount equal to the
aggregate purchase price for such Convertible Notes, payable to the order of the
Company in immediately available funds.
4. REPRESENTATIONS AND WARRANTIES BY THE COMPANY.
The Company represents and warrants that:
4.1 Organization and Existence, Authority, etc. The Company
is a corporation duly organized and validly existing and in good standing under
the laws of the State of New York, and has all requisite corporate power and
authority to carry on its business as now conducted and proposed to be
conducted; the Company has all requisite corporate power and authority to enter
into this Agreement, to issue the Convertible Notes as contemplated herein and
to carry out the provisions and conditions of this Agreement and of the
Convertible Notes, including the issuance of the Shares in accordance with the
terms of this Agreement and the Convertible Notes. Except as set forth on
Schedule 4.1, the Company has no Subsidiaries as of the date hereof. This
Agreement and the Convertible Notes have been duly executed and delivered by,
and constitute the valid and binding obligations of, the Company, enforceable in
accordance with their respective terms, subject to the effect of any applicable
bankruptcy, moratorium, insolvency, reorganization or other similar law
affecting the enforceability of creditors' rights generally and to the effect of
general principles of equity which may limit the availability of remedies
(whether in a proceeding at law or in equity). The Company is duly qualified and
is authorized to do business and is in good standing as a foreign corporation in
each jurisdiction in which the conduct of its business or ownership of its
properties would so require, except where the failure to be so qualified would
not have a material adverse effect on its business and financial condition,
taken as a whole.
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4.2 Litigation. Except as disclosed in the Company Commission Filings
(as hereinafter defined), to the knowledge of the Company, there is no action,
suit or proceeding pending, or threatened, against the Company before any court,
administrative agency or arbitrator which could reasonably be expected to result
in any material adverse change in the business, properties, condition (financial
or otherwise) of the Company, taken as a whole, or which challenges the validity
of any action taken or to be taken pursuant to or in connection with this
Agreement or the Convertible Notes.
4.3 Charter Documents. Neither the execution nor the delivery of this
Agreement or the Convertible Notes, nor the consummation of the transactions
contemplated hereby or thereby, nor compliance with the terms and provisions
hereof or thereof, will conflict with, or result in a breach of or creation of a
lien under, the terms, conditions or provisions of, or constitute a default
under, the charter or by-laws of the Company, as amended, copies of which have
been provided to the Purchasers.
4.4 Authorized and Outstanding Capital Stock. The Company has
authorized 10,000,000 shares of Common Stock, par value $.02 per share (the
"Common Stock"), of which 4,181,922 shares are issued and outstanding as of the
date of this Agreement. All of such outstanding shares of Common Stock have been
validly issued and are fully paid and non-assessable. The Company has authorized
(i) the issuance and sale to the Purchasers of an aggregate of up to $15,000,000
principal amount of the Convertible Notes and (ii) the issuance upon conversion
of the Convertible Notes of the Shares of the Company's Common Stock into which
such Convertible Notes are convertible in accordance with Article 11 or 12, as
applicable, of this Agreement. The Shares, when issued in accordance with the
terms of this Agreement and the Convertible Notes, will be validly issued, fully
paid and non-assessable.
4.5 Broker's and Finder's Fees. The Company will pay all broker's and
finder's fees incurred by the Company in connection with the sale of the
Convertible Notes.
4.6 Commission Filings and Financial Statements. The Company has
heretofore made available to the Purchasers true and complete copies of all
reports, registration statements, definitive proxy statements and other
documents (in each case together with all amendments and supplements thereto)
filed by the Company with the Commission since February 13, 2001 (such reports,
registration statements, definitive proxy statements and other documents,
together with any amendments and supplements thereto, are sometimes collectively
referred to as the "Company Commission Filings"). The Company Commission Filings
constitute all of the documents (other than preliminary materials) that the
Company was required to file with the Commission since such date. As of their
respective dates, each of the Company Commission Filings complied in all
material respects with the applicable requirements
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of the Securities Act and the Exchange Act, as applicable, and the rules and
regulations under each such Act, and none of the Company Commission Filings
contained as of such date any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. When filed with the Commission the financial statements included
in the Company Commission Filings complied as to form in all material respects
with the applicable rules and regulations of the Commission and were prepared in
accordance with generally accepted accounting principles (as in effect from time
to time) applied on a consistent basis (except as may be indicated therein or in
the notes or schedules thereto), and such financial statements fairly present in
accordance with generally accepted accounting principles in all material
respects the financial position of the Company as at the dates thereof and the
results of its operations and its cash flows for the periods then ended,
subject, in the case of the unaudited interim financial statements, to normal,
recurring year-end audit adjustments and the absence of footnotes. Since
February 13, 2001, except as disclosed in the Company Commission Filings filed
with the Commission prior to the date hereof, the Company has not incurred any
liability or obligation of any kind outside of the ordinary course of business,
and no other event has occurred, which in any case or in the aggregate, would
have a material adverse effect on the business, assets, results of operations or
financial condition of the Company.
4.7 Tax Returns and Payments. The Company has filed all tax returns
required by law to be filed by it and has paid all material taxes, assessments
and other governmental charges levied upon the Company and any of its
properties, assets, income or franchises which are due and payable, other than
those presently payable without penalty or interest or those that are being
contested in good faith by appropriate proceedings promptly instituted and
diligently conducted and for which adequate reserves have been established on
the books of the Company in accordance with generally accepted accounting
principles. The charges, accruals and reserves on the books of the Company in
respect of Federal, state and foreign income taxes for all fiscal periods are
adequate in the opinion of the Company, and the Company has not been notified of
any material unpaid assessment for additional Federal, state or foreign income
taxes for any period or any basis for any such assessment for which adequate
provision has not been made in its accounts in accordance with generally
accepted accounting principles.
4.8 Indebtedness. The Company Commission Filings correctly describe all
material secured and unsecured Indebtedness of the Company outstanding, or for
which the Company has commitments, on the date of this Agreement, and identify
in all material respects the collateral securing any such secured Indebtedness.
The Company is not in material default with respect to the payment of any
material Indebtedness or with respect to any instrument or agreement relating
thereto.
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4.9 Title to Properties. The Company has good and sufficient title to
its material properties and assets, including the properties and assets
reflected in the financial statements as of and for the period ended February
28, 2001 (except properties and assets disposed of since such date in the
ordinary course of business and properties and assets held under Capital
Leases). The Company enjoys peaceful and undisturbed possession under all
material leases necessary in any material respect for the operation of its
material properties and assets, and all such leases are valid and subsisting and
are in full force and effect.
4.10 Compliance with Other Instruments, Etc. The Company is not in
violation of any term of its certificate or articles of incorporation or
by-laws, and the Company is not in material violation of any material term of
any material agreement or instrument to which it is a party or by which it is
bound or any material term of any applicable law, ordinance, rule or regulation
of any governmental authority or any material term of any applicable order,
judgment or decree of any court, arbitrator or governmental authority, the
consequences of which violation might have a materially adverse effect on the
business, condition (financial or other), operations, assets or properties of
the Company; the execution, delivery and performance of this Agreement and the
Notes will not result in any material violation of or be in material conflict
with or constitute a material default under any such term; and there is no such
term which materially adversely affects the business, condition (financial or
other), operations, assets, or properties of the Company, taken as a whole.
4.11 Governmental Consent. No material consent, approval or
authorization of, or declaration or filing with, any governmental authority on
the part of the Company or any of its Subsidiaries is required for the valid
execution and delivery of this Agreement or the valid offer, issue, sale and
delivery of the Notes pursuant to this Agreement, except where the failure to
obtain such consent or make such filing would not have a material adverse effect
on the business, operations or assets of the Company, and except for appropriate
filings (i) with the Commission and the NASDAQ of a Form D, (ii) with the NASDAQ
of an additional listing application for the Shares, and (iii) with such state
securities commissions in respect of "blue sky" laws as may be appropriate.
4.12 Use of Proceeds. The Company will apply the net proceeds of the
sale of the Convertible Notes principally for funding the Company's acquisition
program and for general corporate purposes. The Company does not currently
maintain a bank credit facility for borrowings.
4.13 Solvency. On the Closing date and after giving effect to the
application of the proceeds of the Convertible Notes as specified in Section
4.12, the Company will be Solvent.
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4.14 Disclosure. To the best of the Company's knowledge, there is no
fact (other than matters of a general economic or political nature which does
not affect the Company uniquely) known to the Company which materially adversely
affects the business, condition (financial or other), operations, assets or
properties of the Company which has not been set forth either in the Company
Commission Filings or in this Agreement or in the other documents, certificates
and instruments delivered to the Purchasers by or on behalf of the Company
specifically for use in connection with the transactions contemplated by this
Agreement.
5. SUBORDINATION.
5.1 Agreement to Be Bound. The Company covenants and agrees, and each
holder of Convertible Notes by his (its) acceptance thereof, likewise covenants
and agrees, that the Convertible Notes shall be issued subject to the provisions
contained in this Article 5; and each person holding any Convertible Notes,
whether upon original issue or upon transfer or assignment thereof, accepts and
agrees to be bound by such provisions.
All Convertible Notes shall, to the extent and
in the manner hereinafter set forth, be subordinated and subject in right of
payment to the prior payment in full of all Senior Indebtedness (as defined
herein).
5.2 Priority of Senior Indebtedness. (a) No payment on account of
principal or interest on the Convertible Notes shall be made, nor shall any
assets be applied to the purchase or other acquisition or retirement of the
Convertible Notes, if, at the time of such payment or application or immediately
after giving effect thereto, there shall exist a default in the payment of any
amount due on any Senior Indebtedness. Within ten (10) Business Days after
knowledge of any such default referred to in this Section 5.2(a), the Company
shall furnish a copy thereof to each holder of the Convertible Notes, in the
manner and at the address specified pursuant to Article 17 hereof.
(b) If there shall have occurred an event of default (other than a
default in the payment of any amount due) with respect to any issue of Senior
Indebtedness, as defined herein, or in the instrument under which the same has
been issued, permitting the holders thereof, after notice or lapse of time, or
both, to accelerate the maturity thereof, then, unless and until such event of
default shall have been cured or waived or shall have ceased to exist, no
payment on account of principal or interest on the Convertible Notes shall be
made, nor shall any assets be applied to the conversion, redemption or other
acquisition or retirement of the Convertible Notes until the earliest to occur
of (i) 30 days after the date that notice of such default is given to the
holders of Convertible Notes pursuant to the last sentence of this Section
5.2(b), or (ii) the date on which the Senior Indebtedness to which such event of
default related is
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discharged in accordance with its terms, or (iii) the date such event of default
is waived by the holders of such Senior Indebtedness or otherwise cured. Within
ten (10) Business Days after knowledge of any such default referred to in this
Section 5.2(b), the Company shall furnish a copy thereof to each holder of the
Convertible Notes, in the manner and at the address specified pursuant to
Article 17 hereof.
(c) Upon the occurrence and during the continuance of any Event of
Default under this Agreement or the Convertible Notes, or upon the occurrence of
an event described in Sections 5.2(a) or (b) which gives rise to the non-payment
of principal or interest due on the Convertible Notes, and notwithstanding any
other provision contained herein or in the Convertible Notes to the contrary,
each Purchaser hereby agrees, for the benefit of the holders of Senior
Indebtedness, not to ask for, demand, ▇▇▇ for, take or receive any amount owing
under the Convertible Notes or exercise any remedy (whether pursuant hereto,
including, without limitation, acceleration of the Convertible Notes, at law, in
equity or otherwise) with respect thereto until the earliest of (i) 30 days
after (x) the occurrence of such Event of Default or (y) the date that notice of
such default is given to the holders of Convertible Notes pursuant to Sections
5.2(a) or (b), (ii) the date on which all Senior Indebtedness is accelerated,
(iii) if applicable, the date on which the Senior Indebtedness to which such
event of default related is discharged in accordance with its terms or such
event of default is waived by the holders of such Senior Indebtedness or
otherwise cured or (iv) any voluntary or involuntary petition in bankruptcy
filed by or against the Company. Within ten (10) Business Days after knowledge
of any Event of Default under this Agreement or the Convertible Notes, the
Company shall furnish a copy thereof to the holders of Senior Indebtedness in
the manner and at the addresses specified in the documents and/or agreements
evidencing the applicable Senior Indebtedness.
5.3 Acceleration of Convertible Notes; Insolvency. Upon (i) any
acceleration of the principal amount due on the Convertible Notes or Senior
Indebtedness or (ii) any payment or distribution of assets of the Company of any
kind or character, whether in cash, property or securities, to creditors upon
any dissolution or winding up or total or partial liquidation or reorganization
of the Company, whether voluntary or involuntary or in bankruptcy, insolvency,
receivership or other proceedings, all amounts due or to become due upon all
Senior Indebtedness shall first be paid in full, or payment thereof duly
provided for, to the full satisfaction of the holders of Senior Indebtedness
before the holders of the Convertible Notes shall be entitled to receive or
retain any assets so paid or distributed in respect thereof; and upon any such
dissolution or winding up or liquidation or reorganization, any payment or
distribution of assets of the Company of any kind or character, whether in cash,
property or securities, to which the holders of the Convertible Notes would be
entitled, except for these provisions, shall be paid by the Company or by any
receiver, trustee in bankruptcy, liquidating trustee, agent or other person
making such payment or distribution, or by the holders of the Convertible Notes
if received by them or it, as the case may be, directly to the holders
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of Senior Indebtedness, to the extent necessary to pay all such Senior
Indebtedness in full, after giving effect to any concurrent payment or
distribution to or for the holders of Senior Indebtedness before any payment or
distribution is made to the holders of the Convertible Notes, except that the
holders of Senior Indebtedness of the type described in clause (i) of the
definition of Senior Indebtedness shall be entitled to receive payment in full
of such Senior Indebtedness (or provisions satisfactory to the holders of such
Senior Indebtedness shall be made for such payment) before the holders of other
types of Senior Indebtedness shall be entitled to receive payment on such other
Senior Indebtedness.
In the event that, notwithstanding the provision
of the preceding paragraph or of Section 5.2 hereof, any payment or distribution
of assets of the Company prohibited by the preceding paragraph or by Section 5.2
hereof shall be received by the holders of the Convertible Notes before all
Senior Indebtedness is paid in full, or provision made for such payment, to the
full satisfaction of the holders of Senior Indebtedness, in accordance with its
terms, such payment or distribution shall be held in trust for the benefit of,
and shall be paid over or delivered to, the holders of Senior Indebtedness or
their representative or representatives, or to the trustee or trustees under any
indenture pursuant to which any instruments evidencing any Senior Indebtedness
may have been issued, as their respective interests may appear, for application
to the payment of all Senior Indebtedness remaining unpaid to the extent
necessary to pay all Senior Indebtedness in full in accordance with its terms,
after giving effect to any concurrent payment or distribution to or for the
holders of such Senior Indebtedness. All payments applied to Senior Indebtedness
pursuant to this paragraph of Section 5.3 shall be allocated among the holders
of Senior Indebtedness in accordance with the provisions of the preceding
paragraph of this Section 5.3.
5.4 Subrogation, Etc. Upon payment in full of all Senior
Indebtedness, the holders of Convertible Notes shall be subrogated to the rights
of the holders of Senior Indebtedness to receive payments or distributions of
assets of the Company pro rata in proportion to the respective amounts then
owing to the holders of Convertible Notes; and for purposes of such subrogation,
no payments or distributions to the holders of Senior Indebtedness of any cash,
property or securities to which the holders of Convertible Notes would be
entitled except for the provisions of this Article 5, and no payment over
pursuant to such provisions to the holders of Senior Indebtedness, shall, as
between the Company and its creditors (other than the holders of Convertible
Notes and the holders of the Senior Indebtedness), be deemed to be a payment by
the Company to or on account of Senior Indebtedness, it being understood that
the provisions of this Article 5 are and are intended solely for the purpose of
defining the relative rights of the holders of Convertible Notes on the one hand
and the holders of Senior Indebtedness on the other hand. The holders of Senior
Indebtedness may amend, modify and otherwise deal with Senior Indebtedness
without any notice to or approval of any holder of Indebtedness ranking junior
to Senior Indebtedness.
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5.5 Enforcement. The foregoing subordination provisions shall be for
the benefit of the holders of Senior Indebtedness and may be enforced directly
by such holders against the holders of the Convertible Notes. Each holder of
Convertible Notes by his (or its) acceptance thereof shall be deemed to
acknowledge and agree that the subordination provisions of this Article 5 are,
and are intended to be, an inducement and a consideration to each holder of any
Senior Indebtedness, whether such Senior Indebtedness was created or acquired
before or after the issuance of the Convertible Notes, to acquire and continue
to hold, or to continue to hold, such Senior Indebtedness and each holder of
Senior Indebtedness shall be deemed conclusively to have relied on such
subordination provisions in acquiring and continuing to hold, or in continuing
to hold, such Senior Indebtedness.
Upon any payment or distribution of assets of the Company, the holders
of the Convertible Notes shall be entitled to rely upon a certificate of the
receiver, trustee in bankruptcy, liquidation trustee, Company, agent or other
person making such payment or distribution, delivered to the holders of the
Convertible Notes, for the purpose of ascertaining the persons entitled to
participate in such distribution, the holders of the Senior Indebtedness and
other indebtedness of the Company, the amount thereof or payable thereon, the
amount or amounts paid or distributed thereon and all other facts pertaining
thereto or to the provisions of this Article 5.
5.6 Obligations Unimpaired. Nothing contained in this Article 5, or
elsewhere in this Agreement, or in the Convertible Notes, is intended to or
shall impair as between the Company, its creditors other than the holders of
Senior Indebtedness, and the holders of the Convertible Notes, the obligation of
the Company, which shall be absolute and unconditional, to pay the holders of
the Convertible Notes the principal of and interest on the Convertible Notes as
and when the same shall become due and payable in accordance with the terms
thereof, or affect the relative rights of the holders of the Convertible Notes
and other creditors of the Company other than the holders of Senior
Indebtedness, nor shall anything herein or therein prevent the holder of any
Convertible Notes from exercising all remedies otherwise permitted by applicable
law upon default under this Agreement, subject to the rights, if any, under this
Article 5 of the holders of Senior Indebtedness in respect to cash, property or
securities of the Company received upon the exercise of any such remedy. Nothing
contained in this Article 5 or elsewhere in this Agreement, or in any of the
Convertible Notes, shall prevent the Company from making payment of the
principal of or interest on the Convertible Notes at any time except under the
conditions described in Section 5.2 or 5.3 or during the pendency of any
dissolution, winding up, liquidation or reorganization of the Company.
5.7 Definition of Senior Indebtedness. The term "Senior Indebtedness"
shall mean the principal and interest on (i) all Indebtedness of the Company and
its Subsidiaries for money borrowed from time to time, including that owing to
banks or
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other financial institutions, an agency or agencies of the federal government or
other institutions engaged in the business of lending money, (ii) all Capital
Leases of the Company and its Subsidiaries, (iii) obligations of the Company for
the reimbursement of any obligor on any Letter of Credit, banker's acceptance or
similar credit transaction, and (iv) any deferrals, renewals and extensions of
any indebtedness described in clauses (i) through (iii) above, unless under the
express provisions of the instrument creating or evidencing any such
indebtedness, or pursuant to which the same is outstanding, such indebtedness is
not superior in right of payment to the Convertible Notes; provided, however,
that Senior Indebtedness shall not include Indebtedness owed or owing to any
Subsidiary or any officer, director or employee of the Company or any
Subsidiary.
6. REPRESENTATIONS OF THE PURCHASERS.
Representations. (a) Each Purchaser hereby represents that it is
capable of evaluating the risk of its investment in the Convertible Notes and is
able to bear the economic risk of such investment, that it is purchasing the
Convertible Notes for its own account (or as trustee for one or more trust or
pension funds) and that in each such case the Convertible Notes are being
purchased by such Purchaser (or such funds) for investment and not with a view
to any resale or distribution thereof or of the Shares issuable upon conversion
thereof. If any Purchaser should in the future decide to dispose of the
Convertible Notes or the Shares (which it does not now contemplate), it is
understood that it may do so only in complete compliance with the Securities Act
and any applicable state Blue Sky or securities laws. If any Purchaser is
purchasing the Convertible Notes as trustee for one or more trust or pension
funds, it represents that it is acting as sole trustee and has sole investment
discretion and that the determination and decision on its behalf to purchase the
Convertible Notes for all such funds is being made by the same individual or
group of individuals who customarily approves such investments.
(b) Each Purchaser hereby represents that it is an "accredited
investor" within the meaning of Regulation D of the General Rules and
Regulations promulgated under the Securities Act ("Regulation D") and hereby
agrees to provide the Company and its counsel with such information (including,
but not limited to, a completed and signed Confidential Purchaser Questionnaire
in the form of Exhibit "C" attached hereto) as is reasonably necessary to enable
the Company to file a Form D with the Commission with respect to the
transactions contemplated hereby. In furtherance of the foregoing, each
Purchaser acknowledges that a purchase of the Convertible Notes is only
available to a Purchaser who is an "accredited investor." In connection
therewith, each Purchaser represents and warrants to the Company that he or it,
as the case may be, qualifies as an "accredited investor" within the meaning of
Regulation D, since he, or
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it meets one of the following standards for determination of "accredited
investor" status of Regulation D set forth below:
1. Any broker or dealer registered pursuant to
Section 15 of the Exchange Act;
2. Any natural person whose individual net worth, or
joint net worth with that person's spouse, at the
time of his purchase exceeds $1,000,000;
3. Any natural person who had an individual income in
excess of $200,000 in each of the two most recent
years or joint income with that person's spouse in
excess of $300,000 in each of those years and has
a reasonable expectation of reaching the same
income level in the current year;
4. Any trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of
acquiring the securities offered, whose purchase
is directed by a sophisticated person as described
in Rule 506(b)(2)(ii) of Regulation D;
5. Any organization described in Section 501(c)(3) of
the Internal Revenue Code of 1986, as amended,
corporation, Massachusetts or similar business
trust, or partnership, not formed for the specific
purpose of acquiring the securities offered, with
total assets in excess of $5,000,000; or
6. Any entity in which all of the equity owners are
"accredited investors".
(c) Each Purchaser hereby represents that it (i) has
received and carefully reviewed the Company Commission Filings, and (ii) has had
the opportunity to ask questions and receive answers from the Company concerning
the Company Commission Filings and the terms and conditions of the offering of
the Convertible Notes and to obtain any documents relating to the Company which
are publicly available and any additional information or documents relating to
the Company which the Company possesses or can acquire without unreasonable
effort or expense.
(d) Each Purchaser hereby represents that the
execution, delivery and performance by it of this Agreement and the purchase by
it of the Convertible Notes (i) has been duly authorized by all requisite action
on the part of such Purchaser, (ii) does not violate any charter, bylaws,
partnership agreement, trust instrument or other organizational document
applicable to such Purchaser, and (iii) does
11
not violate any material term of any law, rule, regulation, court order,
judgment or contractual or other obligation applicable to such Purchaser, the
consequences of which violation might have a materially adverse effect on the
business, condition (financial or other), operations, assets or properties of
such Purchaser.
6 A. CERTAIN CONSIDERATIONS.
The Purchasers acknowledge that they are aware of
the risks inherent in an investment in the Company and specifically the risks of
an investment in the Convertible Notes, and that they are capable of bearing a
complete loss of such investment. In connection with and in furtherance of the
foregoing, each Purchaser further acknowledges that he or it is aware that (i)
the Company currently contemplates growth through an acquisition strategy, and
that there can be no assurance that such acquisition strategy will be
successfully implemented, (ii) the Company will incur costs in connection with
pursuing such acquisition strategy, whether or not any such acquisitions are
completed, (iii) dilution may result in the event that acquisitions are
completed by issuing stock in the Company as consideration, in whole or in part,
for such acquisitions, and (iv) there can be no assurance of the future
viability or profitability of the Company, nor can there be any assurance
relating to the current or future price of the Company's Common Stock.
7. CONDITIONS TO OBLIGATIONS.
The Purchasers' obligation to purchase the
Convertible Notes hereunder is subject to satisfaction of the following
conditions at the Closing:
7.1 Accuracy of Representations and Warranties. The
representations and warranties of the Company herein or in any certificate or
document delivered pursuant hereto shall be true and correct on and as of the
Closing Date with the same effect as though made on and as of the Closing Date.
7.2 Performance; No Default. The Company shall have
performed and complied, in each case in all material respects, with all material
agreements and conditions contained in this Agreement required to be performed
or complied with by it prior to or at the Closing and at the time of the
Closing, no Event of Default shall have occurred and be continuing.
7.3 Officers' Certificate. The Purchasers shall have
received a certificate dated the Closing Date and signed by the President, a
Vice President or Chairman or Vice Chairman of the Company and by the Secretary,
the Treasurer, an Assistant Secretary or an Assistant Treasurer of the Company,
to the effect that the conditions of Sections 7.1 and 7.2 hereof have been
satisfied.
12
7.4 Proceedings. All corporate and other proceedings
in connection with the transactions contemplated by this Agreement and all
documents incident thereto shall be in form and substance reasonably
satisfactory to you, and your counsel shall have received all such originals or
certified or other copies of such documents as you and they may reasonably
request.
7.5 Legal Investment. On the Closing Date, there
shall have been no change in applicable law or material facts in respect of the
Company or any Purchaser, making the purchase of the Convertible Notes no longer
a legal investment for any Purchaser.
7.6 No Litigation. No action, suit or proceeding
before any court or any governmental or regulatory authority shall have been
commenced and still be pending, and no investigation by any governmental or
regulatory authority shall have been commenced and still be pending, against the
Company seeking to restrain, prevent or change the transactions contemplated
hereby or questioning the validity or legality of any of such transactions.
7.7 Sales to Other Purchasers. The Company shall have
concurrently sold to the other Purchasers the Convertible Notes to be purchased
by each of them at the Closing and shall have received payment in full therefor
and shall have delivered or caused to be delivered to each of the other
Purchasers such Convertible Notes in accordance with the terms hereof.
7.8 Purchase Permitted by Applicable Laws. The
offering, issuance, purchase and sale of, and payment for, the Convertible Notes
to be purchased by the Purchasers on the Closing date on the terms and
conditions herein provided (including the use of the proceeds of such
Convertible Notes by the Company) shall not violate any law or governmental
regulation applicable to the Purchasers.
7.9 Compliance with Securities Laws. The offering and
sale of the Convertible Notes at or prior to the Closing under this Agreement
shall have complied in all material respects with all applicable requirements of
federal and state securities laws.
8. AFFIRMATIVE COVENANTS.
8.1 Financial Information. The Company and each
Subsidiary will maintain its books and records in accordance with generally
accepted accounting
13
principles. So long as any of the Convertible Notes shall remain outstanding,
the Company will deliver to each holder of the Convertible Notes:
14
(a) as soon as practicable, and in any event
within 105 days after the close of each fiscal year of the
Company, (i) a consolidated balance sheet of the Company and
its Subsidiaries as of the end of such fiscal year- end, and
(ii) consolidated statements of income, cash flow and common
stock and other stockholders' equity of the Company and its
Subsidiaries for such fiscal year, in each case setting forth
in comparative form the corresponding figures for the
preceding fiscal year and to be in reasonable detail and
certified without material exception by Deloitte & Touche LLP
or other nationally recognized independent public accountants
selected by the Company; provided, however, that delivery
pursuant to clause (c) below of copies of the Annual Report on
Form 10-K of the Company for such fiscal year timely filed
with the Commission (together with copies of the financial
statements required to be included therein) shall be deemed to
satisfy the requirements of this clause (a);
(b) as soon as practicable, and in any event
within 50 days after the close of each of the first three
fiscal quarters of the Company during such fiscal year, (i) a
consolidated balance sheet of the Company and its Subsidiaries
as of the end of such fiscal quarter, and (ii) consolidated
statements of income, cash flow and common stock and other
stockholders' equity of the Company and its Subsidiaries for
the portion of the fiscal year ended with the end of such
quarter, in each case setting forth in comparative form the
corresponding figures for the comparable period of the
preceding fiscal year; provided, however, that delivery
pursuant to clause (c) below of copies of the Quarterly Report
on Form 10-Q of the Company for such quarterly period timely
filed with the Commission shall be deemed to satisfy the
requirements of this clause (b);
(c) as soon as practicable, copies of all
financial statements, proxy materials or reports sent to the
Company's stockholders and of all reports or final
registration statements filed with the Commission pursuant to
the Securities Act or the Exchange Act; and
(d) with reasonable promptness, such other
information and data with respect to the Company or any of its
Subsidiaries as from time to time may be reasonably requested.
8.2 Office for Payment, Exchange and Registration. So
long as any of the Convertible Notes are outstanding, the Company will maintain
an office or agency in the United States where the Convertible Notes may be
presented for payment, conversion, exchange or registration of transfer as
provided in this Agreement. Such office or agency initially shall be the office
of the Company set forth in Article 17 hereof,
15
which place may thereafter from time to time be changed by notice to the holders
of all Convertible Notes then outstanding.
8.3 Notices. The Company will give notice to all
holders of Convertible Notes within five Business Days after it learns of the
existence of any Event of Default or any event which, with the giving of notice
or the lapse of time or both, would become an Event of Default, describing the
same and the period of existence thereof, and what action the Company has taken,
is taking or proposes to take with respect thereto.
8.4 Corporate Existence, Etc. The Company will at all
times preserve and keep in full force and effect its corporate existence, and
rights and franchises deemed material to its business, and those of each of its
material Subsidiaries, except as otherwise specifically permitted by Section 9.1
and except that the corporate existence of any Subsidiary of the Company may be
terminated if, in the good faith judgment of the Board of Directors, such
termination is in the best interest of the Company.
8.5 Payment of Taxes. The Company will, and will
cause each of its Subsidiaries to, pay all taxes, assessments and other
governmental charges imposed upon it or any of its properties or assets or in
respect of any of its franchises, business, income or profits before any penalty
or interest accrues thereon, provided that no such tax, assessment, charge or
claim need be paid if being contested in good faith by appropriate proceedings
promptly initiated and diligently conducted and if such reserve or other
appropriate provision, if any, as shall be required by generally accepted
accounting principles shall have been made therefor.
8.6 Maintenance of Properties; Insurance. The
Company will maintain or cause to be maintained in reasonably good repair,
working order and condition, normal wear and tear excepted, all material
properties used in the business of the Company and its Subsidiaries. The Company
will maintain or cause to be maintained, with financially sound and reputable
insurers, insurance with respect to its properties and business and
the properties and business of its Subsidiaries against loss or damage of the
kinds customarily insured against by corporations of established reputation
engaged in the same or similar business and similarly situated, of such types
and in such amounts as are customarily carried under similar circumstances by
such other corporations.
8.7 Compliance with Laws. The Company will, and will cause
each Subsidiary to, comply in all material respects with all applicable laws,
ordinances, rules, regulations, and requirements of governmental authorities
except where (i) noncompliance could not reasonably be expected to have a
material adverse effect on the business, operations or condition (financial or
otherwise) of the Company and its
16
Subsidiaries, taken as a whole, or (ii) the necessity of compliance therewith is
contested in good faith by appropriate proceedings.
9. NEGATIVE COVENANTS.
The Company covenants and agrees as follows:
9.1 Consolidation, Merger and Sale. The Company will not,
directly or indirectly, sell, lease, transfer or otherwise dispose of all or a
substantial portion of its assets or business to any other corporation, or
consolidate with or merge into any other corporation, unless if such surviving
or transferee corporation is a corporation other than the Company, (i) such
surviving or transferee corporation is a corporation organized under the laws of
the United States or of any State of the United States, (ii) all liabilities and
obligations (including registration obligations under Article 13) of the Company
under this Agreement and the Convertible Notes shall have been expressly assumed
by such surviving or transferee corporation by instruments and proceedings
reasonably satisfactory to holders of at least sixty-six and two-thirds percent
(66 2/3%) in aggregate principal amount of the outstanding Convertible Notes,
and (iii) there shall exist no Event of Default, and no event which, with
notice, the lapse of time, or both, would constitute an Event of Default, both
immediately before such transaction, and immediately after such transaction upon
giving effect on a pro forma basis to such transaction; provided, however, that
the Company shall be permitted to merge with and into a Delaware corporation for
the purpose of reincorporating in the State of Delaware, and the Purchasers
hereby expressly consent to such merger, so long as the conditions specified in
clauses (i), (ii) and (iii) of this Section 9.1, other than the requirement of
having obtained the approval of the holders of at least sixty-six and two thirds
percent (66 2/3%) in aggregate principal amount of the outstanding Convertible
Notes as set forth in clause (ii) of this Section 9.1, have been satisfied. In
connection therewith, the Purchasers further expressly consent to the transfer
of assets of the Company or the surviving company of the merger pursuant to
which the Company will be reincorporated in Delaware (the "Surviving Company"),
as the case may be, to one or more wholly-owned Subsidiaries of the Company or
the Surviving Company, as the case may be, for the purpose of creating a holding
company structure for the Surviving Company by which the Surviving Company will
be conducting operations through one or more Subsidiaries. In such event, the
obligations of the Company under this Agreement, including the obligations of
the Company under the Convertible Notes, shall become the obligations of the
parent company of the holding company structure to be formed, and the Company
and the Purchasers hereby agree to cooperate with each other and to execute and
deliver such instruments as may be necessary in order to give effect to the
foregoing.
9.2 Transactions with Affiliates. The Company will not, and
will not permit any of its Subsidiaries to, directly or indirectly, engage in
any transaction, including, without limitation, the purchase, sale or exchange
of assets or the rendering
17
of any service, with any Affiliate of the Company, except in the ordinary course
of and pursuant to the reasonable requirements of the Company's or such
Subsidiary's business and upon fair and reasonable terms that are no less
favorable to the Company or such Subsidiary, as the case may be, than those
which might be obtained in an arm's length transaction at the time from persons
which are not Affiliates, provided that the foregoing restrictions shall not
apply to any transaction between the Company and a wholly-owned Subsidiary of
the Company or between one wholly-owned Subsidiary of the Company and another
wholly-owned Subsidiary of the Company. The Company shall not permit any
Affiliate of the Company to become the holder of any Senior Indebtedness.
9.3 Restricted Indebtedness. The Company will not, directly or
indirectly, incur any Indebtedness the proceeds of which will be used to pay
dividends upon shares of the Company's Common Stock or any other capital stock
of the Company that may from time to time be outstanding.
9.4 Guaranties by Subsidiaries. Other than in the ordinary
course of business or to the holders of Senior Indebtedness, or unless the
holders of Convertible Notes shall approve, the Company shall cause its
Subsidiaries not to guaranty the Indebtedness of the Company or of any other
party.
10. DEFAULTS.
If any of the following events (herein called an
"Event of Default") shall occur and be continuing:
(a) If the Company shall default in the payment
(whether or not such payment is prohibited under Article 5
hereof) of (i) any part of the principal on any Convertible
Note, when the same shall become due and payable, whether at
maturity or by acceleration or otherwise, or (ii) the interest
on any Convertible Note, when the same shall become due and
payable, and such default in the payment of interest shall
have continued for fifteen (15) days;
(b) If the Company shall default in the
performance of any agreement or covenant contained in this
Agreement or the Convertible Notes and such default shall
continue for thirty (30) days; or
(c) If any representation or warranty by the
Company herein or any certificate delivered by the Company
pursuant hereto shall prove to have been incorrect in any
material respect when made; or
18
(d) If (i) the Company shall fail to make any
payment in respect of any Indebtedness when due or within any
applicable grace period; or (ii) any other event of default,
as defined in any material indenture or material instrument
evidencing or under which there is at the time outstanding any
Indebtedness of the Company, shall occur which (1) results in
the acceleration of the maturity of such Indebtedness or (2)
enables (or, with the giving of notice, would enable) the
holder of such Indebtedness or any person acting on such
holder's behalf to accelerate the maturity thereof if, in the
case of subclause (2) hereof, such event or condition has been
in existence for 180 days without being cured or waived;
provided, that, the aggregate principal amount of the
Indebtedness referred to in clause (i) or (ii) (together with
any other defaulted Indebtedness) exceeds $1,000,000; or
(e) If a final judgment which, either alone or
together with other outstanding final judgments against the
Company and its Subsidiaries, exceeds an aggregate of
$1,000,000 shall be rendered against the Company or any
Subsidiary and such judgment shall have continued undischarged
or unstayed for sixty (60) days after entry thereof; or
(f) If the Company or any Subsidiary shall make an
assignment for the benefit of creditors, or shall admit in
writing its inability to pay its debts; or if the Company or
any Subsidiary shall suffer the appointment of a receiver or
trustee for it or substantially all of its assets and, if
appointed without its consent, not to be discharged or stayed
within sixty (60) days; or if the Company or any Subsidiary
shall suffer proceedings under any law relating to bankruptcy,
insolvency or the reorganization or relief of debtors to be
instituted by or against it, and, if contested by it, not to
be dismissed or stayed within sixty (60) days; or if the
Company or any Subsidiary shall fail generally to pay its
debts as they become due; or if the Company or any Subsidiary
shall suffer any writ of attachment or execution or any
similar process to be issued or levied against it or any
significant part of its property with respect to claims in
excess of $1,000,000, which is not released, stayed, bonded or
vacated within sixty (60) days after its issue or levy; or if
the Company or any Subsidiary takes corporate action in
furtherance of any of the aforesaid purposes or conditions;
then and in each such event the holders of forty percent (40%) or more in
aggregate principal amount of the Convertible Notes then outstanding may at any
time (unless all defaults shall theretofore have been remedied) at its or their
option, by written notice or notices to the Company, declare all the Convertible
Notes to be due and payable,
19
whereupon the same shall forthwith mature and become due and payable, together
with all interest accrued thereon, without presentment, demand, protest or
notice, all of which are hereby waived; provided, however, that this provision
is subject to the condition that if, at any time after the principal of the
Convertible Notes shall so become due and payable, any arrears of principal and
interest on the Convertible Notes (with interest at the rate specified in the
Convertible Notes on any overdue principal and, to the extent legally
enforceable, on any interest overdue) shall be paid by or for the account of the
Company, then the holder or holders of at least fifty-one percent (51%) in
aggregate principal amount of the Convertible Notes then outstanding, by written
notice or notices to the Company, may waive such Event of Default and its
consequences and rescind or annul such declaration, but no such waiver shall
extend to or affect any subsequent Event of Default or impair any right
resulting therefrom; provided, further, that notwithstanding the foregoing, if
there shall occur an Event of Default under clause (f) above, or a breach of the
covenants contained in Sections 9.1 or 9.3 hereof, then the Convertible Notes,
together with all interest accrued thereon, shall immediately mature and become
due and payable, without the necessity of any action by the Purchasers or notice
to the Company. If any holder of a Convertible Note shall give any notice or
take any other action with respect to a claimed default, the Company, forthwith
upon receipt of such notice or obtaining knowledge of such other action, will
give written notice thereof to all other holders of the Convertible Notes then
outstanding, describing such notice or other action and the nature of the
claimed default.
11. CONVERSION.
11.1 Conversion. On or after the date hereof, and prior to the
maturity of the Convertible Notes or, if sooner, the Call Date (as hereinafter
defined), the holder of a Convertible Note shall have the right, at the option
of such holder (whether or not payment upon the Convertible Notes is prohibited
by the subordination provisions of Article 5) to convert, subject to the terms
and provisions of this Article 11, all or, subject to the proviso contained in
this Section 11.1, any portion of the Convertible Notes held by such holder into
the number of fully paid and nonassessable Shares as shall be equal to the
aggregate principal amount of Convertible Notes then being converted divided by
the Conversion Price then in effect, by delivery of the Convertible Notes to the
Company at the office of the Company provided for in Section 8.2 herein;
provided, however, that no holder of a Convertible Note shall be permitted to
exercise its rights with respect to partial conversions as herein described
unless each such holder of a Convertible Note elects to convert a minimum of at
least $500,000 principal amount of its Convertible Note or any additional
amounts in multiples of $250,000 principal amount of Convertible Notes;
provided, further, that the Company shall not be required to issue any
fractional shares in connection with any conversion pursuant to this Article 11.
In the event that any Purchaser shall exercise the Convertible Notes held by it
with respect to less than the entire aggregate principal amount outstanding of
such Convertible Notes held by such Purchaser, the Company shall, or shall
direct its transfer agent to, issue to such
20
Purchaser certificates for the Shares of Common Stock for which such Convertible
Note is being exercised in such denominations as are required for delivery to
such Purchaser, and the Company shall, or shall direct its transfer agent to,
thereupon deliver such certificates to or in accordance with the instructions of
such Purchaser, and the Company shall issue to such Purchaser a new Convertible
Note, duly executed by the Company, in form and substance identical to the
Convertible Note surrendered by such Purchaser, for the balance of the aggregate
principal amount of Convertible Notes that have not been so converted.
11.2 Delivery of Stock Certificates; Time Conversion
Effective; No Adjustment for Interest or Dividends. As promptly as practicable
after the surrender (as herein provided) of a Convertible Note for conversion,
the Company shall deliver or cause to be delivered to or upon the written order
of the holder of the Convertible Note so surrendered, certificates representing
the number of fully paid and nonassessable Shares into which the Convertible
Note may be converted. Subject to the following provisions of this Section 11.2,
such conversion shall be deemed to have been made at the close of business on
the date that such Convertible Note shall have been surrendered for conversion
at the office of the Company provided for in Section 8.2 (the "Conversion
Date"), so that the rights of the holder of such Convertible Note as a holder
thereof, shall cease at such time and the person or persons entitled to receive
any of the Shares upon conversion of the Convertible Notes shall be treated for
all purposes as having become the record holder or holders of such Shares at
such time; provided, however, that no such surrender on any date when the stock
transfer books of the Company shall be closed, shall be effective to constitute
the person or persons entitled to receive Shares upon such conversion as the
record holder or holders of such Shares on such date, but such surrender shall
be effective to constitute the person or persons entitled to receive such Shares
as the record holder or holders thereof for all purposes at the close of
business on the next succeeding day on which such stock transfer books are open
or the Company is required to convert Convertible Notes. The Company will, at
the time of such conversion, upon request of the holder of the Convertible Note,
acknowledge in writing its continuing obligation to such holder in respect of
any rights (including, without limitation, any right of registration of the
Shares issued upon such conversion) to which such holder shall continue to be
entitled under this Agreement after such conversion, provided, that, the failure
of such holder to make any such requests shall not affect the continuing
obligation of the Company to such holder in respect of such rights.
If the day for the exercise of the conversion
right shall not be a Business Day, then such conversion right will automatically
be deemed to be exercised on the next succeeding day which is a Business Day.
No adjustments in respect of interest or cash
dividends shall be made upon conversion of any Convertible Note. The Company
shall pay all unpaid interest on any Convertible Note so converted which has
accrued to (but not including)
21
the date upon which such conversion is deemed to have been effected in
accordance with this Section 11.2.
11.3 Notice to Holders of Election. Upon receipt of an
election to convert by a holder of Convertible Notes pursuant to this Article
11, the Company shall, as soon as practicable, notify the holders of the
remaining Convertible Notes of such election.
11.4 Adjustment of Conversion Price. The Conversion Price
shall be subject to adjustment as of the Closing Date as follows:
(a) In case the Company shall, after the date
hereof, (i) pay a stock dividend or make a distribution in
shares of its capital stock (whether shares of its Common
Stock or of capital stock of any other class), (ii) subdivide
its outstanding shares of Common Stock, (iii) combine its
outstanding shares of Common Stock into a smaller number of
shares, or (iv) issue by reclassification of its shares of
Common Stock any shares of capital stock of the Company, the
Conversion Price in effect immediately prior to such action
shall be adjusted so that the holder of a Convertible Note
thereafter surrendered for conversion shall be entitled to
receive an equivalent number of shares of capital stock of the
Company which he would have owned immediately following such
action had such Convertible Note been converted immediately
prior thereto. Any adjustment made pursuant to this subsection
(a) shall become effective immediately after the record date
in the case of a dividend or distribution and shall become
effective immediately after the effective date in the case of
a subdivision, combination or reclassification.
(b) In case the Company, after the date of this
Agreement, shall issue rights, warrants or options entitling
the recipients thereof to subscribe for or purchase shares of
Common Stock (or securities convertible into Common Stock) at
a price per share less than the Conversion Price then in
effect, the Conversion Price in effect immediately prior
thereto shall be adjusted so that it shall equal the price
determined by multiplying the Conversion Price in effect
immediately prior to the date of issuance of such rights,
warrants or options by a fraction of which the numerator shall
be the number of shares of Common Stock outstanding on the
date of issuance of such rights, warrants or options
(immediately prior to such issuance), plus the number of
shares of Common Stock which the aggregate offering price of
the total number of shares of Common Stock so offered for
subscription or purchase (or the aggregate conversion price of
the convertible securities so offered to subscription or
purchase) would purchase at the Conversion Price then in
effect, and of which the
22
denominator shall be the number of shares of Common Stock
outstanding on the date of issuance of such rights, warrants
or options (immediately prior to such issuance) plus the
number of additional shares of Common Stock so offered for
subscription or purchase (or into which the convertible
securities so offered for subscription or purchase are
convertible). Such adjustment shall be made successively
whenever any such rights, warrants or options are issued. In
determining whether any rights, warrants or options entitle
the holders thereof to subscribe for or purchase shares of
Common Stock (or securities convertible into Common Stock) at
less than the Conversion Price then in effect and in
determining the aggregate offering price of such shares of
Common Stock (or conversion price of such convertible
securities), there shall be taken into account any
consideration received by the Company for such rights,
warrants or options (and for such convertible securities), the
value of such consideration, if other than cash, to be
determined in good faith by the Board of Directors of the
Company (which determination shall be conclusive). If at the
end of the period during which such warrants, rights or
options are exercisable not all such warrants, rights or
options shall have been exercised, the adjusted Conversion
Price shall be immediately readjusted to what it would have
been based on the number of additional shares of Common Stock
actually issued (or the number of shares of Common Stock
issuable upon conversion of convertible securities actually
issued).
(c) In case the Company, after the date of this
Agreement, shall distribute to all holders of its outstanding
Common Stock any shares of capital stock (other than Common
Stock), evidences of its Indebtedness or assets (including
securities and cash, but excluding any cash dividend paid out
of current or retained earnings of the Company and dividends
or distributions payable in stock for which adjustment is made
pursuant to subsection (a) of this Section 11.4) or rights,
warrants or options to subscribe for or purchase securities of
the Company (excluding those referred to in subsection (b) of
this Section 11.4), then in each such case the Conversion
Price shall be adjusted so that the same shall equal the price
determined by multiplying the Conversion Price in effect
immediately prior to the record date of such distribution by a
fraction of which the numerator shall be the Conversion Price
then in effect less the fair market value on such record date
(as determined in good faith by the Board of Directors of the
Company, which determination shall be conclusive) of the
portion of the capital stock or the evidences of Indebtedness
or the assets so distributed to the holder of one share of
Common Stock or of such subscription rights, warrants or
options applicable to one share of Common Stock and of which
the denominator shall be the Conversion
23
Price then in effect. Such adjustment shall become effective
immediately after the record date for the determination of
stockholders entitled to receive such distribution. If at the
end of the period during which warrants, rights or options
described in this subsection (c) are exercisable not all such
warrants, rights or options shall have been exercised, the
adjusted Conversion Price shall be immediately readjusted to
what it would have been based on the number of warrants,
rights or options actually exercised.
(d) Notwithstanding anything in subsection (b) or
(c) of this Section 11.4 to the contrary, with respect to any
rights, warrants or options covered by subsection (b) or (c)
of this Section 11.4, if such rights, warrants or options are
only exercisable upon the occurrence of certain triggering
events, then for purposes of this Section 11.4 such rights,
warrants or options shall not be deemed issued or distributed,
and any adjustment to the Conversion Price required by
subsection (b) or (c) of this Section 11.4 shall not be made
until such triggering events occur and such rights, warrants
or options become exercisable.
(e) In case the Company, after the date of this
Agreement, shall issue shares of its Common Stock (excluding
those rights, warrants, options, shares of capital stock or
evidences of its Indebtedness or assets referred to in
subsection (b) or (c) to this Section 11.4) at a net price per
share less than the Conversion Price in effect on the date the
Company fixes the offering price of such additional shares,
the Conversion Price shall be reduced immediately thereafter
so that it shall equal the price determined by multiplying
such Conversion Price in effect immediately prior thereto by a
fraction of which the numerator shall be the number of shares
of Common Stock outstanding immediately prior to the issuance
of such additional shares plus the number of shares of Common
Stock which the aggregate offering price of the total number
of shares of Common Stock so offered would purchase at the
Conversion Price then in effect and the denominator shall be
the number of shares of Common Stock that would be outstanding
immediately after the issuance of such additional shares. Such
adjustment shall be made successively whenever such an
issuance is made. This subsection (e) shall not apply to
Common Stock issued to any employee, officer or director of
the Company under a bona fide employee or director benefit
plan adopted by the Company or any Subsidiary thereof and
approved by the stockholders of the Company or such
Subsidiary, as appropriate.
(f) In any case in which this Section 11.4 shall
require that an adjustment be made immediately following a
record date or an effective
24
date, the Company may elect to defer (but only until five
Business Days following the mailing by the Company to the
holders of Convertible Notes of the certificate required by
subsection (h) of this Section 11.4) issuing to the holder of
any Convertible Note converted after such record date or
effective date the shares of Common Stock issuable upon such
conversion over and above the shares of Common Stock issuable
upon such conversion on the basis of the Conversion Price
prior to adjustment, and paying to such holder any amount of
cash in lieu of a fractional share.
(g) No adjustment in the Conversion Price shall be
required to be made unless such adjustment would require an
increase or decrease of at least one percent (1%) in such
price; provided, however, that any adjustments which by reason
of this subsection (g) are not required to be made shall be
carried forward and taken into account in any subsequent
adjustment. All calculations under this Section 11.4 shall be
made to the nearest cent.
(h) Whenever the Conversion Price is adjusted as
provided in Section 11.4(a) herein, the Company will promptly
mail to the holders of the Convertible Notes, a certificate of
the Company's Treasurer or Chief Financial Officer setting
forth the Conversion Price as so adjusted and a brief
statement of facts accounting for such adjustment.
(i) Irrespective of any adjustment or change in
the Conversion Price and the number of Shares actually
purchasable under the Convertible Notes, the Convertible Notes
theretofore and thereafter issued may continue to express the
Conversion Price per Share and the number of Shares
purchasable thereunder as the Conversion Price per Share and
the number of Shares purchasable as expressed upon the
Convertible Notes when initially issued.
11.5 Company's Consolidation or Merger. Except as otherwise
provided in Section 9.1 hereof, if the Company shall at any time consolidate or
merge with or into another corporation, (a) the Company shall give at least five
(5) days prior written notice to the holders of the Convertible Notes of such
consolidation or merger and the terms thereof, and (b) the holder of a
Convertible Note shall thereafter be entitled to receive, upon the conversion
thereof, the securities or property to which a holder of the number of Shares
then deliverable upon the conversion thereof would have been entitled upon such
consolidation or merger, and the Company shall take such steps in connection
with such consolidation or merger as may be necessary to assure such holder that
the provisions of this Agreement shall thereafter be applicable, as nearly as
reasonably may be in relation to any securities or property thereafter
deliverable upon the conversion of the Convertible Note including, but not
limited to, obtaining a written
25
acknowledgment from the continuing corporation or other appropriate corporation
of its obligation to supply such securities or property upon such conversion.
Except as otherwise provided in Section 9.1 hereof, a sale of all or
substantially all the assets of the Company shall be deemed a consolidation or
merger for the foregoing purposes.
11.6 Reserve of Sufficient Shares. The Company will reserve
and keep available a sufficient number of shares of its Common Stock to satisfy
the conversion requirements of all outstanding Convertible Notes. The Company
will take all such action as may be necessary to insure that all Shares issued
upon conversion of the Convertible Notes will be duly and validly authorized and
issued and fully paid and nonassessable.
11.7 Taxes on Conversion. The issuance of certificates for
Shares upon the conversion of Convertible Notes shall be made without charge to
the holders of Convertible Notes converting such Convertible Notes for any issue
or stamp tax in respect of the issuance of such certificates, and such
certificates shall be issued in the respective names of, or in such names as may
be directed by, the holders of the Convertible Notes converted; provided,
however, that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
such certificate in a name other than that of the holder of the Convertible Note
converted, and the Company shall not be required to issue or deliver such
certificates unless or until the person or persons requesting the issuance
thereof shall have paid to the Company the amount of such tax or shall have
established to the satisfaction of the Company that such tax has been paid.
11.8 Cancellation of Converted Convertible Notes. All
Convertible Notes which have been converted shall be cancelled by the Company
and no Convertible Notes shall be issued in lieu thereof.
11.9 Notice to Holders of Convertible Notes. In case at any
time:
(a) the Company shall take any action which would
require an adjustment in the Conversion Price pursuant to
Section 11.4(a); or
(b) there shall be any capital reorganization or
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 of the Common Stock), whether or not such
reorganization or reclassification results in an adjustment in
the Conversion Price, or any consolidation or merger to which
the Company and its Subsidiaries is a party and for which
approval of any stockholders of the Company is required, or
any sale or transfer of all or substantially all of the assets
of the Company and its Subsidiaries; or
26
(c) there shall be a voluntary or involuntary
dissolution, liquidation or winding-up of the Company;
then, in any one or more of said cases, the Company shall give written notice to
the holders of the Convertible Notes, not less than thirty (30) days before any
record date or other date set for definitive action, of the date on which such
adjustment, distribution, reorganization, reclassification, sale, consolidation,
merger, dissolution, liquidation or winding up shall take place, as the case may
be. Such notice shall also set forth such facts as shall indicate the effect of
such action (to the extent such effect may be known at the date of such notice)
on the current Conversion Price and the kind and amount of the Shares and other
securities and property deliverable upon conversion of the Convertible Notes.
Such notice shall also specify the date as of which the holders of the Common
Stock of record shall be entitled to exchange their Common Stock for securities
or other property deliverable upon such adjustment, distribution,
reorganization, reclassification, sale, consolidation, merger, dissolution,
liquidation or winding up, as the case may be (on which date, in the event of
voluntary or involuntary dissolution, liquidation or winding up of the Company,
the right to convert the Convertible Notes into Shares shall terminate).
Without limiting the obligation of the Company to provide
notice to the holders of Convertible Notes or Shares of corporate action
hereunder, it is agreed that failure of the Company to give such notice shall
not invalidate such corporate action of the Company.
12. CALL OF CONVERTIBLE NOTES BY THE COMPANY.
The Company shall not, directly or indirectly, call,
prepay, redeem, repurchase, convert or otherwise acquire (any such event
referred to herein as a "call") any Convertible Notes or any portion thereof
except as set forth in this Article 12.
12.1 Optional Conversion or Redemption Upon Call by the
Company. The Company may, at its option, call the Convertible Notes, either in
whole or in part on a pro-rata basis:
(i) at any time prior to the maturity of the Convertible
Notes and after August 31, 2003; or
(ii) at any time, whether prior to or after August 31, 2003
(providing, however, with respect to this clause (ii)
only, the Company may call the Convertible Notes only
if: (A) the Closing Price of the Company's Common Stock
shall be equal to or in excess of $9.00 per share for at
least 10 consecutive trading days; and (B) in the event
of a conversion pursuant to such call, the holders of
the
27
Convertible Notes shall be entitled to receive
registered shares of the Company's Common Stock).
In the event of a call by the Company pursuant to this Section
12.1, the holders, at their option, may require the Company to convert their
Convertible Notes (into fully paid and nonassessable shares of the Company's
Common Stock) at the Conversion Price (the "Holders Option").
12.2 Notice of Call. The right of the Company to call any
Convertible Notes pursuant to Section 12.1 shall be conditioned upon its giving
notice of such call (the "Call Notice"), by personal delivery, overnight
courier, certified mail or by facsimile, signed by an authorized officer, to the
holders of Convertible Notes, not less than fifteen (15) Business Days prior to
the date upon which the call is to be made (the "Call Date"). The Call Notice
shall specify (i) the aggregate principal amount of the Convertible Notes to be
called, (ii) the date of such call, and (iii) the accrued and unpaid interest
thereon (to, but not including, the Call Date). Within ten (10) Business Days
after receipt of the Call Notice by the holder of a Convertible Note, such
holder shall notify the Company, by personal delivery, overnight courier,
certified mail or by facsimile, signed by the holder, of the Holders Option,
pursuant to which the holder shall direct whether he wishes the Convertible
Notes to be converted or redeemed, pursuant to Section 12.1 hereof (in the event
that a holder fails to respond to the Call Notice or fails to respond within the
time period or via the means set forth herein, the Holders Option shall become
void and of no further effect and the Company shall be entitled to redeem the
Convertible Notes as provided in Section 12.1 or 12.2, as the case may be).
12.3 Partial Call. In the event of a partial call by the
Company pursuant to this Article 12, the aggregate principal amount of each call
of Convertible Notes pursuant to Section 12.1 hereof, shall be allocated among
the Convertible Notes at the time outstanding, in proportion, as nearly as
practicable, to the respective unpaid principal amounts of such Convertible
Notes.
12.4 Surrender of Convertible Notes Upon Call. In the event
that any Convertible Notes shall be surrendered to the Company upon conversion
as provided in this Article 12, interest shall cease to accrue upon such
Convertible Notes so surrendered.
12.5 Section 11 Applicable. For purposes of conversion of the
Convertible Notes by the Company pursuant to this Article 12, the provisions of
Sections 11.1 through 11.4 herein, shall be controlling, as if the same shall
have been contained in this Article 12 (except that with respect to Section
11.2, in the event that a holder shall choose redemption as the Holders Option
(pursuant to Section 12.2 herein), the Company shall make payment to the holder
as soon as practicable after the Conversion Date, by bank or certified check or
by wire transfer).
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13. REGISTRATION RIGHTS; RESTRICTIONS ON TRANSFER.
13.1 Notification of Proposed Sale. (a) Unless paragraph (b)
of this Section 13.1 is applicable, each holder of a Convertible Note by
acceptance thereof agrees that it will notify the Company in writing before
offering for sale or selling or otherwise disposing (provided, that, conversion
will not be deemed to be a disposition) of any Convertible Note or the Shares,
describing briefly the nature of such sale or other disposition, and no such
sale or other disposition shall be made unless and until (i) the holder has
supplied to the Company, if requested by the Company within five (5) Business
Days after receipt of such notice, an opinion of counsel for the holder
(in-house counsel of a Purchaser shall be deemed to be satisfactory counsel)
which counsel shall be reasonably satisfactory to the Company, to the effect
that no registration under the Securities Act is required with respect to such
sale or other disposition (which opinion may be conditioned upon the
transferee's assuming the obligations of a holder of Convertible Notes or Shares
under this Section 13.1) or (ii) an appropriate registration statement with
respect to such sale or other disposition of such Convertible Notes or Shares
shall have been filed by the Company with the Commission and declared effective
by the Commission.
(b) If the holder of Convertible Notes or Shares has
obtained an opinion of its own counsel that the sale of such Convertible Notes
or Shares may be made without registration under the Securities Act pursuant to
Rule 144, the notification provided in paragraph (a) need not be given to the
Company prior to the proposed sale, provided, that, the Company shall not be
obliged to register on its registry or transfer books any transfer pursuant to
this subsection (b) unless it is satisfied that the requirements of Rule 144 or
any successor thereto have been satisfied.
(c) The Company may endorse on all Convertible Notes and
on all certificates evidencing Shares (issued upon conversion of the Convertible
Notes) an appropriate legend restricting their transfer except upon compliance
with the provisions of paragraph (a) above, which in the case of the Convertible
Notes shall be in the terms set out in Exhibit "B" hereto and in the case of the
Shares shall read as follows - "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT").
THE SHARES HAVE BEEN ACQUIRED FOR INVESTMENT AND MAY NOT BE SOLD, TRANSFERRED,
PLEDGED, ASSIGNED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR THESE SHARES UNDER THE ACT OR AN OPINION, IF
REQUESTED, OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT
REQUIRED UNDER THE ACT"; provided, that, no such legend shall be endorsed on any
Convertible Note or Share certificates which, when issued, are no longer subject
to the restrictions of this Section 13.1, and provided, further, that if an
opinion of satisfactory counsel (in-house counsel of a Purchaser shall be deemed
satisfactory counsel) which opinion shall be reasonably satisfactory to
29
counsel for the Company concludes that the legend is no longer necessary, the
Company will deliver upon transfer or exchange Convertible Notes or Share
certificates without such legends.
13.2 Obligation to Register. The Company agrees to use its
best efforts to file with the Commission no later than December 31, 2001, a
registration statement for an offering to be made on a continuous or delayed
basis pursuant to Rule 415 under the Securities Act covering all of the Shares.
Such registration statement shall be on Form S-3 under the Securities Act, if
such Form is then available for use by the Company, or another appropriate form
that is available to the Company permitting registration of such Shares for
resale by the holders of Convertible Notes or Shares ("Holders") in the manner
or manners reasonably designated by them (including, without limitation, one or
more underwritten offerings). The Company shall not permit any securities to be
offered for sale by the Company to be included in such registration statement.
The Company shall use its best efforts to cause such registration statement to
be declared effective pursuant to the Securities Act as promptly as practicable
following the filing thereof, and, subject to applicable laws, rules and orders,
to keep such registration statement continuously effective under the Securities
Act for five years after the Closing date, or such shorter period ending when
there cease to be outstanding any Shares or Convertible Notes held by the
Holders. Notwithstanding the foregoing, the Holders acknowledge that in
connection with the Company's contemplated acquisition strategy, the Company may
file a registration statement relating to shares of Common Stock to be issued in
connection with such acquisition. In such event, if the Board of Directors of
the Company reasonably determines that the Company will be filing a registration
statement under the Securities Act in connection with an acquisition, then any
registration statement required to be filed by this Section 13.2 or Section 13.3
hereof may be temporarily delayed at the discretion of the Company's Board of
Directors, and the Shares which would have been otherwise included in such
registration statement shall be included in the Company's registration statement
to be filed in connection with the contemplated acquisition, so that the Company
would not be required to file more than one registration statement in any
consecutive six-month period; provided, however, that the provisions of this
sentence shall not be applicable, and the Company shall not be permitted to
delay the filing of a registration statement registering the Shares, in the
event that the Company proposes, in connection with any such acquisition, to use
a registration statement on Form S-4 or any successor form thereto.
13.3 (a) "Piggyback" Registration Rights. At any time after
August 31, 2003 and prior to the maturity of the Convertible Notes, the Company
shall, at least thirty (30) days prior to the filing of any registration
statement under the Securities Act (other than a registration statement on Form
S-8 or Form S-4 or any successor forms) relating to the public offering of its
Common Stock by the Company or any of its security holders, give written notice
of such proposed filing and of the
30
proposed date thereof to the Holders, and if, on or before the twentieth (20th)
day following the date on which such notice is given, the Company shall receive
a written request from the Holders requesting that the Company include among the
securities covered by such registration statement some or all of the Shares held
by or to be held after conversion by such Holder or Holders, the Company shall
include such Shares in such registration statement, if filed, so as to permit
such Shares to be sold or disposed of in the manner and on the terms of the
offering thereof set forth in such request.
(b) Demand Registration Rights. If at any time after
August 31, 2003 during which there is no effective registration statement
relating to the Shares, the Company shall be requested in writing by the Holders
holding at least a majority of the Shares to effect the registration under the
Securities Act of the Shares, the Company shall, as expeditiously as possible,
use its best efforts to effect the registration, on a form of general use under
the Securities Act, of all Shares which the Company has been requested to
register. The Company shall not be obligated to cause to become effective more
than one registration statement pursuant to which Shares are registered under
this Section 13.3(b). Notwithstanding the foregoing, if the Company shall
furnish to the Holders requesting a registration under this Section 13.3(b) a
certificate signed by the Chief Executive Officer of the Company stating that in
the good faith judgment of the Board of Directors of the Company it would be
detrimental to the Company and its shareholders for such registration statement
to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than 90 days after receipt
of the request by the Holders; provided, however, that the Company may not
utilize this right more than once in any 12-month period. In addition, the
Company shall not be obligated to effect, or to take any action to effect, any
registration pursuant to this Section 13.3(b):
(A) During the period starting with the date 30 days
prior to the Company's good faith estimate of the date of filing of, and ending
on a date 120 days after the effective date of, a registration subject to
Section 13.3(a) hereto; provided that the Company is actively employing in good
faith its best efforts to cause such registration statement to be filed and
thereafter to become effective; or
(B) If the Holders propose to dispose of Shares in the
registration statement that may be immediately registered or that are registered
on Form S-3 pursuant to a request made pursuant to Section 13.2 above.
13.4 Terms and Conditions of Registration. Except as otherwise
provided herein, in connection with any registration statement filed pursuant to
Sections 13.2 or 13.3 herein, the following provisions shall apply:
31
(i) If such registration statement shall be filed
pursuant to Section 13.3(a) hereof and if the managing underwriter advises the
Company in writing that the inclusion in such registration of some or all of the
Shares sought to be registered by the Holder(s) creates a substantial risk that
the proceeds or price per share that will be derived from such registration will
be reduced or that the number of shares to be registered at the insistence of
the Holder(s), plus the number of shares of Common Stock sought to be registered
by the Company and any other stockholders of the Company is too large a number
to be reasonably sold, then, in such event, the number of shares sought to be
registered for the stockholders of the Company shall be reduced, pro rata in
proportion to the number of shares sought to be registered to the number of
shares recommended be sold by the managing underwriter.
(ii) If requested by the Holder(s) in connection with a
registration statement filed pursuant to Sections 13.2 or 13.3(b), the Company
will enter into an underwriting agreement with the underwriters for such
offering, such agreement to be reasonably satisfactory in form and substance to
the Company, the Holder(s) and the underwriters, and to contain such
representations, warranties and covenants by the Company and such other terms as
are customarily contained in such agreements used by the managing underwriter,
including, without limitation, restrictions of sales of Common Stock or other
securities by the Company as may be reasonably agreed to between the Company and
such underwriters, and indemnities and rights to contributions to the effect and
to the extent provided in Sections 13.5 and 13.6 hereof. The Holders shall be a
party to any underwriting agreement relating to an underwritten sale of their
Shares and may, at their option, require that any or all of the representations,
warranties and covenants of the Company to or for the benefit of such
underwriters, shall also be made to and for the benefit of the Holders. All
representations and warranties of the Holders shall be made to or for the
benefit of the Company.
(iii) The Company shall provide a transfer agent and
registrar (which may be the same entity) for the Shares, not later than the
effective date of such registration.
(iv) All expenses in connection with the preparation and
filing of a registration statement filed pursuant to Sections 13.2 or 13.3 shall
be borne solely by the Company, except for any transfer taxes payable with
respect to the disposition of such Shares, and any underwriting discounts and
selling commissions applicable solely to such sales of Shares, which shall be
paid by the Holders of the Shares being registered.
(v) The Company shall use its best efforts to cause all
of the shares covered by such registration statement to be listed on NASDAQ or
such other
32
exchange as the Shares may then be listed on, on which similar shares are listed
for trading, if the listing of such registered shares is permitted by such
exchange.
(vi) Following the effective date of such registration
statement, the Company shall, upon the request of the Holders, forthwith supply
such number of prospectuses (including exhibits thereto and preliminary
prospectuses and amendments and supplements thereto) meeting the requirements of
the Securities Act and such other documents as are referred to in the prospectus
as shall be reasonably requested by the Holders to permit the Holders to make a
public distribution of their Shares.
(vii) The Company shall prepare, if necessary, and file
such amendments and supplements to such registration statement filed pursuant to
Section 13.2 hereof, as may be necessary to keep such registration statement
effective, subject to applicable laws, rules and orders, for a period of five
years after the Closing date, or such shorter period ending when there cease to
be outstanding any Shares or Convertible Notes held by the Holders, and to
comply with the provisions of the Securities Act with respect to the offer and
sale or other disposition of the shares covered by such registration statement
during the period required for distribution of the shares.
(viii) The Holders may select the underwriter or
underwriters (which shall be of nationally recognized standing), if any, who are
to undertake any offering and distribution of the Shares to be included in a
registration statement filed under the provisions of Subsection 13.2 or 13.3(b)
hereof, subject to the Company's prior approval of the underwriter, which
approval shall not be unreasonably withheld.
(ix) The Company shall use its best efforts to register
the Shares covered by any such registration statements filed pursuant to Section
13.2 or 13.3(b) under such securities or Blue Sky laws in addition to those in
which the Company would otherwise sell shares, as the Holders reasonably
request, except that neither the Company nor the Holders shall for any such
purpose be required to execute a general consent to service of process or to
qualify to do business as a foreign corporation in any jurisdiction where it is
not so qualified. The fees and expenses incurred in connection with such
registration shall be borne by the Company.
(x) The Holders shall cooperate fully with the Company
and provide the Company with all information reasonably requested by the Company
for inclusion in the registration statement or as necessary to comply with the
Securities Act. The Company shall cooperate fully with any underwriters selected
by the Holders and counsel to such underwriters, and shall provide reasonable
and customary access to the Company's books and records (upon receipt from such
underwriters of customary confidentiality agreements) in order to facilitate
such underwriters' review and examination of the Company in connection with such
underwriting.
33
(xi) The Company shall notify the Holders, at any time
after effectiveness when a prospectus relating thereto is required to be
delivered under the Securities Act within the period mentioned in subdivision
(vii) of this Section 13.4, of the happening of any event as a result of which
the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading in light of circumstances then existing (and upon receipt of such
notice and until a supplemented or amended prospectus as set forth below is
available, the Holders shall not offer or sell any securities covered by such
registration statement and shall return all copies of such prospectus to the
Company if requested to do so by it), and at the request of the Holders prepare
and furnish the Holders promptly a reasonable number of copies of a supplement
to or an amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing.
(xii) The Company shall furnish to the Holders at the
time of the disposition of the Shares, a signed copy of an opinion of the
Company's regular in-house or outside general counsel, or other counsel of the
Company's selection reasonably acceptable to, and which opinion shall be
reasonably satisfactory in form and substance to, the Holders to the effect
that: (a) a registration statement covering such Shares has been filed with the
Commission under the Securities Act and has been made effective by order of the
Commission, (b) said registration statement and prospectus contained therein
comply as to form in all material respects with the requirements of the
Securities Act, and nothing has come to such counsel's attention (after due
inquiry) which would cause such counsel to believe that either said registration
statement or such prospectus contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein (in the case of such prospectus, in light of the
circumstances under which they were made) not misleading, (c) after due inquiry
such counsel knows of no legal or governmental proceedings required to be
described in such registration statement or prospectus which are not described
as required, or of any contracts or documents of a character required to be
described in such registration statement or such prospectus to be filed as an
exhibit to such registration statement or to be incorporated by reference
therein which are not described and filed as required and (d) to such counsel's
knowledge, no stop order has been issued by the Commission suspending the
effectiveness of such registration statement; it being understood that such
opinion may contain such qualifications and assumptions as are customary in the
rendering of similar opinions, and that such counsel may rely, as to all factual
matters treated therein, on certificates of the Company (copies of which shall
be delivered to the Holders).
34
(xiii) The Company will use its best efforts to comply
with the reporting requirements of Sections 13 and 15(d) of the Exchange Act, to
the extent it shall be required to do so pursuant to such sections, and at all
times while so required shall use its best efforts to comply with all other
public information reporting requirements of the Commission (including reporting
requirements which serve as a condition to utilization of Rule 144 promulgated
by the Commission under the Securities Act) from time to time in effect and
relating to the availability of an exemption from the Securities Act for the
sale of any of the Company's Common Stock held by the Holders. The Company will
also cooperate with the Holders in supplying such information and documentation
as may be necessary for the Holders to complete and file any information
reporting forms presently or hereafter required by the Commission as a condition
to the availability of an exemption from the Securities Act for the sale of any
Company Common Stock held by the Holders.
13.5 Indemnification.
(i) In the event of the registration of any shares of the
Company under the Securities Act pursuant to the provisions of Sections 13.2 or
13.3, the Company agrees to indemnify and hold harmless the Holders, each
underwriter, broker or dealer, if any, and their directors, officers and
employees, of such Shares, and each other person, if any, who controls the
holders of the Convertible Notes or the Shares (or a permitted assignee
thereof), such underwriter, broker or dealer within the meaning of the
Securities Act, from and against any and all losses, claims, damages or
liabilities (or actions in respect thereof), joint or several, to which the
Holders (and as applicable) its directors, officers or employees, or such
underwriter, broker or dealer or controlling person may become subject under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
any registration statement under which such shares were registered under the
Securities Act, any preliminary prospectus or final prospectus relating to such
Shares, or any amendment or supplement thereto, or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or any violation by the Company of any rule or regulation under the Securities
Act applicable to the Company or relating to any action or inaction required by
the Company in connection with any such registration and will reimburse the
Holders, each such underwriter, broker or dealer and controlling person, and
their directors, officers or employees, for any legal or other expenses
reasonably incurred by the Holders or such underwriter, broker or dealer or
controlling person in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the Company will not
be liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in such registration statement,
such preliminary prospectus, such final
35
prospectus or such amendment or supplement thereto in reliance upon and in
conformity with written information furnished to the Company by the Holders and
as applicable, such Holders' directors, officers or employees, or such
underwriter, broker, dealer or controlling person for use in the preparation
thereof. Such indemnity shall remain in full effect irrespective of any
investigation by any person indemnified above.
(ii) In the event of the registration of any Shares of
the Holders under the Securities Act for sale pursuant to the provisions of this
Agreement, the Holders agree to indemnify and hold harmless the Company, its
directors, officers and employees, from and against any losses, claims, damages
or liabilities, joint or several, to which the Company, its directors, officers
or employees, may become subject under the Securities Act or otherwise, insofar
as such losses, claims, damages or liabilities (or actions in respect thereof)
arise out of or are based upon any untrue statement or alleged untrue statement
of any material fact contained in any registration statement under which such
Shares were registered under the Securities Act, any preliminary prospectus or
final prospectus relating to such Shares, or any amendment or supplement
thereto, or arise out of or are based upon omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the
statements therein not misleading, which untrue statement or alleged untrue
statement or omission or alleged omission was made therein in reliance upon and
in conformity with written information furnished to the Company by the Holders
for use in the preparation thereof. Such indemnity shall remain in full effect
irrespective of any investigation by any person indemnified above.
(iii) Promptly after receipt by a person entitled to
indemnification under this Section 13.5 (for purposes of this Section 13.5, an
"Indemnified Party") of notice of the commencement of any action or claim
relating to any registration statement filed under Sections 13.2 or 13.3 or as
to which indemnity may be sought hereunder, such Indemnified Party will, if a
claim for indemnification hereunder in respect thereof is to be made against any
other party hereto (for purposes of this Section 13.5, an "Indemnifying Party"),
give written notice to such Indemnifying Party of the commencement of such
action or claim, but the failure to so notify the Indemnifying Party will not
relieve it from any liability which it may have to any Indemnified Party
otherwise than pursuant to the provisions of this Section 13.5 and shall also
not relieve the Indemnifying Party of its obligations under this Section 13.5,
except to the extent that the Indemnified Party is damaged solely as a result of
the failure to give timely notice. In case any such action is brought against an
Indemnified Party, and it notifies an Indemnifying Party of the commencement
thereof, the Indemnifying Party will be entitled (at its own expense) to
participate in and, to the extent that it may wish, jointly with any other
Indemnifying Party similarly notified, to assume the defense with counsel
satisfactory to such Indemnified Party, of such action and/or to settle such
action and, after notice from the Indemnifying Party to such Indemnified Party
of its election so to assume the defense thereof, the Indemnifying Party will
not be liable to
36
such Indemnified Party for any legal or other expenses subsequently incurred by
such Indemnified Party in connection with the defense thereof, other than the
reasonable cost of investigation; provided, however, that no Indemnifying Party
and no Indemnified Party shall enter into any settlement agreement which would
impose any liability on such other party or parties without the prior written
consent of such other party or parties.
13.6 Contribution. If the indemnification provided for in
Section 13.5 hereof is unavailable to the Indemnified Party in respect of any
losses, claims, damages or liabilities referred to herein, then each such
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages or liabilities (i) as between the Company and
the Holders on the one hand and the underwriters on the other, in such
proportion as is appropriate to reflect the relative benefits received by the
Company and the Holders on the one hand and the underwriters on the other from
the offering of the Shares, or if such allocation is not permitted by applicable
law, in such proportion as is appropriate to reflect not only such relative
benefits but also the relative fault of the Company and the Holders on the one
hand and of the underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, as well
as any other relevant equitable considerations and (ii) as between the Company
on the one hand and each Holder on the other, in such proportion as is
appropriate to reflect the relative fault of the Company and of each Holder in
connection with such statements or omissions, as well as any other relevant
equitable considerations.
In no event shall the obligation of any Indemnifying
Party to contribute under this Section 13.6 exceed the amount that such
Indemnifying Party would have been obligated to pay by way of indemnification if
the indemnification provided for under Section 13.5 hereof had been available
under the circumstances.
The amount paid or payable by an Indemnified Party as a
result of the losses, claims, damages and liabilities referred to in the next
preceding paragraph shall be deemed to include, subject to the limitations set
forth above, any legal or other expenses incurred by such Indemnified Party in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 13.6, no Holder or underwriter
shall be required to contribute any amount in excess of the amount by which (i)
in the case of a Holder, the net proceeds received by such Holder from the sale
of Shares or (ii) in the case of an underwriter, the total price at which the
Shares purchased by it and distributed to the public were offered to the public
exceeds, in any such case, the amount of any damages that such Holder or
underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be
37
entitled to contribution from any person who was not guilty of such fraudulent
misrepresentation.
13.7 Survival. The indemnity and contribution agreements
contained in this Section 13 shall remain operative and in full force and effect
regardless of (i) any termination of this Agreement or any underwriting
agreement, (ii) any investigation made by or on behalf of any Indemnified Party
or by or on behalf of the Company and (iii) the consummation of the sale or
successive resales of the Shares.
14. REPLACEMENT OF CONVERTIBLE NOTES.
Upon receipt of evidence satisfactory to the Company of
the loss, theft, destruction or mutilation of any Convertible Note and, in the
case of any such loss, theft, or destruction, upon delivery of a bond of
indemnity satisfactory to the Company (provided that, in the case of any
Purchaser, the written undertaking of such Purchaser to indemnify the Company
shall be satisfactory to the Company) or in the case of any such mutilation,
upon surrender and cancellation of such Convertible Note, the Company will issue
a new Convertible Note of like tenor as if the lost, stolen, destroyed or
mutilated Convertible Note were then surrendered for exchange in lieu of such
lost, stolen, destroyed or mutilated Convertible Note.
15. AMENDMENT AND WAIVER.
Except as set forth in Article 5, this Agreement may be
amended (or any provision thereof waived) with the consent of the Company and
the Holders of at least sixty-six and two-thirds percent (66 2/3%) in aggregate
principal amount of the Convertible Notes then outstanding; provided, however,
that no such amendment or waiver shall (i) change the fixed maturity of any
Convertible Note, the rate or the time of payment of interest thereon, the
principal amount thereof or the circumstances under which such Convertible Note
may be called, converted or redeemed without the consent of the holders of all
the Convertible Notes then outstanding, (ii) reduce the aforesaid percentage of
Convertible Notes, the holders of which are required to consent to any such
amendment or waiver, without the consent of the holders of all the Convertible
Notes then outstanding or (iii) increase the percentage of the aggregate
principal amount of the Convertible Notes that the holders of which may declare
the Convertible Notes to be due and payable under Article 10 herein, without the
consent of the holders of all of the Convertible Notes then outstanding or (iv)
modify the conversion rights or the Conversion Price and adjustments thereto (as
outlined in Articles 11 and 12 herein) in any material respect, without the
consent of the holders of all of the Convertible Notes then outstanding or (v)
alter the registration rights under Article 13 herein in any material respect,
without the consent of the holders of all of the Convertible Notes then
outstanding and all of the Shares outstanding other than Shares which have been
sold in registered public offerings; and provided, further, that no amendment or
waiver of any provision of Article 5 shall be effective against any holder of
Senior Indebtedness who has not consented thereto. The Company and each holder
of a Convertible Note then
38
or thereafter outstanding shall be bound by any amendment or waiver effected in
accordance with the provisions of this Article, whether or not such Convertible
Note shall have been marked to indicate such modification, but any Convertible
Note issued thereafter shall bear a notation as to any such modification.
Promptly after obtaining the written consent of the holders herein provided, the
Company shall transmit a copy of such modification to all of the holders of the
Convertible Notes then outstanding.
16. HOME OFFICE PAYMENT.
The Company will make payments of principal and interest
by check payable to the order of the holder of any such Convertible Notes duly
mailed or delivered to such holder at the address of such holder specified in
Exhibit "A", or at such other address as such holder may designate in writing,
or , if requested by any holder of the Convertible Notes, by wire transfer to
its (or its nominee's) account at any bank or trust company in the United States
of America, notwithstanding any contrary provisions herein or in any Convertible
Note with respect to the place of payment. All such payments shall be made in
immediately available funds. The Purchasers agree that, before any such
Convertible Note is assigned or transferred, the Purchasers will make or cause
to be made a notation thereon of principal payments previously made thereon and
of the date to which interest thereon has been paid and will notify the Company
of the name and address of the transferee of such Convertible Note if such name
and address are known to such Purchaser.
17. NOTICES.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been made when
delivered by courier or mailed express mail or transmitted by telex, facsimile,
or other means of electronic transmission:
(a) if to a Purchaser or its nominee, at such Purchaser's
address as set forth in Exhibit "A" hereto, or at such other address
as may have been furnished to the Company by a Purchaser in writing;
or
(b) if to any other holder of a Convertible Note, at such
address as the payee thereof shall have designated to the Company by
a written notice stating that such holder has acquired such
Convertible Note and designating such an address, or at such other
address as may have been furnished to the Company by such holder in
writing; or
(c) if to the Company, at ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (fax number (▇▇▇) ▇▇▇-▇▇▇▇); Attention: ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇, President and Chief Executive Officer, or at such other
address as may have been furnished to the Purchasers or other holders
of Convertible
39
Notes in writing by the Company, with a copy to ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇,
Esq., ▇▇▇▇ ▇▇▇▇▇▇▇, P.C., ▇▇▇▇ ▇▇▇▇▇▇ ▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇,
▇▇▇ ▇▇▇▇ ▇▇▇▇▇ (fax number (▇▇▇) ▇▇▇-▇▇▇▇).
18. ENTIRE AGREEMENT.
This Agreement and the Convertible Notes embody the entire
agreement and understanding between the Purchasers and the Company and supersede
all prior agreements and understandings relating to the subject matter hereof.
19, SUCCESSORS AND ASSIGNS.
All covenants and agreements in this Agreement contained
by or on behalf of any of the parties hereto shall bind and inure to the benefit
of the respective successors and assigns of the parties hereto whether so
expressed or not.
20. HEADINGS.
The headings of the articles and sections of this
Agreement have been inserted for convenience of reference only and shall in no
way restrict or otherwise modify any of the terms or provisions hereof.
21. GOVERNING LAW.
This Agreement shall be construed and enforced in
accordance with and governed by the laws of the State of New York, without
giving effect to its conflict of laws rules.
22. COUNTERPARTS.
This Agreement may be signed in any number of counterparts
with the same effect as if the signatures thereto and hereto were upon the same
instrument. Facsimile signatures shall be deemed acceptable and binding.
23. SEVERABILITY.
Any provision hereof or of the Convertible Notes which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof or thereof, and any such
prohibition or unenforceability in any jurisdiction shall not invalidate or
render unenforceable such provision in any other jurisdiction.
40
24. DEFINITIONS.
The following terms, when used in this Agreement, shall
have the following meanings:
"Affiliate" shall mean any person that controls, is
controlled by or is under common control with the person in question.
For purposes hereof, "control" and the correlative definitions
"controlled by" and "under common control with" shall mean the power
and ability to direct the management and affairs of the person in
question, whether through the ownership of voting securities, by
contract or otherwise.
"Agreement" has the meaning set forth in Article 1.
"beneficial owner" has the meaning set forth in Rule 13d-3
promulgated by the Commission under the Exchange Act.
"Board" or "Board of Directors" means, with respect to any
person which is a corporation, a joint stock company or a business
trust, the board of directors or other group, however designated,
which is charged with legal responsibility for the management of such
person, or any committee of such board of directors or group, however
designated, which is authorized to exercise the power of such board or
group in respect of the matter in question.
"Business Day" means any day other than a Saturday, Sunday
or other day on which banks in the State of New York are legally
authorized to close.
"Capital Lease" shall mean a lease of property which is
capitalized on the financial statements of the lessee in accordance
with generally accepted accounting principles.
"Closing" has the meaning set forth in Article 3.
"Closing Date" has the meaning set forth in Article 3.
"Closing Price" means (i) the last reported sale price as
reported on the NASDAQ Small Cap market or other exchange on which the
Common Stock is listed for trading (or, in case no such sale takes
place on such day, the average of the closing bid and asked prices on
the NASDAQ Small Cap market or such exchange), or (ii) in the absence
of any of the foregoing, the fair market value as determined in good
faith by the Board of Directors of the Company (which determination
shall be conclusive).
"Commission" means the Securities and Exchange Commission
and any other similar or successor agency of the federal government
administering the Securities Act or the Exchange Act.
41
"Company" means ▇▇▇▇▇▇, Inc., a New York corporation, and
its successors and assigns, including any successor corporation by
merger formed for the purpose of reincorporating the Company in the
State of Delaware.
"Consolidated" or "consolidated", when used with reference
to any financial term in this Agreement, means the aggregate for the
Company and its Subsidiaries of the amounts signified by such term,
with intercompany items eliminated and, with respect to earnings,
after eliminating the portion of earnings properly attributable to
minority interests, if any, in the capital of any such person, other
than the parent of such group.
"Conversion Date" has the meaning set forth in
Section 11.2.
"Conversion Price" means $6.00 per share, as the same may
be adjusted from time to time in accordance with the terms of this
Agreement.
"Convertible Notes" has the meaning set forth in
Article 1.
"Event of Default" has the meaning set forth in
Article 10.
"Exchange Act" means the Securities Exchange Act of 1934,
as amended.
"generally accepted accounting principles" means, unless
otherwise stated, generally accepted accounting principles in effect
from time to time.
"Holders" has the meaning set forth in Section 13.2.
"Holders Option" has the meaning set forth in
Section 12.1.
"Indebtedness" of any person means and includes, without
duplication, as of any date as of which the amount thereof is to be
determined, (i) all obligations of such person to repay money borrowed
(including, without limitation, all debentures payable and drafts
accepted representing extensions of credit, all obligations evidenced
by bonds, debentures or other similar instruments and all obligations
upon which interest charges are customarily paid), (ii) the value of
all Capital Leases (as such term is defined in accordance with
generally accepted accounting principles in effect on the date of this
Agreement) in respect of which such person is liable as lessee or as
the guarantor of the lessee, (iii) the principal amount of all
monetary obligations which are secured by any lien or security
interest existing on property owned by such person whether or not the
obligations secured thereby shall have been assumed by such person,
(iv) all guaranties of the Indebtedness of any other person and (v)
all amounts from time to time owing to trade creditors arising in the
ordinary course of such person's business.
"NASDAQ" means the National Association of Securities
Dealers Automated Quotation System.
42
"Purchaser" has the meaning set forth in Article 1.
"Securities Act" means the Securities Act of 1933, as
amended.
"Senior Indebtedness" has the meaning set forth in
Section 5.7.
"Share" or "Shares" has the meaning set forth in
Article 1.
"Solvent" shall mean when used with respect to any person
that as of the date as to which the person's solvency is to be
measured:
(ii) the fair saleable value of its assets
is in excess of the total amount of its
liabilities (including contingent
liabilities as valued in accordance
with applicable law) as they become
absolute and matured;
(iii) it has sufficient capital to conduct its business;
and
(iv) it is able to meet its debts as they mature.
"Subsidiary" means any corporation organized under the
laws of the United States or of any state or of the District of
Columbia or any foreign jurisdiction of which (other than directors'
qualifying shares required by law) at least a majority of the shares
of each class of the capital stock entitled to vote at the time as of
which any determination is being made, is owned, beneficially and of
record, by the Company or one or more of its Subsidiaries, or both.
If the foregoing correctly sets forth our understanding,
please sign below on the enclosed counterpart of this Agreement and return the
same to the undersigned.
Very truly yours,
▇▇▇▇▇▇, INC.
By: _________________________________
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: President and Chief Executive Officer
The foregoing Agreement is hereby
accepted and agreed to as of the
date first above written:
PURCHASER:
43
By: ____________________________
Name:
Title:
EXHIBIT "A"
PURCHASERS
Principal
Amount to Shares
Name and Address of be Issuable Upon Percentage
Purchaser Purchased Conversion of Offering
------------------- --------- ------------- -----------
(a) Name:
(b) Address for communications:
(c) Address for payment of
principal and interest by
wire transfer of immediately
available funds: