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EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of
March 5, 1999, by and between Alydaar Software Corporation, a North Carolina
corporation (the "Company"), and ▇▇▇▇▇▇▇▇ Capital Management, Inc. (the
"Purchaser").
The Company wishes to sell to the Purchaser, and the Purchaser
wishes to buy, on the terms and subject to the conditions set forth in this
Agreement, (i) one or more debentures in the form attached hereto as Exhibit A
(each, a "Debenture" and together, the "Debentures"), (ii) shares (the
"Preferred Shares") of the Company's Series A Convertible Preferred Stock, par
value $.001 per share (the "Preferred Stock") and (iii) a Warrant or Warrants in
the form attached hereto as Exhibit B (each, a "Warrant" and together, the
"Warrants"). The Debentures are exchangeable, at the option of the Company and
on the terms and subject to the conditions specified in the Debentures, for
Preferred Shares, and are convertible into shares of the Company's common stock,
par value $.001 per share (the "Common Stock"). The Preferred Shares are
convertible into shares of Common Stock pursuant to the terms of the Articles of
Amendment to the Company's Articles of Incorporation, the form of which is
attached hereto as Exhibit C (the "Articles of Amendment"). The Warrants are
exercisable into shares of Common Stock (the "Warrant Shares") in accordance
with their terms. The exchange of Debentures for Preferred Shares is referred to
herein as the "Exchange" and the date on which the Exchange is effected is
referred to herein as the "Exchange Date". The shares of Common Stock issuable
upon conversion of, or otherwise pursuant to, the Debentures or the Preferred
Shares are collectively referred to herein as the "Conversion Shares". The
Debentures, the Preferred Shares, the Conversion Shares, the Warrants and the
Warrant Shares are collectively referred to herein as the "Securities".
The sale of the Securities to be sold by the Company to the
Purchaser hereunder (the "Purchased Securities") will be effected in reliance
upon the exemption from securities registration afforded by either Section 4(2)
of the Securities Act of 1933, as amended (the "Securities Act") or the
provisions of Regulation D ("Regulation D") as promulgated by the Securities and
Exchange Commission (the "Commission") under the Securities Act. The Company has
agreed to effect the registration of the Conversion Shares and the Warrant
Shares under the Securities Act, pursuant to a Registration Rights Agreement of
even date herewith by and between the Company and the Purchaser (the
"Registration Rights Agreement").
The Company and the Purchaser hereby agree as follows:
1. PURCHASE AND SALE OF DEBENTURES.
1.1 Agreement to Purchase and Sell. Upon the terms and subject to
the satisfaction or waiver of the conditions set forth herein, the Company
agrees to sell and the Purchaser agrees to purchase in up to three (3) tranches
(each a "Tranche" and together, the "Tranches") (i) one or more Debentures, (ii)
in the event that the Exchange occurs prior to the Tranche B Closing or the
Tranche C
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Closing (each as defined below), Preferred Shares and (iii) in the case of
either (i) or (ii), one or more Warrants entitling the holder thereof to
purchase shares of Common Stock, all as more fully described below. The purchase
price (the "Purchase Price") for each Debenture and related Warrant purchased by
the Purchaser hereunder will be equal to the principal amount of the Debenture;
in the event that Preferred Shares are purchased by the Purchaser hereunder, the
Purchase Price for such Preferred Shares and the related Warrant will be equal
to the stated value of such Preferred Shares.
1.2 Closing of Tranche A. At the closing of the initial Tranche
hereunder ("Tranche A"),the Purchaser will purchase a Debenture in the principal
amount of three million dollars ($3,000,000) and a Warrant entitling the holder
thereof to purchase thirty thousand (30,000) shares of Common Stock (the
"Tranche A Closing"). The date on which the Tranche A Closing occurs is
hereinafter referred to as the "Tranche A Closing Date". Subject to the
satisfaction or waiver of the conditions set forth herein, the Tranche A Closing
will be deemed to occur when this Agreement and the other Transaction Documents
(as defined below) have been executed and delivered by the Company and the
Purchaser (which delivery may be effected by facsimile transmission), and full
payment of the Purchase Price has been made by the Purchaser by wire transfer of
immediately available funds against physical delivery by the Company of duly
executed certificates representing the Securities purchased by the Purchaser at
the Tranche A Closing. The Debenture and Warrant purchased by the Purchaser at
the Tranche A Closing are sometimes referred to as the "Tranche A Debenture" and
the "Tranche A Warrant", respectively.
1.3 Closing of Tranche B. In the event that the Tranche B Closing
Conditions (as defined in clause 5.2 below) are satisfied or waived prior to the
one year anniversary of the Tranche A Closing Date (the "Tranche B Expiration
Date"), the Purchaser will purchase from the Company, and the Company will sell
to the Purchaser, an additional Tranche consisting of a Debenture (the "Tranche
B Debenture") in the principal amount of two million dollars ($2,000,000) and a
Warrant (the "Tranche B Warrant") entitling the holder thereof to purchase
twenty thousand (20,000) shares of Common Stock ("Tranche B"), such Debenture
and Warrant to be issued at a subsequent closing (the "Tranche B Closing");
provided, however, that if the Exchange has occurred prior to the Tranche B
Closing, the Corporation will issue, in lieu of the Tranche B Debenture, and in
addition to the Tranche B Warrant, Preferred Shares with a stated value equal to
two million dollars ($2,000,000). The Tranche B Closing will occur on a date
that is on or before the tenth (10th) Business Day following the last Business
Day on which all of the Tranche B Closing Conditions are satisfied or waived
(the "Tranche B Closing Date"). Upon notice from the Company that the Tranche B
Closing Conditions have been satisfied, the Purchaser will determine the Tranche
B Closing Date and notify the Company thereof in writing at least three (3)
Business Days prior to such date; provided, that if the Purchaser fails to
deliver such notice, the Tranche B Closing Date will occur on such tenth
Business Day. The Tranche B Closing will be deemed to occur when full payment of
the Purchase Price for the Securities to be issued and sold at such Closing has
been made by the Purchaser by wire transfer of immediately available funds
against physical delivery by the Company of duly executed certificates
representing such Securities.
1.4 Closing of Tranche C. Upon the satisfaction (or waiver) of the
Tranche C Closing Conditions (as defined in clause 5.3 below), the Company will
have the option to sell to the Purchaser
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(the "Tranche C Option") an additional Tranche consisting of a Debenture (the
"Tranche C Debenture") in the principal amount of five million dollars
($5,000,000) and a Warrant (the "Tranche C Warrant") entitling the holder
thereof to purchase fifty thousand (50,000) shares of Common Stock ("Tranche C")
at a subsequent closing (the "Tranche C Closing"); provided, however, that if
the Exchange has occurred prior to the Tranche C Closing, the Corporation will
issue, in lieu of the Tranche C Debenture, and in addition to the Tranche C
Warrant, Preferred Shares with a stated value equal to five million dollars
($5,000,000). Subject to the satisfaction (or waiver) of the Tranche C Closing
Conditions (as defined below), and at any time after the period of one hundred
and eighty (180) days following the Tranche A Closing Date (such period of one
hundred and eighty one days being referred to herein as the "Tranche C Waiting
Period") but prior to the date (the "Tranche C Expiration Date") that is the one
year anniversary of the Tranche A Closing Date, the Company may exercise the
Tranche C Option by delivering written notice thereof (the "Tranche C Notice")
to the Purchaser no later than 5:00 p.m. on the Business Day immediately
following the last day of a Tranche C Trigger Period (as defined in clause
5.3.12 below). The Tranche C Closing must occur on or before 5:00 p.m. (eastern
time) on the third (3rd) Business Day immediately following the date on which
the Tranche C Notice is delivered to the Purchaser, or on such other date on
which the Purchaser and the Company mutually agree in writing (the "Tranche C
Closing Date"). The Tranche C Closing will be deemed to occur when full payment
of the Purchase Price for the Securities to be issued and sold at such Closing
has been made by the Purchaser by wire transfer of immediately available funds
against physical delivery by the Company of duly executed certificates
representing such Securities. The Debenture or Preferred Shares, as the case may
be, and the Warrant purchased by the Purchaser at the Tranche C Closing are
sometimes referred to as the Tranche C Debenture, the Tranche C Preferred Shares
and the Tranche C Warrant, respectively. The Tranche A Closing, the Tranche B
Closing and the Tranche C Closing are each sometimes referred to herein as a
"Closing" and, when taken together, as the "Closings". The Tranche A Closing
Date, the Tranche B Closing Date and the Tranche C Closing Date are each
sometimes referred to herein as a "Closing Date".
1.5 Certain Definitions. When used herein, (A) "Business Day"
shall mean any day on which the New York Stock Exchange (the "NYSE") and
commercial banks in the cities of New York and Charlotte, North Carolina are
open for business, (B) an "affiliate" of a party shall mean any person or entity
controlling, controlled by or under common control with that party and (C)
"control" shall mean, with respect to an entity, the ability to direct the
business, operations or management of such entity, whether through an equity
interest therein or otherwise.
2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PURCHASER.
The Purchaser hereby represents and warrants to the Company and agrees
with the Company that, as of the date of this Agreement:
2.1 Authorization; Enforceability. The Purchaser is duly and
validly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation or organization with full power and authority
to purchase the Purchased Securities and to execute and deliver this Agreement.
The Purchaser's principal place of business is located in the State of New York.
This
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Agreement and the Registration Rights Agreement each constitutes the Purchaser's
valid and legally binding obligation, enforceable in accordance with its terms.
2.2 Accredited Investor; Purchase as Principal. The Purchaser is
an accredited investor as that term is defined in Rule 501 of Regulation D, and
is acquiring the Purchased Securities solely for its own account as a principal
and not with a present view to the public resale or distribution of all or any
part thereof, except pursuant to sales that are exempt from the registration
requirements of the Securities Act and/or sales registered under the Securities
Act; provided, however that in making such representation, the Purchaser does
not agree to hold any Securities for any minimum or specific term and reserves
the right to sell, transfer or otherwise dispose of the Securities at any time
in accordance with the provisions of this Agreement and with Federal and state
securities laws applicable to such sale, transfer or disposition.
2.3 Information. The Company has provided the Purchaser with
information regarding the business, operations and financial condition of the
Company, and has granted to the Purchaser the opportunity to ask questions of
and receive answers from representatives of the Company, its officers,
directors, employees and agents concerning the Company and materials relating to
the terms and conditions of the purchase and sale of the Purchased Securities.
Neither such information nor any other investigation conducted by the Purchaser
or any of its representatives shall modify, amend or otherwise affect the
Purchaser's right to rely on the Company's representations and warranties
contained in this Agreement.
2.4 Limitations on Disposition. The Purchaser acknowledges that,
except as provided in the Registration Rights Agreement, the Purchased
Securities have not been and are not being registered under the Securities Act
and may not be transferred or resold without registration under the Securities
Act or unless pursuant to an exemption therefrom.
2.5 Legend. The Purchaser understands that the certificates
representing the Purchased Securities may bear at issuance a restrictive legend
in substantially the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended (the
"Securities Act"), or the securities laws of any state, and
may not be offered or sold unless a registration statement
under the Securities Act and applicable state securities laws
shall have become effective with regard thereto, or an
exemption from registration under such laws is available in
connection with such offer or sale."
Notwithstanding the foregoing, it is agreed that, as long as (A) the
resale or transfer (including without limitation a pledge) of any of the
Securities is registered pursuant to an effective registration statement, (B)
such Securities have been publicly sold pursuant to Rule 144 ("Rule 144"), or
(C) such Securities can be publicly sold pursuant to Rule 144(k) under the
Securities Act, such Securities shall be issued without any legend or other
restrictive language and, with respect to Securities upon which such legend is
stamped, the Company shall issue new certificates without such legend to the
holder
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upon request.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.
The Company hereby represents and warrants to the Purchaser and agrees
with the Purchaser that, as of the date of this Agreement:
3.1 Organization, Good Standing and Qualification. Each of the
Company and its subsidiaries is duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation or organization
and has all requisite corporate power and authority to carry on its business as
now conducted. Each of the Company and its subsidiaries is duly qualified to
transact business and is in good standing in each jurisdiction in which the
failure so to qualify would have a material adverse effect on the consolidated
business or financial condition of the Company and its subsidiaries taken as a
whole.
3.2 Authorization; Consents. The Company has the requisite
corporate power and authority to enter into and perform its obligations under
(i) this Agreement, (ii) the Debentures, (iii) the Registration Rights Agreement
and (iv) the Warrants and all other agreements, documents or other instruments
executed and delivered by or on behalf of the Company at the Closing (such
instruments being collectively referred to herein as the "Transaction
Documents"), to issue and sell the Debentures and Warrants to the Purchaser in
accordance with the terms hereof, to issue Conversion Shares upon conversion of
the Debentures, and to issue the Warrant Shares upon exercise of the Warrants.
Upon the receipt by the Company of Shareholder Approval (as defined below), the
Company will have the requisite corporate power and authority to execute, file
and perform its obligations under the Articles of Amendment, to issue Preferred
Shares and to exchange such shares for Debentures pursuant to the Exchange, and
to issue Conversion Shares upon conversion of the Preferred Shares. Except as
set forth on Schedule 3.2, all corporate action on the part of the Company by
its officers, directors and stockholders necessary for (A) the authorization,
execution and delivery of, and the performance by the Company of its obligations
under, the Transaction Documents, and (B) the authorization, execution and
filing of, and the performance by the Company of its obligations under, the
Articles of Amendment has been taken, and no further consent or authorization of
the Company, its Board of Directors, its stockholders, any governmental agency
or organization (other than such approval as may be required under the
Securities Act and applicable state securities laws in respect of the
Registration Rights Agreement), or any other person or entity is required
(pursuant to any rule of the National Association of Securities Dealers, Inc. or
otherwise).
3.3 Enforcement. Each of the Transaction Documents constitutes a
valid and legally binding obligation of the Company, enforceable in accordance
with its terms.
3.4 Disclosure Documents; Agreements; Financial Statements; Other
Information. The Company has filed with the Commission: (i) the Company's Annual
Report on Form 10-K for the year ended December 31, 1997, (ii) Quarterly Reports
on Form 10-Q for the quarters ended March 31, 1998, June 30, 1998 and September
30, 1998, (iii) all Current Reports on Form 8-K, and any other reports,
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required to be filed with the Commission since December 31, 1997 and prior to
the date hereof and (iv) the Company's definitive Proxy Statement for its 1998
Annual Meeting of Stockholders (collectively, the "Disclosure Documents").
Except as disclosed on Schedule 3.4, the Company is not aware of any event
occurring on or prior to a Closing Date or the Exchange Date (other than the
transactions effected hereby) that would require the filing of, or with respect
to which the Company intends to file, a Form 8-K after such date. Each
Disclosure Document, as of the date of the filing thereof with the Commission,
conformed in all material respects to the requirements of the Exchange Act, and
the rules and regulations thereunder and, as of the date of such filing, such
Disclosure Document did not contain an untrue statement of material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading. Except as disclosed on Schedule 3.4, all material agreements
required to be filed as exhibits to the Disclosure Documents have been filed as
required. Neither the Company nor any of its subsidiaries is in breach of any
agreement to which it is a party or by which it is bound where such breach is
reasonably likely to have a material adverse effect on (i) the consolidated
business, operations, properties, financial condition, prospects or results of
operations of the Company and its subsidiaries taken as a whole, (ii) the
transactions contemplated hereby, by the other Transaction Documents and by the
Articles of Amendment or (iii) the ability of the Company to perform its
obligations under this Agreement, under the other Transaction Documents and
under the Articles of Amendment (collectively, a "Material Adverse Effect").
Except as set forth in the Disclosure Documents, the Company has no liabilities,
contingent or otherwise, other than liabilities incurred in the ordinary course
of business which, under generally accepted accounting principles, are not
required to be reflected in such financial statements (including the footnotes
to such financial statements) and which, individually or in the aggregate, are
not material to the consolidated business or financial condition of the Company
and its subsidiaries taken as a whole. As of their respective dates, the
financial statements of the Company included in the Disclosure Documents have
been prepared in accordance with generally accepted accounting principles
consistently applied at the times and during the periods involved (except (i) as
may be otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may exclude
footnotes or may be condensed or summary statements) and fairly present in all
material respects the financial position of the Company as of the dates thereof
and the results of its operations and cash flows for the periods then ended
(subject, in the case of unaudited statements, to normal year-end adjustments).
The written information described in paragraph 2.3 does not contain an untrue or
misleading statement of material fact.
3.5 Capitalization. The capitalization of the Company, including its
authorized capital stock, the number of shares issued and outstanding, the
number of shares issuable and reserved for issuance pursuant to the Company's
stock option plans, the number of shares issuable and reserved for issuance
pursuant to securities (other than the Purchased Securities) exercisable for, or
convertible into or exchangeable for any shares of Common Stock and the number
of shares initially to be reserved for issuance upon conversion or exercise, as
the case may be, of the Purchased Securities is set forth on Schedule 3.5
hereto. All of such outstanding shares of capital stock have been, or upon
issuance will be, validly issued, fully paid and non-assessable. No shares of
the capital stock of the Company are subject to preemptive rights or any other
similar rights of the stockholders of the Company or any liens
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or encumbrances created by or through the Company. Except as disclosed on
Schedule 3.5, or as contemplated herein, there are no outstanding options,
warrants, scrip, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into or exercisable
or exchangeable for, any shares of capital stock of the Company or any of its
subsidiaries, or arrangements by which the Company or any of its subsidiaries is
or may become bound to issue additional shares of capital stock of the Company
or any of its subsidiaries.
3.6 Valid Issuance. The Debentures and the Warrants are duly authorized
and, when issued, sold and delivered in accordance with the terms hereof, (i)
will be duly and validly issued, fully paid and nonassessable, free and clear of
any taxes, liens, claims, preemptive or similar rights or encumbrances imposed
by or through the Company (collectively, "Encumbrances") and (ii) based in part
upon the representations of the Purchaser in this Agreement, will be issued,
sold and delivered in compliance with all applicable Federal and state
securities laws. The Preferred Shares are duly authorized by the Company's Board
of Directors and, upon the receipt by the Company of Shareholder Approval (as
defined below) and the filing of the Articles of Amendment, when issued and
either sold in accordance with the terms hereof or delivered in exchange for the
Debentures, (i) will be duly and validly issued, fully paid and nonassessable,
free and clear of any Encumbrances, (ii) based in part upon the representations
of the Purchaser in this Agreement, will be issued and delivered in compliance
with all applicable Federal and state securities laws and (iii) will be entitled
to all of the rights, preferences and privileges set forth in the Articles of
Amendment. The Conversion Shares are duly authorized and reserved for issuance
and, when issued upon conversion of the Debentures or Preferred Shares, will be
duly and validly issued, fully paid and nonassessable, free and clear of any
Encumbrances. The Warrant Shares are duly authorized and, when issued upon
exercise of the Warrant, will be duly and validly issued, fully paid and
nonassessable, free and clear of any Encumbrances. The Company's Board of
Directors (i) has unanimously determined that the issuance and sale of the
Purchased Securities, and the consummation of the transactions contemplated
hereby, by the other Transaction Documents and by the Articles of Amendment
(including without limitation the exchange of Debentures for Preferred Shares,
the issuance of Conversion Shares upon the conversion of Debentures or Preferred
Shares and the issuance of Warrant Shares upon exercise of Warrants) are in the
best interests of the Company, (ii) has unanimously approved the issuance of
Conversion Shares and Warrant Shares in excess of 19.99% of the number of shares
of Common Stock outstanding on any Closing Date and the Exchange Date, and (iii)
intends to recommend to the stockholders of the Company that they approve the
issuance of Conversion Shares and Warrant Shares in excess of such number.
3.7 No Conflict with Other Instruments. Except as set forth on Schedule
3.7, neither the Company nor any of its subsidiaries is in violation of any
provisions of its charter, bylaws or any other governing document as amended and
in effect on and as of the date hereof or in default (and no event has occurred
which, with notice or lapse of time or both, would constitute a default) under
any provision of any instrument or contract to which it is a party or by which
it is bound, or of any provision of any Federal or state judgment, writ, decree,
order, statute, rule or governmental regulation applicable to the Company, which
would have a Material Adverse Effect. Except as set forth on Schedule 3.7, the
(i) execution, delivery and performance of this Agreement and the other
Transaction
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Documents, (ii) execution and filing of the Articles of Amendment and (iii)
consummation of the transactions contemplated hereby and thereby (including
without limitation the issuance of the Purchased Securities and the reservation
for issuance and issuance of the Conversion Shares and the Warrant Shares) will
not, in any such case, result in any such violation or be in conflict with or
constitute, with or without the passage of time and giving of notice, either a
default under any such provision, instrument or contract or an event which
results in the creation of any lien, charge or encumbrance upon any assets of
the Company or of any of its subsidiaries or the triggering of any preemptive or
anti-dilution rights or rights of first refusal or first offer on the part of
holders of the Company's securities.
3.8 Financial Condition; Taxes; Litigation.
3.8.1 The Company's financial condition is, in all material
respects, as described in the Disclosure Documents, except for changes in the
ordinary course of business and normal year-end adjustments that are not, in the
aggregate, materially adverse to the consolidated business or financial
condition of the Company and its subsidiaries taken as a whole. Except as
otherwise described in the Disclosure Documents or disclosed in writing by the
Company to the Purchaser prior to the Tranche A Closing Date, there has been no
material adverse change to the Company's business, operations, properties,
financial condition, prospects or results of operations since the date of the
Company's most recent audited financial statements contained in the Disclosure
Documents.
3.8.2 The Company has filed all tax returns required to be
filed by it and paid all taxes which are due, except for taxes which it
reasonably disputes or which could not reasonably be expected to have a Material
Adverse Effect.
3.8.3 Neither the Company nor any of its subsidiaries is
the subject of any pending or, to the Company's knowledge, threatened inquiry,
investigation or administrative or legal proceeding by the Internal Revenue
Service, the taxing authorities of any state or local jurisdiction, the
Commission or any state securities commission or other governmental or
regulatory entity which could reasonably be expected to have a Material Adverse
Effect.
3.8.4 Except as described in the Disclosure Documents and
on Schedule 3.8.4, there is no claim, litigation or administrative proceeding
pending, or, to the Company's knowledge, threatened or contemplated, against the
Company or any of its subsidiaries, or against any officer, director or employee
of the Company or any such subsidiary in connection with such person's
employment therewith that, individually or in the aggregate, could have a
Material Adverse Effect. Neither the Company nor any of its subsidiaries is a
party to or subject to the provisions of, any order, writ, injunction, judgment
or decree of any court or government agency or instrumentality which could
reasonably be expected to have a Material Adverse Effect.
3.9 Reporting Company; Form S-3. The Company is subject to the
reporting requirements of the Exchange Act, has a class of securities registered
under Section 12 of the Exchange Act, and has filed all reports required
thereby. The Company is eligible to register for resale shares of its Common
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Stock on a registration statement on Form S-3 under the Securities Act.
3.10 Acknowledgement of Dilution. The Company acknowledges that the
issuance of the Conversion Shares and Warrant Shares upon the conversion or
exercise of the Purchased Securities may result in dilution of the outstanding
shares of Common Stock, which dilution may be substantial under certain market
conditions. The Company further acknowledges that its obligation to issue
Conversion Shares upon the conversion or exercise of the Purchased Securities is
unconditional and absolute regardless of the effect of any such dilution.
3.11 Intellectual Property. Except as disclosed on Schedule 3.11,
the Company and its subsidiaries each has the right to use adequate trademarks,
trade names and other rights to inventions, know-how, patents, copyrights,
confidential information and other intellectual property rights necessary to
conduct the business now operated by it, and is not aware of any infringement by
a third party with respect to such rights or of any infringement by it or
conflict with asserted rights of others that, in any such case, if determined
adversely to the Company or any of its subsidiaries, would individually or in
the aggregate have a Material Adverse Effect.
3.12 Registration Rights; Rights of Participation. Except as
described on Schedule 3.12 hereto, (A) the Company has not granted or agreed to
grant to any person or entity any rights (including "piggy-back" registration
rights) to have any securities of the Company registered with the Commission or
any other governmental authority and (B) no person or entity, including, but not
limited to, current or former stockholders of the Company, underwriters,
brokers, agents or other third parties, has any right of first refusal,
preemptive right, right of participation, anti-dilutive right or any similar
right to participate in the transactions contemplated by this Agreement, the
other Transaction Documents or the Articles of Amendment which has not been
waived or will not be waived or otherwise satisfied as of any Closing Date or
the Exchange Date.
3.13 Listing on Nasdaq. Except as described on Schedule 3.13, the
Common Stock is authorized for quotation on the Nasdaq National Market, and
trading in the Common Stock on the Nasdaq National Market has not been
suspended. The Company is, to its knowledge, in full compliance with the listing
criteria of the Nasdaq National Market, and does not reasonably anticipate that
the Common Stock will lose its listing on the Nasdaq National Market, whether by
reason of the transactions contemplated by this Agreement, the other Transaction
Documents or the Articles of Amendment, or otherwise and is not aware of any
inquiry by or received any notice from the Nasdaq regarding any failure or
alleged failure by the Company to comply with such criteria.
3.14 Solicitation; Other Issuances of Securities. Neither the
Company nor any of its subsidiaries or affiliates, nor any person acting on its
or their behalf, (i) has engaged in any form of general solicitation or general
advertising (within the meaning of Regulation D) in connection with the offer or
sale of the Debentures, the Preferred Shares or Warrants, (ii) has, directly or
indirectly, made any offers or sales of any security or solicited any offers to
buy any security, under any circumstances that would require registration of the
Debentures, the Preferred Shares or Warrants under the Securities Act or (iii)
has issued any shares of Common Stock or shares of any series of preferred stock
or other
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securities or instruments convertible into, exchangeable for or otherwise
entitling the holder thereof to acquire shares of Common Stock which would be
integrated with the sale of the Debentures, the Preferred Shares and Warrants to
the Purchaser, the issuance of the Preferred Shares upon the Exchange, or the
issuance of the Conversion Shares or Warrant Shares upon the conversion or
exercise thereof, for purposes of determining whether stockholder approval is
required under the listing criteria of the Nasdaq National Market.
3.15 Fees. Except as described on Schedule 3.15 hereto, the Company
is not obligated to pay any compensation or other fee, cost or related
expenditure to any underwriter, broker, agent or other representative or entity
in connection with the transactions contemplated hereby. The Company will
indemnify and hold harmless the Purchaser from and against any claim by any
person or entity alleging that the Purchaser is obligated to pay any such
compensation, fee, cost or related expenditure in connection with the
transactions contemplated hereby.
3.16 Regulatory Permits. The Company and its subsidiaries possess
all certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, except where the failure to so possess such certificates,
authorizations or permits would not have a Material Adverse Effect, and neither
the Company nor any such subsidiary has received any notice of proceedings
relating to the revocation or modification of any such certificate,
authorization or permit.
3.17 Key Employees. Each person whose name is set forth on Schedule
3.17 (each, a "Key Employee") is currently serving in the capacity indicated on
such schedule on a full-time basis. The Company has no knowledge of any fact or
circumstance (including without limitation (i) the terms of any agreement to
which such person is a party or any litigation in which such person is or may
become involved and (ii) any illness or medical condition that could reasonably
be expected to result in the disability or incapacity of such person) that would
limit or prevent any such person from serving in such capacity on a full-time
basis in the foreseeable future (it being understood that such representation is
not intended to apply to any illness or medical condition that could not
reasonably be expected to result in the disability or incapacity of such person,
even if such illness or medical condition ultimately results in such person's
disability or incapacity), or of any intention on the part of any such person to
limit or terminate his or her employment with the Company. For purposes hereof,
the term "knowledge" shall mean the actual knowledge of ▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇
▇▇▇▇▇ or ▇▇▇▇ ▇▇▇▇▇▇▇.
4. COVENANTS OF THE COMPANY.
4.1 Corporate Existence. The Company shall, so long as the
Purchaser or any affiliate of the Purchaser beneficially owns any Securities,
maintain its corporate existence in good standing and shall pay all taxes owed
by it when due except for taxes which the Company reasonably disputes.
4.2 Provision of Information. The Company shall, so long as the
Purchaser or any affiliate of the Purchaser beneficially owns any Purchased
Securities, provide the Purchaser with copies of all materials sent to
stockholders which are not otherwise available through the Commission's ▇▇▇▇▇
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database, in each such case promptly after the filing thereof with the
Commission.
4.3 Form D; Blue-Sky Qualification. To the extent that the Company
is relying on Regulation D under the Securities Act in selling the Purchased
Securities to the Purchaser hereunder, the Company agrees to file a Form D with
respect to the Purchased Securities as required under Regulation D and to
provide a copy thereof to the Purchaser promptly after such filing. The Company
shall take such action as is necessary to qualify the Purchased Securities for
sale under applicable state or "blue-sky" laws or obtain an exemption therefrom,
and shall provide evidence of any such action to the Purchaser at the
Purchaser's request.
4.4 Reporting Status. As long as the Purchaser or any affiliate of
the Purchaser beneficially owns any Securities and until the date on which any
of the foregoing may be sold to the public pursuant to Rule 144(k) (or any
successor rule or regulation), (i) the Company shall timely file with the
Commission all reports required to be so filed pursuant to the Exchange Act and
(ii) the Company shall not terminate its status as an issuer required by the
Exchange Act to file reports thereunder even if the Exchange Act or the rules or
regulations thereunder would permit such termination. The Company agrees (i) to
issue a press release describing the transactions contemplated by this Agreement
and the other Transaction Documents on or before the second (2nd) Business Day
following the Tranche A Closing Date and (ii) to file with the Commission a Form
8-K describing the terms of the transactions contemplated by this Agreement and
the other Transaction Documents, with this Agreement and all exhibits attached
to such Form 8-K as an exhibit thereto, on or before the fifth (5th) Business
Day following the Tranche A Closing Date in the form required by the Exchange
Act.
4.5 Reservation of Common Stock. The Company shall at all times
have authorized and reserved for issuance, free from any preemptive rights,
solely for the purpose of effecting conversions or exercises of the Purchased
Securities, such number of its shares of Common Stock as shall from time to time
be sufficient to effect the conversion or exercise of all of Purchased
Securities (the "Reserved Amount"). As of the Tranche A Closing Date, the
Reserved Amount shall be equal to no less than 200% of the number of shares of
Common Stock issuable upon conversion of the entire principal amount of the
Debenture and exercise in full of the Warrant to be issued at the Tranche A
Closing (assuming for such purpose that such conversion or exercise were to
occur as of the Tranche A Closing Date and without regard to any restriction or
limitation on such conversion or exercise). If, on any date, the Reserved Amount
is less than 175% of the number of shares of Common Stock then issuable upon
conversion of the entire principal amount of the Debentures, conversion of all
of the Preferred Shares then outstanding and exercise of all of the Warrants
then outstanding (assuming for such purpose that such conversion or exercise
were to occur as of such date and without regard to any restriction or
limitation on such conversion or exercise), the Company shall take action
(including without limitation seeking stockholder approval for the authorization
or reservation of additional shares of Common Stock) as soon as practicable (but
in no event later than the thirtieth (30th) day following such date) to increase
the Reserved Amount to no less than 200% of the number of shares of Common Stock
into which such Debentures, Preferred Shares and Warrants are then convertible
or exercisable, as the case may be. Until such time as all of the Debentures,
Preferred Shares and Warrants have been converted or exercised, the Company
shall not reduce the number of shares reserved for issuance hereunder
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without the Purchaser's prior written consent.
4.6 Use of Proceeds. The Company shall use the proceeds from the
sale of the Purchased Securities for general corporate purposes (including
corporate acquisitions) only, in the ordinary course of its business and
consistent with past practice, and shall not use such proceeds to make a loan to
any employee, officer or director of the Company or to repurchase or pay a
dividend on shares of Common Stock.
4.7 Quotation on Nasdaq. The Company shall (i) promptly following
the Tranche A Closing, take such action as may be necessary to include all of
the Conversion Shares and the Warrant Shares that may be issued by the Company
upon the conversion or exercise of the Purchased Securities on the Nasdaq
National Market, and (ii) use its reasonable commercial efforts to maintain the
designation and quotation, or listing, of the Common Stock on the Nasdaq
National Market or the NYSE for a minimum of five (5) years following the latest
to occur of the Tranche A Closing, Tranche B Closing and the Tranche C Closing.
4.8 Use of Purchaser Name. Except as may be required by applicable
law, the Company shall not use, directly or indirectly, the Purchaser's name or
the name of any of its affiliates in any advertisement, announcement, press
release or other similar communication unless it has received the prior written
consent of the Purchaser for the specific use contemplated (which consent will
not be unreasonably withheld) or as otherwise required by applicable law or
regulation.
4.9 Company's Instructions to Transfer Agent. On or prior to the
Closing Date, the Company shall execute and deliver irrevocable instructions to
its transfer agent (the "Transfer Agent") (i) to issue certificates representing
Conversion Shares upon conversion of the Debentures and receipt of a valid
Conversion Notice (as defined in the Debentures) from the Purchaser, in the
amount specified in such Conversion Notice, in the name of the Purchaser or its
nominee, (ii) to issue certificates representing Conversion Shares upon
conversion of the Preferred Shares in accordance with the terms of the Articles
of Amendment and receipt of a valid Conversion Notice (as defined in the
Articles of Amendment) from the Purchaser, in the amount specified in such
Conversion Notice, in the name of the Purchaser or its nominee, (iii) to issue
certificates representing the Warrant Shares upon the exercise of the Warrants,
and (iv) to deliver such certificates to the Purchaser no later than the close
of business on the third (3rd) Business Day following the related Conversion
Date (as defined in the Debentures or Articles of Amendment, as the case may be)
or Exercise Date (as defined in the Warrant). The Company shall instruct the
transfer agent that, in lieu of delivering physical certificates representing
shares of Common Stock to the Purchaser upon the conversion or exercise of the
Purchased Securities, and as long as (x) the Transfer Agent is a participant in
the Depository Trust Company ("DTC") Fast Automated Securities Transfer program,
and (y) the Purchaser has not informed the Company that it wishes to receive
physical certificates therefor, the transfer agent may effect delivery of
Conversion Shares or Warrant Shares, as the case may be, by crediting the
account of the Purchaser or its nominee at DTC for the number of shares for
which delivery is required hereunder within the time frame specified above for
delivery of certificates. The Company represents to and agrees with the
Purchaser that it will not give any instruction to the Transfer Agent that will
conflict
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with the foregoing instruction or otherwise restrict the Purchaser's right to
convert or exercise the Purchased Securities or to receive Conversion Shares or
Warrant Shares in accordance with the terms of the Purchased Securities. In the
event that the Company's relationship with the Transfer Agent should terminate
for any reason, the Company will use its best efforts to ensure that the
Transfer Agent shall continue acting as transfer agent pursuant to the terms
hereof until such time that a successor transfer agent is appointed by the
Company and receives the instructions described above.
4.10 Capital Raising Limitation. The Company agrees that it will
not, (A) (i) during the period beginning on the Tranche A Closing Date and
ending on the one hundred and eightieth (180th) day following the latest to
occur of the Tranche A Closing Date, the Tranche B Closing Date and the Tranche
C Closing Date, and (ii) at any time at which the Registration Statement (as
defined in the Registration Rights Agreement) is not yet declared effective by
the Commission or is not available to the Purchaser for the resale of all of the
Conversion Shares or Warrant Shares into which the Purchased Securities then
outstanding are convertible or exercisable (at the conversion or exercise price
then in effect and without regard to any restriction or limitation on such
conversion or exercise), offer for sale, issue or sell any Common Stock or any
other equity security of the Company (or any security convertible into, or
exercisable or exchangeable for, Common Stock or any such equity
security)(collectively, an "Equity Security"), other than the Equity Securities
described on Schedule 4.10, or (B) file a registration statement relating to any
Equity Security (other than the Conversion Shares or Warrant Shares) during the
period beginning on the Tranche A Closing Date and ending on the 270th day
following the date on which such Registration Statement is declared effective by
the Commission. The limitations described in (A) or (B) above shall not apply to
(x) any underwritten offering of securities made pursuant to a written
underwriting agreement with a nationally- or regionally-recognized investment
bank (an "Exempt Transaction"), (y) any issuance of securities or assumption of
debt made in connection with a merger, acquisition of or purchase of the assets
of another entity where the purpose of such issuance is not to raise equity
capital or (z) any issuance of warrants made to a bank or other commercial
lending institution in connection with a loan made to the Company by such bank
or institution, provided that the number of shares of Common Stock into which
such warrants are exercisable shall not exceed, individually or in the
aggregate, 1% of the number of shares of Common Stock issued and outstanding as
of the date of such issuance.
4.11 Right of First Offer. Prior to any offer or sale by the
Company of any Equity Securities (except in connection with an Exempt
Transaction) during the period beginning on the Tranche A Closing Date and
ending on the one year anniversary of the latest to occur of the Tranche A
Closing Date, the Tranche B Closing Date and the Tranche C Closing Date (the
"First Offer Period"), the Company must first deliver to the Purchaser written
notice describing the proposed issuance, including the terms and conditions
thereof, and provide the Purchaser with an option during the five (5) Business
Day period following delivery of such notice to purchase all or any portion of
the Equity Securities being offered on the same terms as contemplated by such
issuance. In the event that the Purchaser either does not give notice within
such five business day period that it intends to exercise the foregoing option
or informs the Company in writing that it does not intend to participate in all
or any portion of such issuance, the Company may offer to a third party the
option to purchase up to, in the aggregate,
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the amount of Equity Securities which were declined by the Purchaser, on the
same terms as were offered to the Purchaser.
4.12 Shareholder Approval. The Company agrees that it will (i) file
with the Commission, no later than the April 30, 1999, proxy solicitation
materials ("Proxy Materials") seeking the approval of the holders of a majority
of the Company's Common Stock for (x) the execution and filing of the Articles
of Amendment and (y) issuances of Conversion Shares and Warrant Shares in excess
of the Cap Amount (as defined in the Debentures or the Articles of Amendment, as
the case may be)("Shareholder Approval"), (ii) call and hold a meeting of its
shareholders for the purpose of voting on the proposals set forth in the Proxy
Materials on or before June 30, 1999 and (iii) recommend approval of such
proposals to its shareholders at such meeting.
5. CONDITIONS TO CLOSING.
5.1 Conditions to Purchaser's Obligations at Tranche A Closing.
The Purchaser's obligations at the Tranche A Closing, including without
limitation its obligation to purchase the Tranche A Debenture and Tranche A
Warrant at the Tranche A Closing, are conditioned upon the satisfaction by the
Company (or waiver by the Purchaser) of each of the following events as of the
Tranche A Closing Date:
5.1.1 the representations and warranties of the Company set
forth in this Agreement shall be true and correct in
all material respects as of such date as if made on
such date;
5.1.2 the Company shall have complied with or performed in
all material respects all of the agreements,
obligations and conditions set forth in this
Agreement that are required to be complied with or
performed by the Company on or before the Tranche A
Closing;
5.1.3 the Tranche A Closing Date shall occur on a date that
is not later than March 5, 1999;
5.1.4 the Company shall have delivered to the Purchaser a
certificate, signed by an officer of the Company,
certifying that the conditions specified in this
paragraph 5.1 have been fulfilled as of the Tranche A
Closing, it being understood that the Purchaser may
rely on such certificate as though it were a
representation and warranty of the Company made
herein;
5.1.5 the Company shall have delivered to the Purchaser an
opinion of counsel for the Company, dated as of such
date, in substantially the form set forth on Exhibit
5.1.5 hereto, and covering such additional matters as
may reasonably be requested by the Purchaser;
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5.1.6 the Company shall have delivered to the Purchaser
duly executed certificates representing the Tranche A
Debenture and Tranche A Warrant;
5.1.7 the Company shall have executed and delivered the
Registration Rights Agreement;
5.1.8 the Common Stock shall be designated for quotation on
the Nasdaq National Market and no suspension of
trading in the Common Stock on such market shall have
occurred and be continuing as of the Tranche A
Closing Date;
5.1.9 the Company shall have authorized and reserved for
issuance the number of shares of Common Stock
required to be reserved under paragraph 4.5 hereof;
5.1.10 the Company shall have delivered to the Purchaser
final drafts of each Schedule to this Agreement no
later than the close of business on the fifth (5th)
Business Day immediately prior to the Tranche A
Closing Date; and
5.1.11 the Transfer Agent shall have agreed in writing to
comply with the instructions described in paragraph
4.9 hereof and the Company shall have notified the
Purchaser in writing of the name, address, and
telephone and fax number of, and the name of a
contact person at, the Transfer Agent for the purpose
of delivering Conversion Notices (as defined in the
Debentures and the Articles of Amendment).
5.2 Conditions to Purchaser's Obligations at the Tranche B Closing. The
Purchaser's obligations at the Tranche B Closing, including without limitation
its obligation to purchase the Tranche B Debenture and the Tranche B Warrant at
the Tranche B Closing, are conditioned upon the fulfillment (or waiver by the
Purchaser) of each of the following events (the "Tranche B Closing Conditions")
as of the Tranche B Closing Date:
5.2.1 the representations and warranties of the Company set
forth in this Agreement shall be true and correct in
all material respects as of such date as if made on
such date;
5.2.2 the Company shall have complied with or performed in
all material respects all of the agreements,
obligations and conditions set forth in this
Agreement, the Registration Rights Agreement, the
Tranche A Debenture and the Tranche A Warrant, that
are required to be complied
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with or performed by the Company at any time prior to
the Tranche B Closing;
5.2.3 the Company shall have delivered to the Purchaser a
certificate, signed by an officer of the Company,
certifying that the conditions specified in this
paragraph 5.2 have been fulfilled as of the Tranche B
Closing, it being understood that the Purchaser may
rely on such certificate as though it were a
representation and warranty of the Company made
herein;
5.2.4 the Company shall have delivered to the Purchaser an
opinion of counsel for the Company, dated as of such
date, in substantially the form set forth on Exhibit
5.2.4 hereto, and covering such additional matters as
may reasonably be requested by the Purchaser;
5.2.5 the Company shall have delivered to the Purchaser a
duly executed Tranche B Debenture or certificates
representing the Tranche B Preferred Shares, as the
case may be, and the Tranche B Warrant;
5.2.6 the Common Stock shall be designated for quotation
and actively traded on the Nasdaq National Market;
5.2.7 there shall have been no material adverse change in
the Company's consolidated business or financial
condition since the Tranche A Closing Date;
5.2.8 the Company shall have authorized and reserved for
issuance not less than two hundred percent (200%) of
the aggregate number of shares of Common Stock
issuable upon conversion or exercise of (i) all of
the Tranche A Debentures and Tranche A Warrants then
outstanding and (ii) the Tranche B Debenture or
Tranche B Preferred Shares, as the case may be, and
the Tranche B Warrant (such number to be determined
using the Conversion Price or exercise price in
effect on the date of such Closing and without regard
to any restriction or limitation on such conversion
or exercise);
5.2.9 the Registration Statement (as defined in the
Registration Rights Agreement) shall have been
declared effective by the one hundred and twentieth
(120th) day following the Tranche A Closing Date and
shall be available on the Tranche B Closing Date and
at all times during the Tranche B Trigger Period (as
defined below) for the sale by the Purchaser of not
less than one hundred and seventy five percent (175%)
of the aggregate number of shares of Common Stock
issuable upon
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conversion or exercise of (i) the Tranche A Debenture
and Tranche A Warrant then outstanding and (ii) the
Tranche B Debenture and Tranche B Warrant (such
number to be determined using the Conversion Price or
exercise price in effect on the date of such Closing
and without regard to any restriction or limitation
on such conversion or exercise), and no proceedings
shall have been instituted by any government agency
or self regulatory organization for the purpose of or
in connection with issuing a stop order or other
restraint on the use of such Registration Statement;
5.2.10 a Mandatory Redemption Event (as defined in the
Tranche A Debenture) shall not have occurred and be
continuing;
5.2.11 the Closing Bid Price (as defined in the Tranche A
Debenture) for the Common Stock must be greater than
five dollars ($5.00) (subject to adjustment for the
events specified in Section 3 of the Tranche A
Debenture) on each Trading Day during any period of
ten consecutive Trading Days occurring prior to the
Tranche B Expiration Date (the "Tranche B Trigger
Period"); and
5.2.12 the Company shall have obtained a line of credit in
the amount of at least five million dollars
($5,000,000) and the full amount of such line of
credit shall be available to the Company without
condition or limitation on the Tranche B Closing
Date.
5.3 Conditions to Purchaser's Obligations at the Tranche C Closing. The
Purchaser's obligations at the Tranche C Closing, including without limitation
its obligation to purchase the Tranche C Debenture or Tranche C Preferred
Shares, as the case may be, and the Tranche C Warrant at the Tranche C Closing,
are conditioned upon the fulfillment (or waiver by the Purchaser) of each of the
following events (the "Tranche C Closing Conditions") as of the Tranche C
Closing Date:
5.3.1 the representations and warranties of the Company set
forth in this Agreement shall be true and correct in
all material respects as of such date as if made on
such date;
5.3.2 the Company shall have complied with or performed in
all material respects all of the agreements,
obligations and conditions set forth in this
Agreement, the Registration Rights Agreement, the
Debentures and Warrants then outstanding and, if
applicable, the Articles of Amendment, that are
required to be complied with or performed by the
Company at any time prior to the Tranche C Closing;
5.3.3 the Company shall have delivered to the Purchaser a
certificate, signed by an officer of the Company,
certifying that the conditions specified in
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this paragraph 5.3 have been fulfilled as of the
Tranche C Closing, it being understood that the
Purchaser may rely on such certificate as though it
were a representation and warranty of the Company
made herein;
5.3.4 the Company shall have delivered to the Purchaser an
opinion of counsel for the Company, dated as of such
date, in substantially the form set forth on Exhibit
5.3.4 hereto, and covering such additional matters as
may reasonably be requested by the Purchaser;
5.3.5 the Company shall have delivered to the Purchaser a
duly executed Tranche C Debenture or certificates
representing the Tranche C Preferred Shares, as the
case may be, and the Tranche C Warrants;
5.3.6 the Common Stock shall be designated for quotation
and actively traded on the Nasdaq National Market;
5.3.7 there shall have been no material adverse change in
the Company's consolidated business or financial
condition since the Tranche A Closing Date ;
5.3.8 the Company shall have authorized and reserved for
issuance not less than two hundred percent (200%) of
the aggregate number of shares of Common Stock
issuable upon conversion or exercise of (i) all of
the Purchased Securities then outstanding and (ii)
the Tranche C Debenture or Tranche C Preferred
Shares, as the case may be, and Tranche C Warrant to
be issued at such Closing (such number to be
determined using the Conversion Price or exercise
price in effect on the date of such Closing and
without regard to any restriction or limitation on
such conversion or exercise);
5.3.9 the Registration Statement (as defined in the
Registration Rights Agreement) shall have been
declared effective and shall be available on the
Tranche C Closing Date and at all times during the
Tranche C Trigger Period (as defined below) for the
sale by the Purchaser of not less than one hundred
and seventy five percent (175%) of the aggregate
number of shares of Common Stock issuable upon
conversion or exercise of (i) all of the Purchased
Securities then outstanding and (ii) the Tranche C
Debenture, or Tranche C Preferred Shares, as the case
may be, and Tranche C Warrant to be issued at such
Closing (such number to be determined using the
Conversion Price or exercise price in effect on the
date of such Closing and without regard to any
restriction or limitation on such conversion or
exercise), and no proceedings shall
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have been instituted by any government agency or self
regulatory organization for the purpose of or in
connection with issuing a stop order or other
restraint on the use of such Registration Statement;
5.3.10 a Mandatory Redemption Event (as defined in the
Debentures or the Articles of Amendment) shall not
have occurred and be continuing;
5.3.11 the Tranche C Closing shall occur no later than the
third (3rd) Business Day immediately following
delivery of the Tranche C Notice by the Corporation
to the Holder;
5.3.12 the Closing Bid Price (as defined in the Debentures
or the Articles of Amendment) for the Common Stock
either (i) must be greater than nine dollars ($9.00)
(subject to adjustment for the events specified in
Section 3 of the Debentures) during any period of ten
(10) consecutive Trading Days beginning on or after
the tenth Trading Day immediately preceding the last
day of the Tranche C Waiting Period and prior to the
Tranche C Expiration Date or (ii) must be (x) greater
than six dollars ($6.00) (subject to adjustment for
the events specified in Section 3 of the Debentures)
during any period of ten (10) consecutive Trading
Days beginning on or after the tenth Trading Day
immediately preceding the last day of the Tranche C
Waiting Period and prior to the Tranche C Expiration
Date and (y) at least twenty-five percent (25%)
greater than the average Closing Bid Price for the
Common Stock during the ten Trading Days occurring
immediately prior to the last day of the Tranche C
Waiting Period (the ten consecutive Trading Day
periods described in (i) and (ii)(x) above (assuming
in the case of the period described in (ii)(x) that
the condition described in (ii)(y) above is also
satisfied) each being referred to herein as a
"Tranche C Trigger Period"); and
5.3.13 the Tranche B Closing shall have occurred.
5.4 Conditions to Company's Obligations at each Closing. The
Company's obligations at each Closing are conditioned upon the satisfaction (or
waiver by the Company) of each of the following events as of each Closing Date:
5.4.1 the representations and warranties of the Purchaser
shall be true and correct in all material respects as
of such date as if made on such date;
5.4.2 the Purchaser shall have complied with or performed
all of the agreements, obligations and conditions set
forth in this Agreement that are required to be
complied with or performed by the Purchaser on or
before such Closing; and
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5.4.3 the Purchaser shall have delivered to the
Company a certificate, signed by an officer
of the Purchaser, certifying that the
conditions specified in this paragraph 5.4
have been fulfilled as of such Closing.
6. MISCELLANEOUS.
6.1 Survival. The representations and warranties made by
the parties herein shall survive each Closing and the Exchange notwithstanding
any due diligence investigation made by or on behalf of the party seeking to
rely thereon. In the event that any provision of this Agreement becomes or is
declared by a court of competent jurisdiction to be illegal, unenforceable or
void, this Agreement shall continue in full force and effect without said
provision; provided that in such case the parties shall negotiate in good faith
to replace such provision with a new provision which is not illegal,
unenforceable or void, as long as such new provision does not materially change
the economic benefits of this Agreement to the parties. The Company agrees that
it will indemnify and hold harmless the Purchaser for any loss, claim,
liability, damage or expense, as incurred by the Purchaser, arising out of or in
connection with a breach by the Company of any representation, warranty or
agreement made herein or in any other Transaction Document.
6.2 Successors and Assigns. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
successors and permitted assigns of the parties. Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and permitted assigns any rights,
remedies, obligations or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement. The Purchaser may assign its
rights and obligations hereunder (except for its obligation to purchase
Securities at the Tranche B Closing or the Tranche C Closing, which it may not
assign), in connection with any private sale or transfer of Purchased Securities
pursuant to Section 2.2 and in accordance with the terms hereof and of such
Purchased Securities, as long as, as a condition precedent to such transfer, the
transferee executes an acknowledgment agreeing to be bound by the applicable
provisions of this Agreement, in which case the term "Purchaser" shall be deemed
to refer to such transferee as though such transferee were an original signatory
hereto. The Company may not assign it rights or obligations under this
Agreement.
6.3 No Reliance. Each party acknowledges that (i) it has
such knowledge in business and financial matters as to be fully capable of
evaluating this Agreement, the other Transaction Documents and the transactions
contemplated hereby and thereby, (ii) it is not relying on any advice or
representation of the other party in connection with entering into this
Agreement, the other Transaction Documents or such transactions (other than the
representations made in this Agreement or the other Transaction Documents),
(iii) it has not received from such party any assurance or guarantee as to the
merits (whether legal, regulatory, tax, financial or otherwise) of entering into
this Agreement or the other Transaction Documents or the performance of its
obligations hereunder and thereunder, and (iv) it has consulted with its own
legal, regulatory, tax, business, investment, financial and accounting advisors
to the extent that it has deemed necessary, and has entered into this Agreement
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and the other Transaction Documents based on its own independent judgment and on
the advice of its advisors as it has deemed necessary, and not on any view
(whether written or oral) expressed by such party.
6.4 Injunctive Relief. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to the
Purchaser and that the remedy or remedies at law for any such breach will be
inadequate.
6.5 Governing Law; Jurisdiction. This Agreement shall be
governed by and construed under the laws of the State of New York without regard
to the conflict of laws provisions thereof. Each party hereby irrevocably
submits to the non-exclusive jurisdiction of the state and federal courts
sitting in the City of New York, borough of Manhattan, for the adjudication of
any dispute hereunder or in connection herewith or with any transaction
contemplated hereby or discussed herein, and hereby irrevocably waives, and
agrees not to assert in any suit, action or proceeding, any claim that it is not
personally subject to the jurisdiction of any such court, that such suit, action
or proceeding is brought in an inconvenient forum or that the venue of such
suit, action or proceeding is improper. Each party hereby irrevocably waives
personal service of process and consents to process being served in any such
suit, action or proceeding by mailing a copy thereof (certified or registered
mail, return receipt requested) to such party at the address in effect for
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law.
6.6 Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, and all of
which together shall constitute one and the same instrument.
6.7 Headings. The headings used in this Agreement are
used for convenience only and are not to be considered in construing or
interpreting this Agreement.
6.8 Notices. Any notice, demand or request required or
permitted to be given by any party to any other party pursuant to the terms of
this Agreement shall be in writing and shall be deemed given (i) when delivered
personally or by verifiable facsimile transmission (with an original to follow)
on or before 5:00 p.m., eastern time, on a Business Day or, if such day is not a
Business Day, on the next succeeding Business Day, (ii) on the next Business Day
after timely delivery to a nationally-recognized overnight courier and (iii) on
the Business Day actually received if deposited in the U.S. mail (certified or
registered mail, return receipt requested, postage prepaid), addressed to the
parties as follows:
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If to the Company:
Alydaar Software Corporation
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: J. ▇▇▇▇ ▇▇▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
McGuire, Woods, Battle & ▇▇▇▇▇▇ LLP
Bank of America Corporate Center
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇, Esq.
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
and if to the Purchaser, to such address as shall be designated by the Purchaser
in writing to the Company.
6.9 Expenses. The Company and the Purchaser each shall
pay all costs and expenses that it incurs in connection with the negotiation,
execution, delivery and performance of this Agreement; provided, however, that
the Company shall reimburse the Purchaser for all documented out-of-pocket
expenses (including without limitation reasonable legal fees and expenses)
incurred by it in connection its due diligence investigation of the Company and
the negotiation, preparation, execution, delivery and performance of the
Debentures, the Articles of Amendment, this Agreement and the other Transaction
Documents in the amount of thirty-five thousand dollars ($35,000).
6.10 Entire Agreement; Amendments; Waiver. This Agreement
and the other Transaction Documents constitute the entire agreement between the
parties with regard to the subject matter hereof and thereof, superseding all
prior agreements or understandings, whether written or oral, between or among
the parties. Except as expressly provided herein, neither this Agreement nor any
term hereof may be amended except pursuant to a written instrument executed by
the Company and the Purchaser or, in the event that, as a result of an
assignment of this Agreement pursuant to the terms hereof, there exists more
than one Purchaser, by the Company and the Purchasers holding a majority of
either (i) the unpaid principal amount of the Debentures then outstanding or
(ii) the number of Preferred Shares then outstanding.
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the date first-above written.
ALYDAAR SOFTWARE CORPORATION
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
----------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Chief Executive Officer
▇▇▇▇▇▇▇▇ CAPITAL MANAGEMENT, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
----------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇
President
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EXHIBIT A TO SECURITIES
PURCHASE AGREEMENT
THIS DEBENTURE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR ANY STATE SECURITIES LAW, AND MAY NOT BE
OFFERED FOR SALE OR SOLD UNLESS A REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS SHALL BE EFFECTIVE WITH RESPECT THERETO, OR AN
EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE
SECURITIES LAWS IS AVAILABLE IN CONNECTION WITH SUCH OFFER OR SALE.
ALYDAAR SOFTWARE CORPORATION
6% CONVERTIBLE EXCHANGEABLE DEBENTURE
New York, New York $[3][2],000,000
[insert date]
FOR VALUE RECEIVED, ALYDAAR SOFTWARE CORPORATION, a North Carolina
corporation (the "Corporation"), hereby promises to pay to the order of ▇▇▇▇▇▇▇▇
Capital Management, Inc. or its permitted assignees (the "Holder") the sum of
[THREE][TWO] MILLION DOLLARS ($[3][2],000,000) in same day funds, on or before
[the fifth anniversary of the Issue Date] (the "Maturity Date"), and to pay
interest thereon, as provided herein. Amounts of principal of and, in certain
circumstances, interest on the Debentures will be convertible into shares
("Conversion Shares") of the Corporation's Common Stock, par value $.001
("Common Stock"), on the terms and subject to the conditions set forth herein.
This Debenture is exchangeable, at the Corporation's option and on the terms and
subject to the conditions specified herein, for shares (the "Preferred Shares")
of the Corporation's Series A Convertible Preferred Stock, par value $.001 per
share (the "Preferred Stock"). Upon issuance of the Preferred Stock, the terms
thereof will be set forth in Articles of Amendment to the Corporation's Articles
of Incorporation, the form of which is attached to the Securities Purchase
Agreement (as defined below) as Exhibit C (the "Articles of Amendment").
The Corporation has issued this Debenture pursuant to a Securities
Purchase Agreement, dated as of March 3, 1999 (the "Securities Purchase
Agreement"), together with a related warrant (the "Warrant"), and has granted
certain registration rights pursuant to the terms of a Registration Rights
Agreement, dated as of March 3, 1999 (the "Registration Rights Agreement").
Pursuant to the Securities Purchase Agreement, the Corporation may issue
additional debentures to the Holder with substantially the same terms as this
Debenture (together with this Debenture, the "Debentures") and an additional
warrant with substantially the same terms as the Warrant (together with the
Warrant, the "Warrants"). The date on which this Debenture is issued is referred
to herein as the "Issue Date".
The following terms shall apply to this Debenture:
25
1. INTEREST.
This Debenture shall bear interest on the unpaid principal amount
hereof ("Interest") at an annual rate of six percent (6%) from the Issue Date,
computed on the basis of a 360-day year of twelve 30-day months for the actual
number of days elapsed. Interest accrued on principal of this Debenture shall be
due and payable on the date (the "Conversion Date") on which such principal is
converted into Common Stock hereunder (in which case Interest will be payable
only with respect to the amount of such principal converted), on the Maturity
Date and on any other date on which Interest is required to be paid pursuant to
the terms hereof (each, an "Interest Payment Date"). As more specifically
described below, subject to the satisfaction (or waiver by the Holder) of the
Interest Conversion Conditions (as defined below), Interest accrued hereon will
be converted into Conversion Shares on each Conversion Date.
2. CONVERSION.
(a) Right to Convert. Subject to the conditions and limitations
specifically provided herein, the Holder shall have the right from and after the
date that is ninety (90) days following the Tranche A Closing Date (as defined
below)(the "Initial Conversion Date") to convert at any time and from time to
time all or any part of the outstanding and unpaid principal amount of this
Debenture into fully paid and non-assessable Conversion Shares, free and clear
of any liens, claims, preemptive rights or encumbrances imposed by or through
the Corporation (a "Conversion").
(b) Certain Definitions. "Trading Day" means any day on which the
Common Stock is purchased and sold on the principal securities exchange or
market on which the Common Stock is then listed or traded. "Closing Bid Price"
means, with respect to the Common Stock, the closing bid price for the Common
Stock occurring on a given Trading Day on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or, if Bloomberg Financial Markets is not then reporting such
prices, by a comparable reporting service of national reputation selected by the
Corporation and reasonably acceptable to the Holder, and approved by the
holders, if any, of a majority of the principal amount of the Debentures (other
than this Debenture) then outstanding (collectively, "Bloomberg") or if the
foregoing does not apply, the last reported bid price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no bid price is reported for such security by
Bloomberg, the average of the bid prices of all market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau, Inc.
(collectively, the "Applicable Reporting Entity"). If the Closing Bid Price
cannot be calculated for such security on any of the foregoing bases, the
Closing Bid Price of such security shall be the fair market value as reasonably
determined by an investment banking firm selected by the Holder, and approved by
the holders, if any, of a majority of the principal amount of the Debentures
(other than this Debenture) then outstanding, and reasonably acceptable to the
Corporation, with the costs of such appraisal to be borne by the Corporation.
"Closing Trade Price" means, with respect to the Common Stock, the last sale
price reported for the Common Stock on a given Trading Day on the principal
securities exchange or trading market where such security is listed or traded as
reported by the Applicable Reporting Entity or if no sale price was reported by
the Applicable Reporting Entity on such Trading Day, the last sale price
reported by the Applicable Reporting Entity on the Trading Day on which such
prices were last reported immediately preceding such Trading Day. "Business Day"
means any day on which the New York Stock Exchange and
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26
commercial banks located in the cities of New York and Charlotte, North Carolina
are open for business. "Tranche A Closing Date", "Tranche B Closing Date" and
"Tranche C Closing Date" each has the meaning specified in the Securities
Purchase Agreement.
(c) Conversion Notice. In order to convert the principal amount of
this Debenture, or any portion thereof, the Holder shall send by facsimile
transmission (and confirm such transmission by telephone or voicemail message),
at any time prior to 7:00 p.m., eastern time, on the Business Day on which the
Holder wishes to effect such Conversion (the "Conversion Date"), a notice of
conversion to the Corporation and to its designated transfer agent for the
Common Stock (the "Transfer Agent") stating the principal amount to be
converted, the amount of Interest accrued on such principal amount up to and
including the Conversion Date, the applicable Conversion Price and a calculation
of the number of shares of Common Stock issuable upon such Conversion (a
"Conversion Notice"). The Holder shall not be required to physically surrender
this Debenture to the Corporation in order to effect a Conversion. The
Corporation shall maintain a record showing, at any given time, the unpaid
principal amount of this Debenture and the date of each Conversion or other
payment of principal hereof. The Holder shall amend Annex I hereto upon any such
Conversion or payment of principal to reflect the unpaid principal amount
hereof. In the case of a dispute as to the calculation of the Conversion Price
or the number of Conversion Shares issuable upon a Conversion, the Corporation
shall promptly issue to the Holder the number of Conversion Shares that are not
disputed and shall submit the disputed calculations to its independent
accountants within two (2) Business Days of receipt of the Holder's Conversion
Notice. The Corporation shall cause such accountant to calculate the Conversion
Price as provided herein and to notify the Corporation and the Holder of the
results in writing no later than two (2) Business Days following the day on
which such accountant received the disputed calculations (the "Dispute
Procedure"). Such accountant's calculation shall be deemed conclusive absent
manifest error. The fees of any such accountant shall be borne by the party
whose calculations are most at variance with those of such accountant.
(d) Number of Conversion Shares; Conversion Price. The number of
Conversion Shares to be delivered by the Corporation pursuant to a Conversion
shall be determined in accordance with the following formula:
P + I
-----
CP
where P represents the principal amount of this Debenture to be
converted as set forth in the related Conversion Notice,
I represents the Interest accrued on such principal amount;
provided, however, that, unless each Interest Conversion
Condition (as defined in paragraph 2(g) below) is satisfied or
waived by the Holder, the Corporation may not pay accrued
Interest in Conversion Shares and must pay such Interest on
the applicable Delivery Date (as defined below) in immediately
available funds, and
CP represents the Conversion Price (as defined below) in
effect on the applicable Conversion Date.
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27
Subject to adjustment as provided elsewhere herein, "Conversion Price"
shall mean the lesser of the Fixed Conversion Price and the Market Conversion
Price (each as defined below). "Fixed Conversion Price" means (i) initially, the
average Closing Bid Price for the Common Stock during the period of ten (10)
Trading Days occurring immediately prior to the Tranche A Closing Date [NOTE: IN
THE EVENT THAT A DEBENTURE IS ISSUED AT THE TRANCHE C CLOSING, THE IMMEDIATELY
PRECEDING WORDS "TRANCHE A CLOSING DATE" IN SUCH DEBENTURE WILL BE REPLACED WITH
THE WORDS "TRANCHE C CLOSING DATE"] times one hundred and forty percent
(140%)(as adjusted from time to time for the events specified in Section 3
below) and (ii) during each period of ninety (90) days (each, a "Fixed Reset
Period") beginning on the one hundred and eighty first (181st) day following the
Tranche A Closing Date [NOTE: IN THE EVENT THAT A DEBENTURE IS ISSUED AT THE
TRANCHE C CLOSING, THE IMMEDIATELY PRECEDING WORDS "TRANCHE A CLOSING DATE" IN
SUCH DEBENTURE WILL BE REPLACED WITH THE WORDS "TRANCHE C CLOSING DATE"], the
Fixed Conversion Price shall be equal to the average Closing Bid Price for the
Common Stock during the period of ten (10) Trading Days occurring immediately
prior to the first day of such Fixed Reset Period times one hundred and one
percent (101%)(as adjusted from time to time for the events specified in Section
3 below)(the "Reset Fixed Conversion Price"); provided, however, that the Reset
Fixed Conversion Price will apply to a Fixed Reset Period only if such price is
equal to or less than the Fixed Conversion Price that applied during the
immediately preceding period; otherwise, the Fixed Conversion Price that applied
during the immediately preceding period will remain in effect during such Fixed
Reset Period. Notwithstanding the foregoing, if during the ninety-day period
following the Tranche A Closing Date, the Closing Trade Price for the Common
Stock is less than $7.00 for five (5) consecutive Trading Days (subject to
adjustment for the events specified in Section 3 below) the Fixed Conversion
Price for all Conversions thereafter shall be equal to the lesser of (A) the
amount determined in accordance with the immediately preceding sentence and (B)
the average of the five (5) lowest consecutive Closing Trade Prices for the
Common Stock occurring during the ninety-day period following the Tranche A
Closing Date times one hundred and four percent (104%)(subject to adjustment for
the events specified in Section 3 below). "Market Conversion Price" means (i)
initially, the average Closing Bid Price for the Common Stock during the period
of ten (10) Trading Days occurring immediately prior to the Initial Conversion
Date [NOTE: IN THE EVENT THAT A DEBENTURE IS ISSUED AT THE TRANCHE C CLOSING,
THE IMMEDIATELY PRECEDING WORDS "INITIAL CONVERSION DATE" IN SUCH DEBENTURE WILL
BE REPLACED WITH THE WORDS "THE NINETIETH (90TH) DAY FOLLOWING THE TRANCHE C
CLOSING DATE"] times one hundred and four percent (104%)(as adjusted from time
to time for the events specified in Section 3 below) and (ii) during each period
of thirty (30) days (each, a "Market Reset Period") beginning on the thirty
first (31st) day following the Initial Conversion Date [NOTE: IN THE EVENT THAT
A DEBENTURE IS ISSUED AT THE TRANCHE C CLOSING, THE IMMEDIATELY PRECEDING WORDS
"THIRTY FIRST (31ST) DAY FOLLOWING THE INITIAL CONVERSION DATE" IN SUCH
DEBENTURE WILL BE REPLACED WITH THE WORDS "THE ONE HUNDRED AND TWENTY FIRST
(121ST) DAY FOLLOWING THE TRANCHE C CLOSING DATE"], the Market Conversion Price
shall be equal to the average Closing Bid Price for the Common Stock during the
period of ten (10) Trading Days occurring immediately prior to the first day of
such Market Reset Period times one hundred and four percent (104%)(as adjusted
from time to time for the events specified in Section 3 below)(the "Reset Market
Conversion Price"); provided, however, that the Reset Market Conversion Price
will apply to a Market Reset Period only if such price is equal to or less than
the Market Conversion Price that applied during the immediately preceding
period; otherwise, the Market Conversion Price that applied during the
immediately preceding period will remain in effect during such Market Reset
Period.
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(e) Delivery of Common Stock Upon Conversion. Upon receipt of a
Conversion Notice pursuant to paragraph 2(c) above, the Corporation shall, no
later than the close of business on the third (3rd) Business Day following the
Conversion Date set forth in such Conversion Notice (the "Delivery Date"), issue
and deliver or caused to be delivered to the Holder the number of Conversion
Shares determined pursuant to paragraph 2(d) above, provided, however, that any
Conversion Shares that are the subject of a Dispute Procedure shall be delivered
no later than the close of business on the third (3rd) Business Day following
the determination made pursuant thereto. The Corporation shall effect delivery
of Conversion Shares to the Holder by, as long as the Transfer Agent
participates in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer program ("FAST"), crediting the account of the Holder or its nominee at
DTC (as specified in the applicable Conversion Notice) with the number of
Conversion Shares required to be delivered, no later than the close of business
on such Delivery Date. In the event that the Transfer Agent is not a participant
in FAST or if the Holder so specifies in a Conversion Notice or otherwise in
writing on or before the Conversion Date, the Corporation shall effect delivery
of Conversion Shares by delivering to the Holder or its nominee physical
certificates representing such Conversion Shares, no later than the close of
business on such Delivery Date. If any Conversion would create a fractional
Conversion Share, such fractional Conversion Share shall be disregarded and the
number of Conversion Shares issuable upon such Conversion, in the aggregate,
shall be the next higher number of Conversion Shares. Conversion Shares
delivered to the Holder shall not contain any restrictive legend as long as the
resale of such Conversion Shares (A) is covered by an effective Registration
Statement (as defined in the Registration Rights Agreement), (B) has been made
pursuant to Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"), or (C) may be made pursuant to Rule 144(k) under the
Securities Act or any successor rule or provision.
(f) Failure to Deliver Conversion Shares.
(i) In the event that the Corporation fails for any
reason to deliver to the Holder the number of Conversion Shares specified in the
applicable Conversion Notice on or before the Delivery Date therefor (a
"Conversion Default"), and such default continues for seven (7) Business Days
following delivery of a written notice of such default by the Holder to the
Corporation, the Corporation shall pay to the Holder payments ("Conversion
Default Payments") in the amount of (i) (N/365) multiplied by (ii) the unpaid
principal amount of this Debenture represented by the Conversion Shares which
remain the subject of such Conversion Default multiplied by (iii) the lower of
twenty-four percent (24%) and the maximum rate permitted by applicable law (the
"Default Interest Rate"), where "N" equals the number of days elapsed between
the original Delivery Date of such Conversion Shares and the earlier to occur of
(A) the date on which all of such Conversion Shares are issued and delivered to
the Holder and (B) the date on which the principal amount represented thereby is
redeemed pursuant to the terms of this Debenture. Cash amounts payable hereunder
shall be paid on or before the fifth (5th) Business Day of the calendar month
following the calendar month in which such amount has accrued.
(ii) In the event that the Holder has not received
certificates representing the Conversion Shares by the seventh (7th) Business
Day following a Conversion Default, the Holder may, upon written notice to the
Corporation (a "Conversion Default Notice"), regain on the date of such notice
the rights of the Holder of this Debenture with respect to the Conversion Shares
that are the subject of such Conversion Default, in which case the Market
Conversion Price upon any
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subsequent conversion of the portion of this Debenture that is the subject of
such Conversion Default will be equal to the lesser of (x) the lowest Conversion
Price occurring during the period beginning on related Delivery Date and ending
on the date on which the Conversion Default Notice is delivered to the
Corporation and (y) the Conversion Price in effect on the applicable Conversion
Date (it being understood that the Holder may deliver a Conversion Notice at any
time following delivery of a Conversion Default Notice to the Corporation). In
such event, the Holder shall retain all of the Holder's rights and remedies with
respect to the Corporation's failure to deliver such Conversion Shares
(including without limitation the right to receive the cash payments specified
in subparagraph 2(f)(i) above).
(iii) Nothing herein shall limit the Holder's right to
pursue actual damages for the Corporation's failure to issue and deliver
Conversion Shares on the applicable Delivery Date (including, without
limitation, damages relating to any purchase of Common Stock by the Holder to
make delivery on a sale effected in anticipation of receiving Conversion Shares
upon Conversion, such damages to be in an amount equal to (A) the aggregate
amount paid by the Holder for the Common Stock so purchased minus (B) the
aggregate amount of net proceeds, if any, received by the Holder from the sale
of the Conversion Shares issued by the Corporation pursuant to such Conversion),
and the Holder shall have the right to pursue all remedies available to it at
law or in equity (including, without limitation, a decree of specific
performance and/or injunctive relief); provided, however, that, in the event,
following a Conversion Default, the Corporation delivers to the Holder the
Conversion Shares that are required to be issued by the Corporation pursuant to
such Conversion, the Holder shall use commercially reasonable efforts to sell
such shares promptly following such delivery.
(g) Interest Conversion Conditions. The Corporation's right to pay
accrued Interest in Conversion Shares upon Conversion of principal of this
Debenture is conditioned upon the satisfaction of each of the following
conditions (the "Interest Conversion Conditions"):
(i) no Mandatory Redemption Event (as defined herein), or
an event that with the passage of time would constitute a Mandatory Redemption
Event has occurred and is continuing; and
(ii) such payment of Interest in Conversion Shares will
not violate the limitations set forth in paragraph 2(h) below.
In the event that any Interest Conversion Condition is not satisfied as of a
Conversion Date, the Interest accrued on such principal amount shall be payable
by the Corporation to the Holder in immediately available funds on the Delivery
Date immediately following such Conversion Date. If the Corporation fails to
deliver the amount of such Interest in immediately available funds to the Holder
on or before the close of business on the Delivery Date therefor, such amount
will bear interest at the Default Interest Rate.
(h) Limitations on Right to Convert.
In no event shall the Holder be permitted to convert principal of this
Debenture in excess of that amount of principal upon the Conversion of which:
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(A) the number of Conversion Shares to be issued pursuant to such
Conversion, when added to the number of shares of Common Stock issued pursuant
to all prior Conversions of this Debenture, would exceed 19.99% of the number of
outstanding shares of Common Stock on the Tranche A Closing Date (subject to
equitable adjustment from time to time for the events described in Section 3
below) (the "Cap Amount"), except that such limitation shall not apply in the
event that (i) the Corporation obtains the approval of its stockholders as
required by NASD Rule 4460 (or any successor rule or regulation) for issuances
of Common Stock in excess of the Cap Amount or (ii) the Holder obtains an
opinion of counsel reasonably satisfactory to the Corporation that such approval
is not required. In the event that the Holder shall sell or otherwise transfer
all or any portion of this Debenture, the transferee shall be allocated a pro
rata portion of the Cap Amount. In the event that following a sale or transfer
of a portion of this Debenture, the Holder converts all of the remaining
principal amount of this Debenture into a number of Conversion Shares which, in
the aggregate, is less than the remaining portion of the Cap Amount, then the
difference between such remaining portion of the Holder's Cap Amount and the
number of Conversion Shares actually issued to the Holder shall be allocated to
the respective Cap Amounts of the remaining transferee or transferees.
(B) (x) the number of shares of Common Stock beneficially owned by
the Holder (other than Common Stock which may be deemed beneficially owned
except for being subject to a limitation on conversion or exercise analogous to
the limitation contained in this subparagraph (B)) plus (y) the number of shares
of Common Stock issuable upon the Conversion of such principal amount is equal
to or exceeds (z) 4.99% of the number of shares of Common Stock then issued and
outstanding. Nothing contained herein shall be deemed to restrict the right of
the Holder to convert such excess principal amount at such time as such
Conversion will not violate the provisions of this subparagraph (B). As used
herein, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and the rules
thereunder. To the extent that the limitation contained in this subparagraph (B)
applies, the determination of whether principal of this Debenture is convertible
shall be in the sole discretion of the Holder, and the submission of a
Conversion Notice shall be deemed to be the Holder's determination that the
principal amount specified therein is convertible pursuant to the terms hereof,
and the Corporation shall have no right or obligation whatsoever to verify or
confirm the accuracy of such determination. This paragraph may not be amended
without the further consent of the holders of a majority of the shares of Common
Stock then outstanding. The restriction contained in this subparagraph (B) shall
not apply in the event of a Conversion at Maturity.
(i) Conversion at Maturity. On the Maturity Date, the entire
outstanding principal amount of this Debenture, together with all interest
accrued hereon, shall be automatically converted into shares of Common Stock at
the Conversion Price in effect on the Maturity Date. If such Conversion occurs,
the Corporation and the Holder shall follow the procedures for conversion set
forth in this Section 2, with the Maturity Date deemed to be the Conversion
Date, except that the Holder shall not be required to send a Conversion Notice
pursuant to paragraph 2(c).
3. ADJUSTMENTS TO CONVERSION PRICE.
(a) Adjustment to Conversion Price Due to Stock Split, Stock
Dividend, Etc. If, prior to the Conversion of the entire principal amount of
this Debenture, (A) the number of outstanding
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shares of Common Stock is increased by a stock split, a stock dividend on the
Common Stock, a reclassification of the Common Stock, the distribution to all or
substantially all of the holders of Common Stock of rights or warrants entitling
them to subscribe for or purchase Common Stock at less than the then current
market price thereof (based upon the subscription or exercise price of such
rights or warrants at the time of the issuance thereof) or other similar event,
the Conversion Price shall be proportionately reduced, or (B) the number of
outstanding shares of Common Stock is decreased by a reverse stock split,
combination or reclassification of shares or other similar event, the Conversion
Price shall be proportionately increased. In such event, the Corporation shall
notify the Holder and the Transfer Agent of such change on or before the
effective date thereof. For purposes hereof, the market price per share of
Common Stock on any date shall be the average Closing Trade Price for the Common
Stock as reported by the Applicable Reporting Entity on the five (5) consecutive
Trading Days (as defined below) immediately preceding such date. If such market
price cannot be calculated on any of the foregoing bases, such market price
shall be the fair market value as reasonably determined by an investment banking
firm selected by the Holder, and approved by the holders, if any, of a majority
of the principal amount of the Debentures (other than this Debenture) then
outstanding and reasonably acceptable to the Corporation, with the costs of such
appraisal to be borne by the Corporation.
(b) Adjustment to Conversion Price during Reference Period. If,
prior to the Conversion of the entire principal amount of this Debenture, the
number of outstanding shares of Common Stock is increased or decreased by a
stock split, stock dividend, combination, reclassification or other similar
event, which event shall have taken place during the reference period for
determination of the Conversion Price for any conversion of the principal
balance of this Debenture, the Conversion Price shall be calculated giving
appropriate effect to the stock split, stock dividend, combination,
reclassification or other similar event for all Trading Days immediately
preceding the Conversion Date.
(c) Adjustment Due to Merger, Consolidation, Etc. If, prior to the
Conversion of the entire principal amount of this Debenture, there shall be any
merger, consolidation, business combination, tender offer, exchange of shares,
recapitalization, reorganization, redemption or other similar event, as a result
of which shares of Common Stock shall be changed into the same or a different
number of shares of the same or another class or classes of stock or securities
of the Corporation or another entity (an "Exchange Transaction"), then the
Holder shall (A) upon the consummation of such Exchange Transaction, have the
right to receive, with respect to any shares of Common Stock then held by the
Holder, or which the Holder is then entitled to receive pursuant to a Conversion
Notice previously delivered by the Holder (and without regard to whether such
shares contain a restrictive legend or are freely-tradable), the same amount and
type of consideration (including without limitation, stock, securities and/or
other assets) and on the same terms as a holder of shares of Common Stock would
be entitled to receive in connection with the consummation of such Exchange
Transaction (the "Exchange Consideration"), and (B) upon the Conversion of
principal hereof occurring subsequent to the consummation of such Exchange
Transaction (a "Subsequent Conversion"), have the right to receive the Exchange
Consideration which the Holder would have been entitled to receive in connection
with such Exchange Transaction had such principal been converted immediately
prior to such Exchange Transaction at the Conversion Price applicable to such
Subsequent Conversion, and in any such case appropriate provisions shall be made
with respect to the rights and interests of the Holder to the end that the
provisions hereof (including, without limitation, provisions
8
32
for the adjustment of the Conversion Price and of the number of shares of Common
Stock issuable upon a Conversion) shall thereafter be applicable as nearly as
may be practicable in relation to any securities thereafter deliverable upon the
Conversion of principal hereof. The Corporation shall not effect any Exchange
Transaction unless (i) it (or, in the case of a tender offer, the offering
party) first gives to each Holder twenty (20) days prior written notice of such
Exchange Transaction (an "Exchange Notice"), and makes a public announcement of
such event at the same time that it gives such notice (it being understood that
the filing by the Corporation of a Form 8-K with the Securities and Exchange
Commission for the purpose of disclosing the anticipated consummation of the
Exchange Transaction shall constitute an Exchange Notice for purposes of this
provision) and (ii) the resulting successor or acquiring entity (if not the
Corporation) assumes by written instrument the obligations of the Corporation
hereunder, including the terms of this subparagraph 3(c), and under the
Securities Purchase Agreement and the Registration Rights Agreement.
(d) Distribution of Assets. If, prior to the Conversion of the
entire principal amount of this Debenture, the Corporation or any of its
subsidiaries shall declare or make any distribution of cash, evidences of
indebtedness or other securities or assets (other than cash dividends or
distributions payable out of earned surplus or net profits for the current or
the immediately preceding year), or any rights to acquire any of the foregoing,
to holders of Common Stock (or to the holder, other than the Corporation, of the
common stock of any such subsidiary) as a partial liquidating dividend, by way
of return of capital or otherwise, including any dividend or distribution in
shares of capital stock of a subsidiary of the Corporation (collectively, a
"Distribution"), the Corporation shall have the option of either (A)
distributing the assets that are the subject of such Distribution to the Holder
at the same time that it distributes such assets to the holders of Common Stock
(or to the holders of the common stock of any such subsidiary), in which case
the Holder shall be entitled to receive such assets in an amount equal to the
amount of such assets that a holder of the number of shares of Common Stock into
which this Debenture is convertible on the record date for such Distribution
would be entitled to receive (such number to be determined using the Conversion
Price in effect on such record date and without regard to any restriction or
limitation on such conversion or exercise that might otherwise exist, including
without limitation, as a result of such record date occurring prior to the
Initial Conversion Date) or (B) for any Conversion occurring after the record
date for such Distribution, reducing the applicable Conversion Price by an
amount equal to the fair market value of the assets so distributed with respect
to each share of Common Stock, such fair market value to be determined by an
investment banking firm selected by the Holder, and approved by the holders, if
any, of a majority of the principal amount of the Debentures (other than this
Debenture) then outstanding and reasonably acceptable to the Corporation. The
Corporation shall notify the Holder in writing no later than the fifth (5th)
Business Day prior to the record date for a Distribution whether the Corporation
will elect to apply the provisions of clause (A) or clause (B) hereof to such
Distribution; in the event that the Corporation fails to deliver such notice on
or before the close of business on such fifth Business Day, the provisions of
clause (B) hereof will apply.
(e) Adjustment Due to Major Announcement. If the Corporation (i)
makes a public announcement that it intends to enter into a Change of Control
Transaction (as defined below) or (ii) any person, group or entity (including
the Corporation) publicly announces a tender offer, exchange offer or other
transaction to purchase 50% or more of the Common Stock (such announcement being
referred to herein as a "Major Announcement" and the date on which a Major
Announcement is made, the "Announcement Date"), then, in the event that the
Holder seeks to convert principal hereof
9
33
on or following the Announcement Date, the Conversion Price shall, effective
upon the Announcement Date and continuing through the Business Day following the
earlier to occur of the consummation of the proposed transaction or tender
offer, exchange offer or other transaction and the Abandonment Date (as defined
below), be equal to the lower of (x) the average Conversion Price for the Common
Stock on the five (5) Trading Days immediately preceding (but not including) the
Announcement Date and (y) the Conversion Price in effect on the Conversion Date
for such principal amount. "Abandonment Date" means with respect to any proposed
transaction or tender offer, exchange offer or other transaction for which a
public announcement as contemplated by this paragraph 3(e) has been made, the
date upon which the Corporation (in the case of clause (i) above) or the person,
group or entity (in the case of clause (ii) above) publicly announces the
termination or abandonment of the proposed transaction or tender offer, exchange
offer or another transaction which caused this paragraph 3(e) to become
operative.
(f) Adjustment Pursuant to Other Agreements. In addition to and
without limiting in any way the adjustments provided in this Section 3, the
Conversion Price shall be adjusted as may be required by the provisions of the
Securities Purchase Agreement and/or the Registration Rights Agreement.
(g) No Fractional Shares. If any adjustment under this Section 3
would create a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded and
the number of shares of Common Stock issuable upon Conversion shall be the next
higher number of shares.
4. CORPORATION'S EXCHANGE OPTION.
(a) Exchange Option. The Corporation shall have the option (the
"Exchange Option"), subject to the satisfaction of each of the Exchange Option
Conditions (as defined below), to require the Holder of this Debenture to
exchange all (but not less than all) of the outstanding principal amount of, and
accrued Interest on, this Debenture for Preferred Stock. On the date on which
such exchange is to occur (the "Exchange Date"), the Corporation will deliver to
the Holder, in exchange for this Debenture, Preferred Shares with an aggregate
Stated Value (as defined in the Articles of Amendment) equal to the sum of (A)
the entire principal amount of this Debenture that remains unpaid on the
Exchange Date plus (B) all accrued and unpaid Interest thereon.
(b) Exchange Option Conditions. The "Exchange Option Conditions"
are as follows:
(i) the Corporation shall have duly obtained the approval
of its shareholders authorizing (x) the issuance of
Preferred Stock upon the terms set forth in the
Articles of Amendment and (y) the issuance of shares
of Common Stock upon conversion of the Preferred
Shares in excess of the Cap Amount;
(ii) the Articles of Amendment shall have been filed with
the Secretary of State of the State of North Carolina
and become effective in accordance with the
requirements of the North Carolina Business
Corporation Act and the Holder shall have been
furnished with reasonable evidence of the filing and
effectiveness of the Articles of Amendment;
10
34
(iii) the Registration Statement (as defined in the
Registration Rights Agreement) shall have been
declared effective and shall be available on the
Exchange Date for the sale by the Holder of not less
than one hundred and seventy five percent (175%) of
the aggregate number of shares of Common Stock
issuable upon conversion or exercise of all of the
Debentures and Warrants then outstanding (such number
to be determined using the Conversion Price or
exercise price in effect on the Exchange Date and
without regard to any restriction or limitation on
such conversion or exercise that might otherwise
exist), and no proceedings shall have been instituted
by any government agency or self regulatory
organization for the purpose of or in connection with
issuing a stop order or other restraint on the use of
such Registration Statement;
(iv) the representations and warranties of the Corporation
set forth in the Securities Purchase Agreement shall
be true and correct in all material respects as of
the Exchange Date as if made on such date;
(v) the Corporation shall have complied with or performed
in all material respects all of the agreements,
obligations and conditions set forth in this
Debenture, the Securities Purchase Agreement and the
Registration Rights Agreement that are required to be
complied with or performed by the Corporation at any
time prior to the Exchange Date;
(vi) the Corporation shall have delivered to the Holder a
certificate, signed by an officer of the Corporation,
certifying that the conditions specified in this
paragraph (b) hereof have been fulfilled as of the
Exchange Date, it being understood that the Purchaser
may rely on such certificate as though it were a
representation and warranty of the Company made in
the Securities Purchase Agreement;
(vii) the Corporation shall have delivered to the Holder an
opinion of counsel for the Corporation, dated as of
such date, in substantially the form set forth on
Exhibit B hereto, and covering such additional
matters as may reasonably be requested by the Holder;
(viii) the Corporation shall have delivered to the Holder
duly executed certificates representing the Preferred
Shares;
(ix) the Common Stock shall be designated for quotation
and actively traded on the Nasdaq National Market;
(x) the Corporation shall have authorized and reserved
for issuance not less than two hundred percent (200%)
of the aggregate number of shares of Common Stock
issuable upon conversion or exercise of all of the
Debentures and Warrants then outstanding (such number
to be determined using the Conversion Price or
exercise price in effect on the Exchange Date and
without regard to any
11
35
restriction or limitation on such conversion or
exercise that might otherwise exist);
(xi) the Corporation shall not have authorized for
issuance or issued any capital stock of the
Corporation, or any security convertible into such
capital stock, that would rank senior to or pari
passu to the Preferred Stock; and
(xii) Mandatory Redemption Event (as defined below) shall
not have occurred and be continuing.
(c) Exchange Notice. In order to exercise the Exchange Option, the
Corporation must deliver to the Holder written notice thereof (the "Exchange
Notice") and, at the same time that it delivers such notice, the Corporation
shall confirm delivery thereof with the Holder by telephone, either personally
or by voicemail message. The Exchange Date must occur within three (3) Business
Days of delivery of the Exchange Notice to the Holder. The delivery by the
Corporation of an Exchange Notice shall not affect (i) the Holder's right to
submit a Conversion Notice hereunder at any time prior to the Exchange Date or
(ii) the Corporation's obligation to issue Conversion Shares to the Holder
pursuant to a Conversion Notice submitted in accordance with the terms hereof
prior to the Exchange Date.
5. REDEMPTION.
(A) Optional Redemption By Corporation.
(a) Optional Redemption. The Corporation shall have the right, at
any time and from time to time, upon the satisfaction of the Optional Redemption
Conditions (as defined below), to redeem the entire unpaid principal amount of
this Debenture, plus all accrued and unpaid interest thereon, in accordance with
the terms hereof (an "Optional Redemption"). The date on which an Optional
Redemption is effected and the Optional Redemption Price (as defined below) is
paid by the Corporation to the Holder is referred to herein as an "Optional
Redemption Date". It is expressly understood that the Holder shall have the
right, at any time prior to the Optional Redemption Date, to convert all or any
portion of the unpaid principal amount of this Debenture, plus all accrued and
unpaid interest thereon.
(b) Optional Redemption Notice. In order to effect an Optional
Redemption hereunder, the Corporation must deliver to the Holder written notice
of such Optional Redemption (an "Optional Redemption Notice") on or before 5:00
p.m. (eastern time) on the Business Day immediately following any Trading Day on
which the each of the Optional Redemption Conditions is satisfied. The Optional
Redemption Date shall occur on a Business Day, as specified in the Optional
Redemption Notice, that is at least five (5) Trading Days but no more than ten
(10) Trading Days following the date on which the Optional Redemption Notice is
delivered to the Holder. In the event that the Corporation delivers an Optional
Redemption Notice to the Holder prior to the ninetieth (90th) day following the
Tranche A Closing Date, the date on which such notice is delivered to the Holder
shall be deemed to be the Initial Conversion Date for purposes of this
Debenture, and the Holder shall have the right to convert this Debenture from
and after such date.
12
36
(c) Optional Redemption Conditions. The Optional Redemption
Conditions are as follows:
(i) the Closing Trade Price for the Common Stock is less
than $5.50 (subject to equitable adjustment for the
events specified in Section 3 hereof); and
(ii) a Mandatory Redemption Event (as defined below), or
an event that with the passage of time would
constitute a Mandatory Redemption Event, shall not
have occurred and be continuing.
(d) Optional Redemption Price. The "Optional Redemption Price" to
be paid by the Corporation to the Holder in the event of an Optional Redemption
shall be equal to (A) (i) the entire unpaid principal amount of this Debenture
on the Optional Redemption Date, times (ii) 110% plus (B) all accrued and unpaid
interest thereon.
(e) Payment of Optional Redemption Price.
(i) The Corporation shall pay the Optional Redemption
Price by wire transfer in immediately available funds to the Holder on or before
5:00 p.m. (eastern time) on the Optional Redemption Date.
(ii) If the Corporation fails to pay the Optional
Redemption Price by wire transfer in immediately available funds to the Holder
on or before the Optional Redemption Date, (i) the Holder shall be entitled to
interest thereon, from and after the Optional Redemption Date until the Optional
Redemption Price has been paid in full, at an annual rate equal to the Default
Interest Rate for the number of days elapsed from such Optional Redemption Date
until such amount is paid in full, (ii) the Holder shall have the option to
regain, as of the date of delivery of written notice thereof to the Corporation
(a "Redemption Default Notice"), its rights as the Holder of this Debenture, and
(iii) in the event that the Corporation fails to pay the Optional Redemption
Price to the Holder on or before the close of business on the Business Day
immediately following the delivery of written notice of such failure by the
Holder to the Corporation, the Corporation shall not be entitled to effect an
Optional Redemption thereafter.
(B) Mandatory Redemption By Holder.
(a) Mandatory Redemption. In the event that a Mandatory Redemption
Event (as defined herein) occurs, the Holder shall have the right, upon written
notice to the Corporation (a "Mandatory Redemption Notice"), to have all or any
portion of the unpaid principal amount of this Debenture, plus all accrued and
unpaid Interest thereon, redeemed by the Corporation (a "Mandatory Redemption")
at the Mandatory Redemption Price (as defined herein) in same day funds. The
Mandatory Redemption Notice shall specify the effective date of such Mandatory
Redemption (the "Mandatory Redemption Date"), which date must be at least three
(3) Business Days following the Business Day on which the Mandatory Redemption
Notice is delivered to the Corporation, and the amount of principal to be
redeemed. In order to effect a Mandatory Redemption hereunder, the Holder must
deliver a Mandatory Redemption Notice no later than the close of business on the
13
37
Business Day immediately following the Business Day on which a Mandatory
Redemption Event is no longer continuing; provided, however, that with respect
to a Change of Control Transaction (as defined below), the Holder must deliver a
Mandatory Redemption Notice no later than the close of business on the Business
Day following the date on which such Change of Control Transaction is effected.
(b) Mandatory Redemption Price. In the event that a Mandatory
Redemption Event (other than a Change of Control Transaction (as defined below))
is within the control of the Corporation, the "Mandatory Redemption Price" shall
be equal to (A)(i) the principal amount of this Debenture being redeemed
multiplied by (ii) one hundred and twenty-five percent (125%) plus (B) all
unpaid Interest accrued thereon; in the event that a Mandatory Redemption Event
(other than a Change of Control Transaction) is not within the control of the
Corporation, the "Mandatory Redemption Price" shall be equal to (A)(i) the
principal amount of this Debenture being redeemed multiplied by (ii) one hundred
and ten percent (110%) plus (B) all unpaid Interest accrued thereon. A Mandatory
Redemption Event shall be deemed to be within the control of the Corporation if
such event occurs as a result of action taken by the Corporation or the failure
of the Corporation to take action; provided, however, that, notwithstanding the
foregoing, the Mandatory Redemption Event specified in clause (d)(v) below shall
be deemed to be within the control of the Corporation. The Mandatory Redemption
Price for a Change of Control Transaction shall be equal to (A)(i) the principal
amount of this Debenture being redeemed multiplied by (ii) one hundred and ten
percent (110%) plus (B) all unpaid Interest accrued thereon; provided, however,
that if following a Change of Control Transaction, the common stock of the
surviving entity either (A) is not publicly traded or (B) is publicly traded and
the average daily trading volume for such common stock is less than $1,500,000
during the period of four weeks immediately preceding such Change of Control
Transaction, the Mandatory Redemption Price for a Change of Control Transaction
shall be equal to (A)(i) the principal amount of this Debenture being redeemed
multiplied by (ii) one hundred and twenty-five percent (125%) plus (B) all
unpaid Interest accrued thereon.
(c) Payment of Mandatory Redemption Price.
(i) The Corporation shall pay the Mandatory
Redemption Price to the Holder within five (5) Business Days of the Mandatory
Redemption Date. In the event that the Corporation redeems the entire remaining
unpaid principal amount of this Debenture, and pays to the Holder all interest
accrued thereon and all other amounts due in connection therewith, the Holder
shall return this Debenture to the Corporation for cancellation.
(ii) If the Corporation fails to pay the
Mandatory Redemption Price to the Holder within five (5) Business Days of the
Mandatory Redemption Date, the Holder shall be entitled to interest thereon at
the Default Interest Rate from the Mandatory Redemption Date until the Mandatory
Redemption Price has been paid in full.
(d) Mandatory Redemption Event. Each of the following events shall
be deemed a "Mandatory Redemption Event":
(i) the Corporation fails for any reason (including
without limitation as a result of not having a sufficient number of shares of
Common Stock authorized and reserved for issuance or
14
38
as a result of the limitations contained in paragraph 3(i)) to issue shares of
Common Stock to the Holder in accordance with the provisions of this Debenture
upon Conversion of any principal amount hereof, and such failure continues for
ten (10) Business Days after written notice thereof to the Corporation from the
Holder;
(ii) the Corporation breaches, in a material respect, any
covenant or other material term or condition of this Debenture, the Securities
Purchase Agreement or the Registration Rights Agreement and such breach
continues for a period of ten (10) Business Days after written notice thereof to
the Corporation from the Holder;
(iii) the Registration Statement (as defined in the
Registration Rights Agreement) is not declared effective by the 120th day
following the date on which the Registration Statement is filed with the
Securities and Exchange Commission or, if the Registration Statement has been
declared effective by such date, and the effectiveness of the Registration
Statement lapses for any reason (including without limitation, the issuance of a
stop order) or is unavailable to the Holder for sale of Conversion Shares in
accordance with the terms of the Registration Rights Agreement, and such lapse
or unavailability continues for a period of five (5) Business Days, provided
that the cause of such lapse or unavailability is not due to factors solely
within the control of the Holder;
(iv) the Common Stock is no longer quoted on the Nasdaq
National Market or listed on the New York Stock Exchange;
(v) the Corporation's accountants render a qualified
opinion with respect to the Corporation's Form 10-K for the year ended December
31, 1998, or the Corporation files such Form 10-K on a date that is after the
deadline for such filing (after giving effect to any validly obtained
extension); and
(vi) the sale, conveyance or disposition of all or
substantially all of the assets of the Corporation, the effectuation of a
transaction or series of transactions, in which more than 50% of the voting
power of the Corporation is disposed of, or the consolidation, merger or other
business combination of the Corporation with or into any other entity,
immediately following which the prior stockholders of the Corporation fail to
own, directly or indirectly, at least fifty percent (50%) of the surviving
entity (a "Change of Control Transaction").
(e) Failure to Pay Redemption Amounts. If the Corporation fails to
pay the Mandatory Redemption Price within ten (10) Business Days of the
Mandatory Redemption Date therefor, then the Holder shall have the right to
either (A) to require the Corporation, upon written notice, to immediately
issue, in lieu of the Mandatory Redemption Price, the number of shares of Common
Stock of the Corporation equal to the Mandatory Redemption Price divided by the
Conversion Price in effect on such Conversion Date as is specified by the Holder
in writing to the Corporation or (B) to regain, as of the date of delivery of
written notice thereof to the Corporation (a "Mandatory Redemption Default
Notice"), its rights as the Holder of this Debenture, in which case the
Conversion Price upon any subsequent conversion hereof will be equal to the
lesser of (x) the lowest Conversion Price occurring during the period beginning
on the date on which the Mandatory Redemption Notice is delivered to the Holder
and ending on the date on which the Mandatory Redemption Default Notice is
delivered to the Corporation and (y) the Conversion Price in effect on
15
39
the applicable Conversion Date (it being understood that the Holder may deliver
a Conversion Notice at any time following delivery of a Mandatory Redemption
Default Notice to the Corporation).
6. PRIORITY; SUBORDINATION.
(a) Rank. All principal of, premium, if any, interest and other
amounts due or to become due on all this Debenture shall first be paid in full
(hereafter, "Payment in Full") in accordance with the terms hereof before any
payment on account of principal of, premium, if any, interest, dividends or any
other amounts shall be made upon any Junior Securities, whether on account of
any purchase or redemption or other acquisition of such Junior Securities, at
maturity or otherwise.
(b) Payment upon Dissolution, Etc. In the event of (x) any
insolvency or bankruptcy proceedings, or any receivership, liquidation,
reorganization or other similar proceedings in connection therewith, relative to
the Corporation or to its creditors, as such, or to its assets or (y) the
dissolution or other winding up of the Corporation, whether voluntary or
involuntary and whether or not involving insolvency or bankruptcy proceedings,
or (z) any assignment for the benefit of creditors or any marshalling of the
material assets or material liabilities of the Corporation (each a "Liquidation
Event"), then, and in any such event, the Holder of this Debenture shall first
be entitled to receive Payment in Full of all principal, premium, if any,
interest and other amounts due or to become due on the this Debenture
(including, without limitation, any interest and charges accruing thereon in any
such proceeding, notwithstanding any law to the contrary) before any payment on
account of principal, premium, if any, interest, dividends or any other amounts
is made on the Junior Securities (as defined below). In the event that upon the
occurrence of a Liquidation Event, the assets available for distribution to the
Holder of this Debenture and the holders of Pari Passu Securities (as defined
below) are insufficient to pay all principal, premium, if any, interest and
other amounts due or to become due on the this Debenture (including, without
limitation, any interest and charges accruing thereon in any such proceeding,
notwithstanding any law to the contrary) and on the Pari Passu Securities, the
entire assets of the Corporation shall be distributed ratably among the Holder
of this Debenture and the holders of Pari Passu Securities in proportion to the
ratio that the amount so payable on each such security bears to the aggregate
preferential amount payable on all such shares.
(c) Certain Definitions. "Junior Securities" shall mean all
securities and indebtedness of the Corporation that are not Pari Passu
Securities or Senior Securities as defined below. "Pari Passu Securities shall
mean any securities or indebtedness of the Corporation that by their terms rank
pari passu with this Debenture in respect of interest, dividends, redemption or
distribution upon liquidation, including all of the other Debentures. "Senior
Securities" shall mean any securities or indebtedness of the Corporation that by
their terms have a preference over this Debenture in respect of dividends,
redemption or distribution upon liquidation. For purposes hereof, the Common
Stock and all other capital stock of the Corporation shall be deemed to be
Junior Securities.
7. MISCELLANEOUS.
(a) Failure to Exercise Rights not Waiver. No failure or delay on
the part of the Holder in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude any other or further
16
40
exercise thereof. All rights and remedies of the Holder hereunder are cumulative
and not exclusive of any rights or remedies otherwise available.
(b) Notices. Any notice, demand or request required or permitted
to be given by the Corporation or the Holder pursuant to the terms of this
Debenture shall be in writing and shall be deemed given (i) when delivered
personally or by verifiable facsimile transmission (with a hard copy to follow),
(ii) on the next Business Day after timely delivery to an overnight courier and
(iii) on the Business Day actually received if deposited in the U.S. mail
(certified or registered mail, return receipt requested, postage prepaid),
addressed as follows:
If to the Corporation:
Alydaar Software Corporation
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: J. ▇▇▇▇ ▇▇▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
McGuire, Woods, Battle & ▇▇▇▇▇▇ LLP
Bank of America Corporate Center
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇, Esq.
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
and if to the Holder, at such address as the Holder shall have furnished the
Corporation in writing.
(c) Amendments. No amendment, modification or other change may be
made to this Debenture unless such amendment, modification or change is set
forth in writing and is signed by the Corporation and the Holder, and approved
by the holders, if any, of a majority of the principal amount of the Debentures
(other than this Debenture) then outstanding and, in such event, such amendment,
modification or change shall be made to all of the Debentures then outstanding.
(d) Transfer of Debenture. The Holder may sell, transfer or
otherwise dispose of all or any part of this Debenture to any person or entity
as long as such sale, transfer or disposition is the subject of an effective
registration statement under the Securities Act or is exempt from registration
thereunder; provided, however, that transfers of this Debenture must be in a
principal amount of no less than $500,000. From and after the date of such sale,
transfer or disposition, the transferee hereof shall be deemed to be the Holder.
Upon any such sale, transfer or disposition, the Corporation shall issue and
deliver to such transferee a new debenture identical in all respects to this
Debenture, in the name of such transferee, with a principal amount equal to the
principal amount of
17
41
this Debenture so transferred. The Corporation shall be entitled to treat the
original Holder as the holder of this Debenture unless and until it receives
written notice of the sale, transfer or disposition hereof.
(e) Lost or Stolen Debenture. Upon receipt by the Corporation of
evidence of the loss, theft, destruction or mutilation of this Debenture, and
(in the case of loss, theft or destruction) of indemnity or security reasonably
satisfactory to the Corporation, and upon surrender and cancellation of the
Debenture, if mutilated, the Corporation shall execute and deliver to the Holder
a new debenture identical in all respects to this Debenture.
(f) Governing Law. This Debenture shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to the conflict of law provisions thereof.
(g) No Prepayment. The principal of this Debenture may not be
prepaid by the Corporation except as specifically set forth herein.
[Remainder of Page Intentionally Left Blank]
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42
IN WITNESS WHEREOF, the Corporation has caused this Debenture to be signed in
its name by its duly authorized officer on the date first above written.
ALYDAAR SOFTWARE CORPORATION
By:
-------------------------
Name:
Title:
19
43
ANNEX I
Schedule of
Conversions
Principal Amount Date of
Balance Converted Conversion
------- --------- ----------
$[3][2],000,000
------------------- ------------------- -----------------
------------------- ------------------- -----------------
------------------- ------------------- -----------------
------------------- ------------------- -----------------
------------------- ------------------- -----------------
------------------- ------------------- -----------------
------------------- ------------------- -----------------
------------------- ------------------- -----------------
------------------- ------------------- -----------------
------------------- ------------------- -----------------
------------------- ------------------- -----------------
------------------- ------------------- -----------------
------------------- ------------------- -----------------
------------------- ------------------- -----------------
44
EXHIBIT B TO SECURITIES
PURCHASE AGREEMENT
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAW, AND MAY NOT BE OFFERED FOR SALE, SOLD OR
TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS SHALL BE EFFECTIVE WITH RESPECT THERETO, OR AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE IN CONNECTION WITH SUCH OFFER, SALE OR TRANSFER.
Warrant to Purchase
Shares
-------------------
WARRANT TO PURCHASE COMMON STOCK
OF
ALYDAAR SOFTWARE CORPORATION
THIS CERTIFIES that or any subsequent holder hereof (the
"Holder"), has the right to purchase from Alydaar Software Corporation, a North
Carolina corporation (the "Company"), up to fully paid and
nonassessable shares of the Company's Common Stock, par value $.001 per share
(the "Common Stock"), subject to adjustment as provided herein, at a price equal
to the Exercise Price (as defined below), at any time beginning on the date on
which this Warrant is issued (the "Issue Date") and ending at 5:00 p.m., eastern
time, on the date that is the fifth anniversary of the Issue Date (the
"Expiration Date"). This Warrant is issued, and all rights hereunder shall be,
subject to all of the conditions, limitations and provisions set forth herein
and in the Securities Purchase Agreement of even date herewith by and among the
Company and the Purchaser named therein (the "Securities Purchase Agreement").
45
1. Exercise.
(a) Right to Exercise; Exercise Price. The Holder shall have the
right to exercise this Warrant at any time and from time to time up to and
including the Expiration Date as to all or any part of the shares of Common
Stock covered hereby (the "Warrant Shares"). The "Exercise Price" payable by the
Holder in connection with the exercise of this Warrant shall be equal to [140%
OF THE AVERAGE CLOSING BID PRICE FOR THE COMMON STOCK ON THE TEN TRADING DAYS
OCCURRING IMMEDIATELY PRIOR TO, BUT NOT INCLUDING, THE TRANCHE A CLOSING DATE]
(subject to adjustment as specified in paragraph 6 hereof).
(b) Exercise Notice. In order to exercise this Warrant, the Holder
shall send by facsimile transmission, at any time prior to 7:00 p.m., eastern
time, on the date on which the Holder wishes to effect such exercise (the
"Exercise Date"), to the Company and to its designated transfer agent for the
Common Stock (the "Transfer Agent") a copy of the notice of exercise in the form
attached hereto as Exhibit A (the "Exercise Notice") stating the number of
Warrant Shares as to which such exercise applies and the calculation therefor.
The Holder shall thereafter deliver to the Company the original Exercise Notice,
the original Warrant and the Exercise Price. In the case of a dispute as to the
calculation of the Exercise Price or the number of Warrant Shares issuable
hereunder, the Company shall promptly issue to the Holder the number of Warrant
Shares that are not disputed and shall submit the disputed calculations to the
Company's independent accountant within two (2) business days following the
Exercise Date. The Company shall cause such accountant to calculate the Exercise
Price and/or the number of Warrant Shares issuable hereunder and to notify the
Company and the Holder of the results in writing no later than two business days
following the day on which such accountant received the disputed calculations.
Such accountant's calculation shall be deemed conclusive absent manifest error.
The fees of any such accountant shall be borne by the party whose calculations
were most at variance with those of such accountant.
(c) Cancellation of Warrant. This Warrant shall be canceled upon
its exercise and, if this Warrant is exercised in part, the Company shall, at
the time that it delivers Warrant Shares to the Holder pursuant to such exercise
as provided herein, issue a new warrant, and deliver to the Holder a certificate
representing such new warrant, with terms identical in all respects to this
Warrant (except that such new warrant shall be exercisable into the number of
shares of Common Stock with respect to which this Warrant shall remain
unexercised); provided, however, that the Holder shall be entitled to exercise
all or any portion of such new warrant at any time following the time at which
this Warrant is exercised, regardless of whether the Company has actually issued
such new warrant or delivered to the Holder a certificate therefor.
2. Delivery of Warrant Shares Upon Exercise. Upon receipt of a
Exercise Notice pursuant to paragraph 1 above, the Company shall, (A) in the
case of a Cashless Exercise (as defined below), no later than the close of
business on the third (3rd) business day following the Exercise Date set forth
in such Exercise Notice, (B) in the case of a Cash Exercise (as defined below)
no later than the close of
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business on the later to occur of (i) the third (3rd) business day following the
Exercise Date set forth in such Exercise Notice and (ii) such later date on
which the Company shall have received payment of the Exercise Price, and (C)
with respect to Warrant Shares which are disputed as described in paragraph 1(b)
above, and required to be delivered by the Company pursuant to the accountant's
calculations described therein, the date for delivery thereof specified in such
paragraph 1(b) (the "Delivery Date"), issue and deliver or caused to be
delivered to the Holder the number of Warrant Shares as shall be determined as
provided herein. Warrant Shares delivered to the Holder shall not contain any
restrictive legend as long as the sale of such Warrant Shares is covered by an
effective Registration Statement (as defined in the Registration Rights
Agreement), has been made pursuant to Rule 144 under the Securities Act of 1933,
as amended, or may be made pursuant to Rule 144(k) under the Securities Act of
1933, as amended, or any successor rule or provision.
3. Failure to Deliver Warrant Shares.
(a) Exercise Default. In the event that the Company fails
for any reason as a result of any willful action or any willful failure to act
on the part of the Corporation (other than by operation of paragraph 4 below) to
deliver to a Holder certificates representing the number of Warrant Shares
specified in the applicable Exercise Notice on or before the Delivery Date
therefor and such failure continues for ten (10) Business Days following the
delivery of written notice thereof from the Holder (an "Exercise Default"), the
Company shall pay to the Holder payments ("Exercise Default Payments") in the
amount of (i) (N/365) multiplied by (ii) the aggregate Exercise Price for the
Warrant Shares which are the subject of such Exercise Default multiplied by
(iii) the lower of ten percent (10%) and the maximum rate permitted by
applicable law, where "N" equals the number of days elapsed between the original
Delivery Date for such Warrant Shares and the date on which all of such Warrant
Shares are issued and delivered to the Holder. Amounts payable under this
subparagraph 3(a) shall be paid to the Holder in immediately available funds on
or before the fifth (5th) business day of the calendar month immediately
following the calendar month in which such amount has accrued.
(b) Buy-in. Nothing herein shall limit a Holder's right
to pursue actual damages for the Company's failure to issue and deliver Warrant
Shares in connection with an exercise on the applicable Delivery Date
(including, without limitation, damages relating to any purchase of shares of
Common Stock by the Holder to make delivery on a sale effected in anticipation
of receiving Warrant Shares upon exercise, such damages to be in an amount equal
to (A) the aggregate amount paid by the Holder for the shares of Common Stock so
purchased minus (B) the aggregate amount of net proceeds, if any, received by
the Holder from the sale of the Warrant Shares issued by the Company pursuant to
such exercise), and the Holder shall have the right to pursue all remedies
available to it at law or in equity (including, without limitation, a decree of
specific performance and/or injunctive relief). Any award of damages hereunder
shall take into account any reduction in the Exercise Price effected pursuant to
paragraph (c) below.
(c) Reduction of Exercise Price. In the event that a
Holder has not received
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47
certificates representing the Warrant Shares by the tenth (10th) business day
following an Exercise Default, the Holder may, upon written notice to the
Company, regain on such business day the rights of a Holder of this Warrant, or
part thereof, with respect to the Warrant Shares that are the subject of such
Exercise Default, and the Exercise Price for such Warrant Shares shall be
reduced by one percent (1%) for each day beyond such 10th business day in which
the Exercise Default continues. In such event, the Holder shall retain all of
the Holder's rights and remedies with respect to the Company's failure to
deliver such Warrant Shares (including without limitation the right to receive
the cash payments specified in subparagraph 3(a) above).
(d) Holder of Record. Each Holder shall, for all
purposes, be deemed to have become the holder of record of Warrant Shares on the
Exercise Date of this Warrant, irrespective of the date of delivery of such
Warrant Shares. Nothing in this Warrant shall be construed as conferring upon
the Holder hereof any rights as a stockholder of the Company prior to the
Exercise Date.
4. Exercise Limitations.
In no event shall a Holder be permitted to exercise this Warrant, or
part thereof, with respect to Warrant Shares in excess of the number of such
shares, upon the issuance of which, (x) the number of shares of Common Stock
beneficially owned by the Holder plus (y) the number of shares of Common Stock
issuable upon such exercise, would be equal to or exceed (z) 4.99% of the number
of shares of Common Stock then issued and outstanding. To the extent that the
limitation contained in this paragraph 4 applies, the determination of whether
this Warrant is exercisable (in relation to other securities owned by a Holder)
shall be in the sole discretion of the Holder, and the submission of an Exercise
Notice shall be deemed to be the Holder's determination that this Warrant is
exercisable pursuant to the terms hereof, and the Company shall have no
obligation whatsoever to verify or confirm the accuracy of such determination.
Nothing contained herein shall be deemed to restrict the right of a Holder to
exercise this Warrant, or part thereof, at such time as such exercise will not
violate the provisions of this Section 4.
5. Payment of the Exercise Price. The Holder may pay the Exercise
Price in either of the following forms or, at the election of Holder, a
combination thereof:
(a) Cash Exercise: by delivery of immediately available funds.
(b) Cashless Exercise: by surrender of this Warrant to the Company
together with a notice of cashless exercise, in which event the Company shall
issue to the Holder the number of Warrant Shares determined as follows:
X = Y x (A-B)/A
where: X = the number of Warrant Shares to be issued
to the Holder.
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48
Y = the number of Warrant Shares with respect to
which this Warrant is being exercised.
A = the average of the Closing Bid Prices of the
Common Stock for the five (5) Trading Days
immediately prior to (but not including) the Exercise
Date.
B = the Exercise Price.
For purposes of Rule 144 under the Securities Act of 1933, as amended, it is
intended, understood and acknowledged that the Warrant Shares issued in a
cashless exercise transaction shall be deemed to have been acquired by the
Holder, and the holding period for the Warrant Shares shall be deemed to have
been commenced, on the Issue Date .
6. Anti-Dilution Adjustments.
(a) Stock Dividend. If the Company shall at any time declare a
dividend payable in shares of Common Stock, then the Holder hereof, upon
exercise of this Warrant after the record date for the determination of Holders
of Common Stock entitled to receive such dividend, shall be entitled to receive,
in addition to the number of shares of Common Stock as to which this Warrant is
exercised, such additional shares of Common Stock as the Holder would have
received had this Warrant been exercised immediately prior to such record date
and the Exercise Price will be proportionately adjusted.
(b) Stock Split, Recapitalization or Reclassification. If the
Company shall at any time effect a stock split, recapitalization,
reclassification or other similar transaction of such character that the shares
of Common Stock shall be changed into or become exchangeable for a larger or
smaller number of shares, then upon the effective date thereof, the number of
shares of Common Stock which the Holder hereof shall be entitled to purchase
upon exercise of this Warrant shall be increased or decreased, as the case may
be, in direct proportion to the increase or decrease in the number of shares of
Common Stock by reason of such stock split, recapitalization, reclassification
or similar transaction, and the Exercise Price shall be, in the case of an
increase in the number of shares, proportionally decreased and, in the case of
decrease in the number of shares, proportionally increased. The Company shall
give the Warrant Holder the same notice at the same time it provides such notice
to holders of Common Stock of any transaction described in this Section 6(b).
(c) Distributions. If the Company shall at any time distribute to
holders of Common Stock cash, evidences of indebtedness or other securities or
assets (other than cash dividends or distributions payable out of earned surplus
or net profits for the current or the immediately preceding year) then, in any
such case, the Holder of this Warrant shall be entitled to receive, upon
exercise of this Warrant, with respect to each share of Common Stock issuable
upon such exercise, the amount of cash or evidences of indebtedness or other
securities or assets which the Holder would have been entitled to receive with
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49
respect to each such share of Common Stock as a result of the happening of such
event had this Warrant been exercised immediately prior to the record date or
other date fixing shareholders to be affected by such event (the "Determination
Date") or, in lieu thereof, if the Board of Directors of the Company should so
determine prior to the Determination Date, a reduced Exercise Price determined
by multiplying the Exercise Price on the Determination Date by a fraction, the
numerator of which is the difference between (x) such Exercise Price and (y) the
value of such distribution applicable to one share of Common Stock (such value
to be determined by an investment bank selected by the Holder and reasonably
acceptable to the Company), and the denominator of which is such Exercise Price.
(d) Notice of Consolidation or Merger. In the event of a merger,
consolidation, business combination, tender offer, exchange of shares,
recapitalization, reorganization, redemption or other similar event, as a result
of which shares of Common Stock of the Company shall be changed into the same or
a different number of shares of the same or another class or classes of stock or
securities or other assets of the Company or another entity or there is a sale
of all or substantially all the Company's assets (a "Corporate Change"), then
this Warrant shall be exercisable into such class and type of securities or
other assets as the Holder would have received had the Holder exercised this
Warrant immediately prior to such Corporate Change; provided, however, that
Company may not effect any Corporate Change unless (i) it first shall have given
twenty (20) business days' notice to the Holder hereof of any Corporate Change
and makes a public announcement of such event at the same time that it gives
such notice (it being understood that the filing by the Company of a Form 8-K
for the purpose of disclosing the anticipated consummation of the Corporate
Change shall constitute such a notice for purposes of this provision) and (ii)
it requires the resulting successor or acquiring entity (if not the Company) to
assume by written instrument the obligations of the Company hereunder and under
the Securities Purchase Agreement and the Registration Rights Agreement.
(e) Exercise Price as Adjusted. As used in this Warrant, the term
"Exercise Price" shall mean the purchase price per share specified in paragraph
1 of this Warrant, until the occurrence of an event stated in subsection (a),
(b) or (c) of this paragraph 6, and thereafter shall mean said price as adjusted
from time to time in accordance with the provisions of each such subsection. No
such adjustment under this paragraph 6 shall be made unless such adjustment
would change the Exercise Price at the time by two percent (2%) or more;
provided, however, that all adjustments not so made shall be deferred and made
when the aggregate thereof would change the Exercise Price at the time by 2% or
more. No adjustment made pursuant to any provision of this paragraph 6 shall
have the effect of increasing the total consideration payable upon exercise of
this Warrant in respect of all the Common Stock as to which this Warrant may be
exercised.
(f) Adjustments; Additional Shares, Securities or Assets. In the
event that at any time, as a result of an adjustment made pursuant to this
paragraph 6, the Holder of this Warrant shall, upon exercise of this Warrant,
become entitled to receive securities or assets (other than Common Stock) then,
wherever appropriate, all references herein to shares of Common Stock shall be
deemed to refer to and include such shares and/or other securities or assets;
and thereafter the number of such shares and/or
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50
other securities or assets shall be subject to adjustment from time to time in a
manner and upon terms as nearly equivalent as practicable to the provisions of
this paragraph 6.
7. Fractional Interests.
No fractional shares or scrip representing fractional shares
shall be issuable upon the exercise of this Warrant, but on exercise of this
Warrant, the Holder hereof may purchase only a whole number of shares of Common
Stock. If, on exercise of this Warrant, the Holder hereof would be entitled to a
fractional share of Common Stock or a right to acquire a fractional share of
Common Stock, such fractional share shall be disregarded and the number of
shares of Common Stock issuable upon exercise shall be rounded up or down to the
nearest whole number of shares of Common Stock.
8. Transfer of this Warrant. The Holder may sell, transfer,
assign, pledge or otherwise dispose of this Warrant, in whole or in part (and if
in part, in minimum denominations of 5,000 shares), as long as such sale or
other disposition is made pursuant to pursuant to an effective registration
statement or an exemption to the registration requirements of the Securities Act
of 1933, as amended, and applicable state laws. Upon such transfer or other
disposition, the Holder shall deliver a written notice to Company, substantially
in the form of the Transfer Notice attached hereto as Exhibit B (the "Transfer
Notice"), indicating the person or persons to whom this Warrant shall be
transferred and, if less than all of this Warrant is transferred or this Warrant
is transferred in parts, the number of Warrant Shares to be covered by the part
of this Warrant to be transferred to each such person. Within three (3) business
days of receiving a Transfer Notice and the original of this Warrant, the
Company shall deliver to the each transferee designated by the Holder a Warrant
or Warrants of like tenor and terms for the appropriate number of Warrant
Shares.
9. Benefits of this Warrant.
Nothing in this Warrant shall be construed to confer upon any
person other than the Holder of this Warrant any legal or equitable right,
remedy or claim under this Warrant and this Warrant shall be for the sole and
exclusive benefit of the Holder of this Warrant.
10. Loss, theft, destruction or mutilation of Warrant.
Upon receipt by the Company of evidence of the loss, theft,
destruction or mutilation of this Warrant, and (in the case of loss, theft or
destruction) of indemnity or security reasonably satisfactory to the Company,
and upon surrender of this Warrant, if mutilated, the Company shall execute and
deliver a new Warrant of like tenor and date.
11. Notice or Demands.
Except as otherwise provided herein, any notice, demand or
request required or permitted
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51
to be given pursuant to the terms of this Warrant shall be in writing and shall
be deemed given (i) when delivered personally or by verifiable facsimile
transmission (with an original to follow) on or before 5:00 p.m., eastern time,
on a business day or, if such day is not a business day, on the next succeeding
business day, (ii) on the next business day after timely delivery to a
nationally-recognized overnight courier and (iii) on the Business Day actually
received if deposited in the U.S. mail (certified or registered mail, return
receipt requested, postage prepaid), addressed as follows:
If to the Company:
Alydaar Software Corporation
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: J. ▇▇▇▇ ▇▇▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
McGuire, Woods, Battle & ▇▇▇▇▇▇ LLP
Bank of America Corporate Center
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇, Esq.
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
and if to the Holder, to such address as shall be designated by the Holder in
writing to the Company.
12. Applicable Law.
This Warrant is issued under and shall for all purposes be
governed by and construed in accordance with the laws of the state of North
Carolina, without giving effect to conflict of law provisions thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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52
IN WITNESS WHEREOF, the undersigned has executed this Warrant as of the
[ ] day of , .
---------- ------
Alydaar Software Corporation
By:
-----------------------------
Name:
Title:
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53
EXHIBIT A to WARRANT
EXERCISE NOTICE
The undersigned Holder hereby irrevocably exercises the right to
purchase of the shares of Common Stock ("Warrant Shares") of Alydaar Software
Corporation, a North Carolina corporation (the "Company"), evidenced by the
attached Warrant (the "Warrant"). Capitalized terms used herein and not
otherwise defined shall have the respective meanings set forth in the Warrant.
1. Form of Exercise Price. The Holder intends that payment of the
Exercise Price shall be made as:
______ a Cash Exercise with respect to _________________
Warrant Shares; and/or
______ a Cashless Exercise with respect to _________________
Warrant Shares.
2. Payment of Exercise Price. In the event that the Holder has
elected a Cash Exercise with respect to some or all of the Warrant Shares to be
issued pursuant hereto, the Holder shall pay the sum of $________________ to the
Company in accordance with the terms of the Warrant.
3. Delivery of Warrant Shares. The Company shall deliver to the
Holder _____________ Warrant Shares in accordance with the terms of the Warrant.
Date:
----------------------
-----------------------------------
Name of Registered Holder
By:
---------------------------------
Name:
Title:
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54
EXHIBIT B to WARRANT
TRANSFER NOTICE
FOR VALUE RECEIVED, the undersigned Holder of the attached Warrant hereby sells,
assigns and transfers unto the person or persons named below the right to
purchase shares of the Common Stock of Alydaar Software Corporation evidenced by
the attached Warrant.
Date:
----------------------
-----------------------------------
Name of Registered Holder
By:
------------------------------
Name:
Title:
Transferee Name and Address:
-----------------------------------
-----------------------------------
-----------------------------------
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EXHIBIT C TO SECURITIES
PURCHASE AGREEMENT
[NOTE: IN THE EVENT THAT ALYDAAR SOFTWARE CORPORATION CHANGES ITS JURISDICTION
OF INCORPORATION PRIOR TO THE FILING OF THESE ARTICLES OF AMENDMENT, THE FORM
HEREOF SHALL BE AMENDED TO CONFORM WITH THE REQUIREMENTS OF SUCH JURISDICTION;
PROVIDED THAT THE SUBSTANTIVE PROVISIONS HEREOF SHALL REMAIN UNAFFECTED BY ANY
SUCH AMENDMENT]
ARTICLES OF AMENDMENT
TO THE
ARTICLES OF INCORPORATION
OF
ALYDAAR SOFTWARE CORPORATION
Pursuant to the
North Carolina Business Corporation Act
Alydaar Software Corporation, a corporation organized and existing
under the laws of the State of North Carolina (the "Corporation"), hereby adopts
the following Articles of Amendment to its Articles of Incorporation ("Articles
of Amendment"):
1. The name of the Corporation is Alydaar Software Corporation.
2. These Articles of Amendment were duly adopted by the
shareholders of the Corporation on _________________, ____, 1999 in accordance
with the provisions of the North Carolina Business Corporation Act (the "Act"):
Section 2 of the Articles of Incorporation shall be deleted in its
entirety and the following substituted in lieu thereof:
The total number of shares of stock which the Corporation shall have
authority to issue is 51,000,000 shares, of which 1,000,000 shares shall be
Preferred Stock, $.001 par value per share (the "Preferred Stock"), and
50,000,000 shares shall be Common Stock, $.001 par value per share (the "Common
Stock").
The Board of Directors of the Corporation, by resolution, shall
establish the rights,
56
privileges, vote, liquidation preference, series, convertibility, dividend
(whether cumulative or non-cumulative), and redemption provisions of the
Preferred Stock (other than Series A Convertible Preferred Stock, the rights,
privileges, vote, liquidation preference, series, convertibility, dividend and
redemption provisions for which are set forth below).
A. SERIES A CONVERTIBLE PREFERRED STOCK
1. DESIGNATION AND AMOUNT.
The designation of this series, which consists of ten thousand
(10,000) shares of Preferred Stock, is the "Series A Convertible Preferred
Stock" (the "Series A Preferred Stock"). The stated value of each share of
Series A Preferred Stock (each, a "Preferred Share" and collectively, the
"Preferred Shares") shall be One Thousand Dollars ($1,000) (the "Stated Value").
The Preferred Shares are to be issued pursuant to the terms of a Securities
Purchase Agreement between the Corporation and ▇▇▇▇▇▇▇▇ Capital Management, Inc.
(the "Securities Purchase Agreement"). The date on which a Preferred Share is
issued and sold pursuant to the Securities Purchase Agreement is referred to
herein as the "Issue Date" for such Preferred Share. The holders of Preferred
Shares are each referred to herein as a "Holder" and, collectively, as the
"Holders". The Preferred Shares are convertible, as provided below, into shares
("Conversion Shares") of the Corporation's Common Stock, par value $.001 per
share (the "Common Stock"). "Tranche A Closing Date", "Tranche B Closing Date"
and "Tranche C Closing Date" each has the meaning specified in the Securities
Purchase Agreement.
2. DIVIDENDS.
The Series A Preferred Stock will not bear dividends.
3. PRIORITY.
(a) Payment upon Dissolution.
(i) Upon the occurrence of (x) any insolvency or
bankruptcy proceedings, or any receivership, liquidation, reorganization or
other similar proceedings in connection therewith, commenced by the Corporation
or by its creditors, as such, or relating to its assets or (y) the dissolution
or other winding up of the Corporation, whether voluntary or involuntary and
whether or not involving insolvency or bankruptcy proceedings, or (z) any
assignment for the benefit of creditors or any marshalling of the material
assets or material liabilities of the Corporation (each, a "Liquidation Event"),
no distribution shall be made to the holders of any shares of Junior Securities
(as defined below) unless, following the payment of preferential amounts on all
Senior Securities (as defined below), each Holder shall have received the
Liquidation Preference (as defined below) with respect to each Preferred Share
then held by such Holder. In the event that upon the occurrence of a
2
57
Liquidation Event, and following the payment of preferential amounts on all
Senior Securities (as defined below), the assets available for distribution to
the Holders and the holders of Pari Passu Securities (as defined below) are
insufficient to pay the Liquidation Preference with respect to all of the
outstanding Preferred Shares and the preferential amounts payable to such
holders, the entire assets of the Corporation shall be distributed ratably among
the Preferred Shares and the shares of Pari Passu Securities in proportion to
the ratio that the preferential amount payable on each such share (which shall
be the Liquidation Preference in the case of a Preferred Share) bears to the
aggregate preferential amount payable on all such shares.
(ii) The "Liquidation Preference" with respect to a
Preferred Share shall mean an amount equal to the Stated Value of such Preferred
Share plus the Premium (as defined below) accrued on such Preferred Share in
accordance with the terms hereof. "Junior Securities" shall mean the Common
Stock and all other capital stock of the Corporation that are not Pari Passu
Securities or do not have a preference over the Series A Preferred Stock in
respect of redemption or distribution upon liquidation. "Pari Passu Securities"
shall mean any securities ranking by their terms pari passu with the Series A
Preferred Stock in respect of redemption or distribution upon liquidation.
"Senior Securities" shall mean (i) any debt issued or assumed by the Corporation
and (ii) any securities of the Corporation which by their terms have a
preference over the Series A Preferred Stock in respect of redemption or
distribution upon liquidation.
4. CONVERSION.
(a) Right to Convert. Subject to the conditions and limitations
specifically provided herein, each Holder shall have the right, from and after
the date that is the ninetieth (90th) day following the Tranche A Closing Date
(the "Initial Conversion Date"), to convert at any time and from time to time
all or any part of the outstanding Preferred Shares held by such Holder into
such number of fully paid and non-assessable shares ("Conversion Shares") of
Common Stock, free and clear of any liens, claims, preemptive rights or
encumbrances imposed by or through the Corporation, as is determined in
accordance with the terms hereof (a "Conversion").
(b) Certain Definitions. "Trading Day" means any day on which the
Common Stock is purchased and sold on the principal securities exchange or
market on which the Common Stock is then listed or traded. "Closing Bid Price"
means, with respect to the Common Stock, the closing bid price for the Common
Stock occurring on a given Trading Day on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or, if Bloomberg Financial Markets is not then reporting such
prices, by a comparable reporting service of national reputation selected by the
Corporation and reasonably acceptable to the Holders of a majority of the
Preferred Shares then outstanding (collectively, "Bloomberg") or if the
foregoing does not apply, the last reported bid price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no bid price is reported for such security by
Bloomberg, the average of the bid prices of all market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau, Inc.
(collectively, the "Applicable Reporting Entity"). If the Closing Bid Price
cannot be calculated for such security on any of the foregoing bases, the
Closing Bid Price of such security shall be the fair market value as reasonably
determined by an investment banking firm selected by the Holders of a majority
of the Preferred Shares then outstanding and reasonably
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acceptable to the Corporation, with the costs of such appraisal to be borne by
the Corporation. "Closing Trade Price" means, with respect to the Common Stock,
the last sale price reported for the Common Stock on a given Trading Day on the
principal securities exchange or trading market where such security is listed or
traded as reported by the Applicable Reporting Entity or if no sale price was
reported by the Applicable Reporting Entity on such Trading Day, the last sale
price reported by the Applicable Reporting Entity on the Trading Day on which
such prices were last reported immediately preceding such Trading Day. "Business
Day" means any day on which the New York Stock Exchange and commercial banks
located in the cities of New York and Charlotte, North Carolina are open for
business.
(c) Conversion Notice. In order to convert Preferred Shares, a
Holder shall send by facsimile transmission (and confirm such transmission by
telephone or voicemail message), at any time prior to 7:00 p.m., eastern time,
on the Business Day on which such Holder wishes to effect such Conversion (the
"Conversion Date"), (i) a notice of conversion to the Corporation and to its
designated transfer agent for the Common Stock (the "Transfer Agent") stating
the number of Preferred Shares to be converted, the amount of Premium (as
defined below) accrued thereon, the applicable Conversion Price and a
calculation of the number of shares of Common Stock issuable upon such
Conversion (a "Conversion Notice") and (ii) a copy of the certificate or
certificates representing the Preferred Shares being converted. The Holder shall
thereafter send the original of the Conversion Notice and of such certificate or
certificates to the Transfer Agent. In the case of a dispute as to the
calculation of the Conversion Price or the number of Conversion Shares issuable
upon a Conversion, the Corporation shall promptly issue to such Holder the
number of Conversion Shares that are not disputed and shall submit the disputed
calculations to its independent accountants within two (2) Business Days of
receipt of such Holder's Conversion Notice. The Corporation shall cause such
accountant to calculate the Conversion Price as provided herein and to notify
the Corporation and such Holder of the results in writing no later than two (2)
Business Days following the day on which such accountant received the disputed
calculations (the "Dispute Procedure"). Such accountant's calculation shall be
deemed conclusive absent manifest error. The fees of any such accountant shall
be borne by the party whose calculations are most at variance with those of such
accountant.
(d) Number of Conversion Shares; Conversion Price. The number of
Conversion Shares to be delivered by the Corporation pursuant to a Conversion
shall be determined in accordance with the following formula:
SV + P
------
CP
where SV represents the aggregate Stated Value of the Preferred
Shares to be converted,
P represents the aggregate Premium accrued on such Preferred
Shares (it being understood that, unless each Premium
Conversion Condition (as defined in paragraph 4(g) below) is
satisfied or waived by the Holder of such Preferred Shares,
the Corporation may not pay accrued Premium in shares of
Common Stock and must pay such Premium on the applicable
Delivery Date (as defined below) in immediately available
funds in accordance with the terms of this Certificate), and
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CP represents the Conversion Price (as defined below) in
effect on the applicable Conversion Date.
"Premium" with respect to a Preferred Share shall be determined in accordance
with the following formula:
(SV)(.06)(N)
------------
365
where SV represents the Stated Value of such Preferred Share, and
N represents the number of days elapsed from the Issue Date
through and including the Conversion Date relating to such
Preferred Share.
Subject to adjustment as provided elsewhere herein, "Conversion Price"
shall mean the lesser of the Fixed Conversion Price and the Market Conversion
Price (each as defined below). "Fixed Conversion Price" means (A) with respect
to Preferred Shares issued at the Tranche A Closing or the Tranche B Closing
(each as defined in the Securities Purchase Agreement), (i) initially, the
average Closing Bid Price for the Common Stock during the period of ten (10)
Trading Days occurring immediately prior to the Tranche A Closing Date times one
hundred and forty percent (140%)(as adjusted from time to time for the events
specified in Section 5 below) and (ii) during each period of ninety (90) days
(each, a "Tranche A Fixed Reset Period") beginning on the one hundred and eighty
first (181st) day following the Tranche A Closing Date, the average Closing Bid
Price for the Common Stock during the period of ten (10) Trading Days occurring
immediately prior to the first day of such Tranche A Fixed Reset Period times
one hundred and one percent (101%)(as adjusted from time to time for the events
specified in Section 5 below)(the "Tranche A Reset Fixed Conversion Price") and
(B) with respect to Preferred Shares issued at the Tranche C Closing (as defined
in the Securities Purchase Agreement), (i) initially, the average Closing Bid
Price for the Common Stock during the period of ten (10) Trading Days occurring
immediately prior to the Tranche C Closing Date times one hundred and forty
percent (140%)(as adjusted from time to time for the events specified in Section
5 below) and (ii) during each period of ninety (90) days (each, a "Tranche C
Fixed Reset Period") beginning on the one hundred and eighty first (181st) day
following the Tranche C Closing Date, the average Closing Bid Price for the
Common Stock during the period of ten (10) Trading Days occurring immediately
prior to the first day of such Tranche C Fixed Reset Period times one hundred
and one percent (101%)(as adjusted from time to time for the events specified in
Section 5 below)(the "Tranche C Reset Fixed Conversion Price")(the Tranche A
Fixed Reset Period and the Tranche C Fixed Reset Period are sometimes together
referred to herein as a "Fixed Reset Period", and the Tranche A Reset Fixed
Conversion Price and the Tranche C Reset Fixed Conversion Price are sometimes
together referred to herein as a "Reset Fixed Conversion Price"); provided,
however, that a Reset Fixed Conversion Price will apply to a Fixed Reset Period
only if such price is equal to or less than the Fixed Conversion Price that
applied during the immediately preceding period; otherwise, the Fixed Conversion
Price that applied during the immediately preceding period will remain in effect
during such Fixed Reset Period. Notwithstanding the foregoing, if during the
ninety-day period following the Tranche A Closing Date, the Closing Trade Price
for the Common Stock is less than $7.00 for five (5) consecutive Trading Days
(subject to adjustment for the events specified in Section 5 below) the Fixed
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Conversion Price for all Conversions thereafter shall be equal to the lesser of
(A) the amount determined in accordance with the immediately preceding sentence
and (B) the average of the five (5) lowest consecutive Closing Trade Prices for
the Common Stock occurring during the ninety-day period following the Tranche A
Closing Date times one hundred and four percent (104%)(subject to adjustment for
the events specified in Section 5 below). "Market Conversion Price" means (A)
with respect to Preferred Shares issued at the Tranche A Closing or the Tranche
B Closing (each as defined in the Securities Purchase Agreement), (i) initially,
the average Closing Bid Price for the Common Stock during the period of ten (10)
Trading Days occurring immediately prior to the Initial Conversion Date times
one hundred and four percent (104%)(as adjusted from time to time for the events
specified in Section 5 below) and (ii) during each period of thirty (30) days
(each, a "Tranche A Market Reset Period") beginning on the thirty first (31st)
day following the Initial Conversion Date, the average Closing Bid Price for the
Common Stock during the period of ten (10) Trading Days occurring immediately
prior to the first day of such Tranche A Market Reset Period times one hundred
and four percent (104%)(as adjusted from time to time for the events specified
in Section 5 below)(the "Tranche A Reset Market Conversion Price") and (B) with
respect to Preferred Shares issued at the Tranche C Closing (as defined in the
Securities Purchase Agreement), (i) initially, the average Closing Bid Price for
the Common Stock during the period of ten (10) Trading Days occurring
immediately prior to the ninetieth (90th) day following the Tranche C Closing
Date times one hundred and four percent (104%)(as adjusted from time to time for
the events specified in Section 5 below) and (ii) during each period of thirty
(30) days (each, a "Tranche C Market Reset Period") beginning on the one hundred
and twenty first (121st) day following the Tranche C Closing Date, the average
Closing Bid Price for the Common Stock during the period of ten (10) Trading
Days occurring immediately prior to the first day of such Tranche C Market Reset
Period times one hundred and four percent (104%)(as adjusted from time to time
for the events specified in Section 5 below)(the "Tranche C Reset Market
Conversion Price")(the Tranche A Market Reset Period and the Tranche C Market
Reset Period are sometimes together referred to herein as a "Market Reset
Period", and the Tranche A Reset Market Conversion Price and the Tranche C Reset
Market Conversion Price are sometimes together referred to herein as a "Reset
Market Conversion Price"); provided, however, that a Reset Market Conversion
Price will apply to a Market Reset Period only if such price is equal to or less
than the Market Conversion Price that applied during the immediately preceding
period; otherwise, the Market Conversion Price that applied during the
immediately preceding period will remain in effect during such Market Reset
Period.
(e) Delivery of Common Stock Upon Conversion. Upon receipt of a
Conversion Notice from a Holder pursuant to paragraph 4(c) above, the
Corporation shall, no later than the close of business on the third (3rd)
Business Day following the Conversion Date set forth in such Conversion Notice
(the "Delivery Date"), issue and deliver or caused to be delivered to such
Holder the number of Conversion Shares determined pursuant to paragraph 4(d)
above, provided, however, that any Conversion Shares that are the subject of a
Dispute Procedure shall be delivered no later than the close of business on the
third (3rd) Business Day following the determination made pursuant thereto. The
Corporation shall effect delivery of Conversion Shares to such Holder by, as
long as the Transfer Agent participates in the Depository Trust Company ("DTC")
Fast Automated Securities Transfer program ("FAST"), crediting the account of
such Holder or its nominee at DTC (as specified in the applicable Conversion
Notice) with the number of Conversion Shares required to be delivered, no later
than the close of business on such Delivery Date. In the event that the Transfer
Agent is not a participant in FAST or if a Holder so specifies in a Conversion
Notice or otherwise in writing on or before the Conversion Date, the Corporation
shall effect delivery of Conversion Shares by
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delivering to such Holder or its nominee physical certificates representing such
Conversion Shares, no later than the close of business on such Delivery Date. If
any Conversion would create a fractional Conversion Share, such fractional
Conversion Share shall be disregarded and the number of Conversion Shares
issuable upon such Conversion, in the aggregate, shall be the next higher number
of Conversion Shares. Conversion Shares delivered to a Holder shall not contain
any restrictive legend as long as the resale of such Conversion Shares (A) is
covered by an effective Registration Statement (as defined in the Registration
Rights Agreement, dated as of March 5, 1999, between the Corporation and
▇▇▇▇▇▇▇▇ Capital Management, Inc.(the "Registration Rights Agreement")), (B) has
been made pursuant to Rule 144 under the Securities Act of 1933, as amended (the
"Securities Act"), or (C) may be made pursuant to Rule 144(k) under the
Securities Act or any successor rule or provision.
(f) Failure to Deliver Conversion Shares.
(i) In the event that the Corporation fails for any
reason to deliver to a Holder the number of Conversion Shares specified in the
applicable Conversion Notice on or before the Delivery Date therefor (a
"Conversion Default"), and such default continues for seven (7) Business Days
following delivery of a written notice of such default by such Holder to the
Corporation, the Corporation shall pay to such Holder payments ("Conversion
Default Payments") in the amount of (i) (N/365) multiplied by (ii) the aggregate
Stated Value of the Preferred Shares which are the subject of such Conversion
Default multiplied by (iii) the lower of twenty-four percent (24%) and the
maximum rate permitted by applicable law (the "Default Interest Rate"), where
"N" equals the number of days elapsed between the original Delivery Date of such
Conversion Shares and the earlier to occur of (A) the date on which all of such
Conversion Shares are issued and delivered to such Holder and (B) the date on
which the Preferred Shares represented thereby are redeemed pursuant to the
terms of this Amendment. Cash amounts payable hereunder shall be paid on or
before the fifth (5th) Business Day of the calendar month following the calendar
month in which such amount has accrued.
(ii) In the event that a Holder has not received
certificates representing the Conversion Shares by the seventh (7th) Business
Day following a Conversion Default, such Holder may, upon written notice to the
Corporation (a "Conversion Default Notice"), regain on the date of such notice
the rights of a holder of the Preferred Shares that are the subject of such
Conversion Default, in which case the Market Conversion Price upon any
subsequent conversion of such Preferred Shares will be equal to the lesser of
(x) the lowest Conversion Price occurring during the period beginning on related
Delivery Date and ending on the date on which the Conversion Default Notice is
delivered to the Corporation and (y) the Conversion Price in effect on the
applicable Conversion Date (it being understood that such Holder may deliver a
Conversion Notice at any time following delivery of a Conversion Default Notice
to the Corporation). In such event, such Holder shall retain all of such
Holder's rights and remedies with respect to the Corporation's failure to
deliver such Conversion Shares (including without limitation the right to
receive the cash payments specified in subparagraph 4(f)(i) above).
(iii) Nothing herein shall limit a Holder's right to pursue
actual damages for the Corporation's failure to issue and deliver Conversion
Shares on the applicable Delivery Date (including, without limitation, damages
relating to any purchase of Common Stock by such Holder
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to make delivery on a sale effected in anticipation of receiving Conversion
Shares upon Conversion, such damages to be in an amount equal to (A) the
aggregate amount paid by such Holder for the Common Stock so purchased minus (B)
the aggregate amount of net proceeds, if any, received by such Holder from the
sale of the Conversion Shares issued by the Corporation pursuant to such
Conversion), and such Holder shall have the right to pursue all remedies
available to it at law or in equity (including, without limitation, a decree of
specific performance and/or injunctive relief); provided, however, that, in the
event, following a Conversion Default, the Corporation delivers to such Holder
the Conversion Shares that are required to be issued by the Corporation pursuant
to such Conversion, such Holder shall use commercially reasonable efforts to
sell such shares promptly following such delivery.
(g) Premium Conversion Conditions. The Corporation's right to pay
accrued Premium in Conversion Shares upon Conversion of Preferred Shares is
conditioned upon the satisfaction of each of the following conditions (the
"Premium Conversion Conditions"):
(i) no Mandatory Redemption Event (as defined herein), or
an event that with the passage of time would constitute a Mandatory Redemption
Event, has occurred and is continuing; and
(ii) such payment of Premium in Conversion Shares will not
violate the limitations set forth in paragraph 4(h) below.
In the event that any Premium Conversion Condition is not satisfied as of a
Conversion Date for Preferred Shares, the accrued Premium on such Preferred
Shares shall be payable by the Corporation to the Holder in immediately
available funds on the Delivery Date immediately following such Conversion Date.
If the Corporation fails to deliver the amount of such Premium in immediately
available funds to the Holder on or before the close of business on the Delivery
Date therefor, such amount will bear interest at the Default Interest Rate.
(h) Limitations on Right to Convert.
In no event shall a Holder be permitted to convert any Preferred Shares
in excess of the number of such shares, upon the Conversion of which:
(A) the number of Conversion Shares to be issued pursuant
to such Conversion, when added to the number of shares of Common Stock issued
pursuant to all prior Conversions of Preferred Shares and conversions of
Debentures (as defined in the Securities Purchase Agreement), would exceed
19.99% of the number of outstanding shares of Common Stock on the Tranche A
Closing Date (subject to equitable adjustment from time to time for the events
described in Section 5 below) (the "Cap Amount"), except that such limitation
shall not apply in the event that (i) the Corporation obtains the approval of
its stockholders as required by NASD Rule 4460 (or any successor rule or
regulation) for issuances of Common Stock in excess of the Cap Amount or (ii)
such Holder obtains an opinion of counsel reasonably satisfactory to the
Corporation that such approval is not required. In the event that a Holder shall
sell or otherwise transfer all or any such Holder's Preferred Shares, the
transferee shall be allocated a pro rata portion of the Cap Amount. In the event
that following a sale or transfer of Preferred Shares, a Holder converts all of
such Holder's
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Preferred Shares into a number of Conversion Shares which, in the aggregate, is
less than the remaining portion of such Holder's Cap Amount, then the difference
between such remaining portion of such Holder's Cap Amount and the number of
Conversion Shares actually issued to such Holder shall be allocated to the
respective Cap Amounts of the remaining Holders.
(B) (x) the number of shares of Common Stock beneficially owned by
a Holder (other than Common Stock which may be deemed beneficially owned except
for being subject to a limitation on conversion or exercise analogous to the
limitation contained in this subparagraph (B)) plus (y) the number of shares of
Common Stock issuable upon the Conversion of such Preferred Shares is equal to
or exceeds (z) 4.99% of the number of shares of Common Stock then issued and
outstanding. Nothing contained herein shall be deemed to restrict the right of a
Holder to convert such excess Preferred Shares at such time as such Conversion
will not violate the provisions of this subparagraph (B). As used herein,
beneficial ownership shall be determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the rules thereunder. To the
extent that the limitation contained in this subparagraph (B) applies, the
determination of whether Preferred Shares are convertible shall be in the sole
discretion of such Holder, and the submission of Preferred Shares for Conversion
shall be deemed to be such Holder's determination that such Preferred Shares are
convertible pursuant to the terms hereof, and the Corporation shall have no
right or obligation whatsoever to verify or confirm the accuracy of such
determination. This paragraph may not be amended without the consent of the
holders of a majority of the shares of Common Stock then outstanding. The
restriction contained in this subparagraph (B) shall not apply in the event of a
Conversion at Maturity.
(i) Conversion at Maturity. On the date which is five (5) years
following the Issue Date (the "Maturity Date") for a Preferred Share, such
Preferred Share shall be automatically converted into the number of shares of
Common Stock equal to the Liquidation Preference of such Preferred Share divided
by the Conversion Price then in effect If such Conversion occurs, the
Corporation and such Holder shall follow the procedures for conversion set forth
in this Section 4, with the Maturity Date deemed to be the Conversion Date,
except that such Holder shall not be required to send a Conversion Notice
pursuant to paragraph 4(c).
5. ADJUSTMENTS TO CONVERSION PRICE.
(a) Adjustment to Conversion Price Due to Stock Split, Stock
Dividend, Etc. If, prior to the Conversion of all of the outstanding Preferred
Shares, (A) the number of outstanding shares of Common Stock is increased by a
stock split, a stock dividend on the Common Stock, a reclassification of the
Common Stock, the distribution to all or substantially all of the holders of
Common Stock of rights or warrants entitling them to subscribe for or purchase
Common Stock at less than the then current market price thereof (based upon the
subscription or exercise price of such rights or warrants at the time of the
issuance thereof) or other similar event, the Conversion Price shall be
proportionately reduced, or (B) the number of outstanding shares of Common Stock
is decreased by a reverse stock split, combination or reclassification of shares
or other similar event, the Conversion Price shall be proportionately increased.
In such event, the Corporation shall notify each Holder and the Transfer Agent
of such change on or before the effective date thereof. For purposes hereof, the
market price per share of Common Stock on any date shall be the average Closing
Trade Price for the Common Stock as reported by the Applicable Reporting Entity
on the five (5) consecutive Trading Days (as
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defined below) immediately preceding such date. If such market price cannot be
calculated on any of the foregoing bases, such market price shall be the fair
market value as reasonably determined by an investment banking firm selected by
the Holders of a majority of the Preferred Shares then outstanding and
reasonably acceptable to the Corporation, with the costs of such appraisal to be
borne by the Corporation.
(b) Adjustment to Conversion Price during Reference Period. If,
prior to the Conversion of all of the outstanding Preferred Shares, the number
of outstanding shares of Common Stock is increased or decreased by a stock
split, stock dividend, combination, reclassification or other similar event,
which event shall have taken place during the reference period for determination
of the Conversion Price for any conversion of Preferred Shares, the Conversion
Price shall be calculated giving appropriate effect to the stock split, stock
dividend, combination, reclassification or other similar event for all Trading
Days immediately preceding the Conversion Date.
(c) Adjustment Due to Merger, Consolidation, Etc. If, prior to the
Conversion of all of the outstanding Preferred Shares, there shall be any
merger, consolidation, business combination, tender offer, exchange of shares,
recapitalization, reorganization, redemption or other similar event, as a result
of which shares of Common Stock shall be changed into the same or a different
number of shares of the same or another class or classes of stock or securities
of the Corporation or another entity (an "Exchange Transaction"), then each
Holder shall (A) upon the consummation of such Exchange Transaction, have the
right to receive, with respect to any shares of Common Stock then held by such
Holder, or which such Holder is then entitled to receive pursuant to a
Conversion Notice previously delivered by such Holder (and without regard to
whether such shares contain a restrictive legend or are freely-tradable), the
same amount and type of consideration (including without limitation, stock,
securities and/or other assets) and on the same terms as a holder of shares of
Common Stock would be entitled to receive in connection with the consummation of
such Exchange Transaction (the "Exchange Consideration"), and (B) upon the
Conversion of Preferred Shares occurring subsequent to the consummation of such
Exchange Transaction (a "Subsequent Conversion"), have the right to receive the
Exchange Consideration which such Holder would have been entitled to receive in
connection with such Exchange Transaction had such Preferred Shares been
converted immediately prior to such Exchange Transaction at the Conversion Price
applicable to such Subsequent Conversion, and in any such case appropriate
provisions shall be made with respect to the rights and interests of the Holders
to the end that the provisions hereof (including, without limitation, provisions
for the adjustment of the Conversion Price and of the number of shares of Common
Stock issuable upon a Conversion) shall thereafter be applicable as nearly as
may be practicable in relation to any securities thereafter deliverable upon the
Conversion of Preferred Shares. The Corporation shall not effect any Exchange
Transaction unless (i) it (or, in the case of a tender offer, the offering
party) first gives to each Holder twenty (20) days prior written notice of such
Exchange Transaction (an "Exchange Notice"), and makes a public announcement of
such event at the same time that it gives such notice (it being understood that
the filing by the Corporation of a Form 8-K with the Securities and Exchange
Commission for the purpose of disclosing the anticipated consummation of the
Exchange Transaction shall constitute an Exchange Notice for purposes of this
provision) and (ii) the resulting successor or acquiring entity (if not the
Corporation) assumes by written instrument the obligations of the Corporation
hereunder, including the terms of this subparagraph 5(c), and under the
Securities Purchase Agreement and the Registration Rights Agreement.
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(d) Distribution of Assets. If, prior to the Conversion of all of
the outstanding Preferred Shares, the Corporation or any of its subsidiaries
shall declare or make any distribution of cash, evidences of indebtedness or
other securities or assets (other than cash dividends or distributions payable
out of earned surplus or net profits for the current or the immediately
preceding year), or any rights to acquire any of the foregoing, to holders of
Common Stock (or to the holder, other than the Corporation, of the common stock
of any such subsidiary) as a partial liquidating dividend, by way of return of
capital or otherwise, including any dividend or distribution in shares of
capital stock of a subsidiary of the Corporation (collectively, a
"Distribution"), the Corporation shall have the option of either (A)
distributing the assets that are the subject of such Distribution to the Holders
at the same time that it distributes such assets to the holders of Common Stock
(or to the holders of the common stock of any such subsidiary), in which case
each Holder shall be entitled to receive such assets in an amount equal to the
amount of such assets that a holder of the number of shares of Common Stock into
which the Preferred Shares held by such Holder are convertible on the record
date for such Distribution would be entitled to receive (such number to be
determined using the Conversion Price in effect on such record date and without
regard to any restriction or limitation on such conversion or exercise that
might otherwise exist, including without limitation, as a result of such record
date occurring prior to the Initial Conversion Date) or (B) for any Conversion
occurring after the record date for such Distribution, reducing the applicable
Conversion Price by an amount equal to the fair market value of the assets so
distributed with respect to each share of Common Stock, such fair market value
to be determined by an investment banking firm selected by the Holders of a
majority of the Preferred Shares then outstanding and reasonably acceptable to
the Corporation. The Corporation shall notify each Holder in writing no later
than the fifth (5th) Business Day prior to the record date for a Distribution
whether the Corporation will elect to apply the provisions of clause (A) or
clause (B) hereof to such Distribution; in the event that the Corporation fails
to deliver such notice on or before the close of business on such fifth Business
Day, the provisions of clause (B) hereof will apply.
(e) Adjustment Due to Major Announcement. If the Corporation (i)
makes a public announcement that it intends to enter into a Change of Control
Transaction (as defined below) or (ii) any person, group or entity (including
the Corporation) publicly announces a tender offer, exchange offer or other
transaction to purchase 50% or more of the Common Stock (such announcement being
referred to herein as a "Major Announcement" and the date on which a Major
Announcement is made, the "Announcement Date"), then, in the event that a Holder
seeks to convert Preferred Shares on or following the Announcement Date, the
Conversion Price shall, effective upon the Announcement Date and continuing
through the Business Day following the earlier to occur of the consummation of
the proposed transaction or tender offer, exchange offer or other transaction
and the Abandonment Date (as defined below), be equal to the lower of (x) the
average Conversion Price for the Common Stock on the five (5) Trading Days
immediately preceding (but not including) the Announcement Date and (y) the
Conversion Price in effect on the Conversion Date for such Preferred Shares.
"Abandonment Date" means with respect to any proposed transaction or tender
offer, exchange offer or other transaction for which a public announcement as
contemplated by this paragraph 5(e) has been made, the date upon which the
Corporation (in the case of clause (i) above) or the person, group or entity (in
the case of clause (ii) above) publicly announces the termination or abandonment
of the proposed transaction or tender offer, exchange offer or another
transaction which caused this paragraph 3(e) to become operative.
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(f) Adjustment Pursuant to Other Agreements. In addition to and
without limiting in any way the adjustments provided in this Section 5, the
Conversion Price shall be adjusted as may be required by the provisions of the
Securities Purchase Agreement and/or the Registration Rights Agreement.
(g) No Fractional Shares. If any adjustment under this Section 5
would create a fractional share of Common Stock or a right to acquire a
fractional share of Common Stock, such fractional share shall be disregarded and
the number of shares of Common Stock issuable upon Conversion shall be the next
higher number of shares.
6. REDEMPTION.
(A) Optional Redemption By Corporation.
(a) Optional Redemption. The Corporation shall have the right, at
any time and from time to time, upon the satisfaction of the Optional Redemption
Conditions (as defined below), to redeem all (but not less than all) of the
Preferred Shares outstanding on the Optional Redemption Date (as defined below),
plus all accrued and unpaid Premium thereon, in accordance with the terms hereof
(an "Optional Redemption"). The date on which an Optional Redemption is effected
and the Optional Redemption Price (as defined below) is paid by the Corporation
to each Holder is referred to herein as an "Optional Redemption Date". It is
expressly understood that each Holder shall have the right, at any time prior to
the Optional Redemption Date, to convert all or any portion of the Preferred
Shares outstanding at any time prior to the Optional Redemption Date.
(b) Optional Redemption Notice. In order to effect an Optional
Redemption hereunder, the Corporation must deliver to each Holder written notice
of such Optional Redemption (an "Optional Redemption Notice") on or before 5:00
p.m. (eastern time) on the Business Day immediately following any Trading Day on
which each of the Optional Redemption Conditions is satisfied. The Optional
Redemption Date shall occur on a Business Day, as specified in the Optional
Redemption Notice, that is at least five (5) Trading Days but no more than ten
(10) Trading Days following the date on which the Optional Redemption Notice is
delivered to each Holder. In the event that the Corporation delivers an Optional
Redemption Notice to the Holders prior to the ninetieth (90th) day following the
Tranche A Closing Date, the date on which such notice is delivered to the
Holders shall be deemed to be the Initial Conversion Date for purposes hereof,
and each Holder shall have the right to convert Preferred Shares from and after
such date.
(c) Optional Redemption Conditions. The Optional Redemption
Conditions are as follows:
(i) the Closing Trade Price for the Common Stock is less
than $5.50 (subject to equitable adjustment for the
events specified in Section 5 hereof); and
(ii) a Mandatory Redemption Event (as defined below), or
an event that with the passage of time would
constitute a Mandatory Redemption Event, shall not
have occurred and be continuing.
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(d) Optional Redemption Price. The "Optional Redemption Price" to
be paid by the Corporation to each Holder in the event of an Optional Redemption
shall be equal to (A) (i) the aggregate Stated Value of the Preferred Shares
held by such Holder as of the Optional Redemption Date times (ii) 110% plus (B)
all accrued and unpaid Premium thereon.
(e) Payment of Optional Redemption Price.
(i) The Corporation shall pay the Optional Redemption
Price by wire transfer in immediately available funds to each Holder on or
before 5:00 p.m. (eastern time) on the Optional Redemption Date.
(ii) If the Corporation fails to pay the Optional
Redemption Price by wire transfer in immediately available funds to a Holder on
or before the Optional Redemption Date, (i) such Holder shall be entitled to
interest thereon, from and after the Optional Redemption Date until the Optional
Redemption Price has been paid in full, at an annual rate equal to the Default
Interest Rate for the number of days elapsed from the Optional Redemption Date
until such amount is paid in full, (ii) such Holder shall have the option to
regain, as of the date of delivery of written notice thereof to the Corporation
(a "Redemption Default Notice"), its rights as a Holder of the Preferred Shares
being redeemed, and (iii) in the event that the Corporation fails to pay the
Optional Redemption Price to such Holder on or before the close of business on
the Business Day immediately following the delivery of written notice of such
failure by such Holder to the Corporation, the Corporation shall not be entitled
to effect an Optional Redemption thereafter.
(B) Mandatory Redemption By Holder.
(a) Mandatory Redemption. In the event that a Mandatory
Redemption Event (as defined herein) occurs, each Holder shall have the right,
upon written notice to the Corporation (a "Mandatory Redemption Notice"), to
require the Corporation to redeem all or any portion of the Preferred Shares
held by such Holder (a "Mandatory Redemption") at the Mandatory Redemption Price
(as defined herein) in same day funds. The Mandatory Redemption Notice shall
specify the effective date of such Mandatory Redemption (the "Mandatory
Redemption Date"), which date must be at least three (3) Business Days following
the Business Day on which the Mandatory Redemption Notice is delivered to the
Corporation, and the number of Preferred Shares to be redeemed. In order to
effect a Mandatory Redemption hereunder, a Holder must deliver a Mandatory
Redemption Notice no later than the close of business on the Business Day
immediately following the Business Day on which a Mandatory Redemption Event is
no longer continuing; provided, however, that with respect to a Change of
Control Transaction (as defined below), a Holder must deliver a Mandatory
Redemption Notice no later than the close of business on the Business Day
following the date on which such Change of Control Transaction is effected.
(b) Mandatory Redemption Price. The "Mandatory Redemption
Price" (other than for a Change of Control Transaction (as defined below)) shall
be equal to (A)(i) the aggregate Stated Value of the Preferred Shares being
redeemed multiplied by (ii) one hundred and twenty-five percent (125%) (the
"Mandatory Redemption Percentage") plus (B) all unpaid Premium accrued thereon.
The Mandatory Redemption Percentage for a Change of Control Transaction shall be
equal
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to one hundred and ten percent (110%); provided, however, that if following a
Change of Control Transaction, the common stock of the surviving entity either
(A) is not publicly traded or (B) is publicly traded and the average daily
trading volume for such common stock is less than $1,500,000 during the period
of four weeks immediately preceding such Change of Control Transaction, the
Mandatory Redemption Percentage for a Change of Control Transaction shall be
equal to one hundred and twenty-five percent (125%).
(c) Payment of Mandatory Redemption Price.
(i) The Corporation shall pay the Mandatory
Redemption Price to each Holder exercising its right to redemption on the later
to occur of (i) the fifth (5th) Business Day following the Mandatory Redemption
Date and (ii) the Business Day on which the Preferred Shares being redeemed are
delivered by the Purchaser to the Corporation for cancellation (the "Mandatory
Redemption Payment Date").
(ii) If Corporation fails to pay the Mandatory
Redemption Price to a Holder within five (5) Business Days of the Mandatory
Redemption Payment Date, such Holder shall be entitled to interest thereon at
the Default Interest Rate from the Mandatory Redemption Date until the Mandatory
Redemption Price has been paid in full.
(d) Mandatory Redemption Event. Each of the following events shall
be deemed a "Mandatory Redemption Event":
(i) the Corporation fails for any reason (including
without limitation as a result of not having a sufficient number of shares of
Common Stock authorized and reserved for issuance or as a result of the
limitations contained in paragraph 5(i)) to issue shares of Common Stock to a
Holder in accordance with the provisions hereof upon Conversion of Preferred
Shares, as a result of action taken by the Corporation or the failure of the
Corporation to take action, and such failure to issue Common Stock continues for
ten (10) Business Days after written notice thereof to the Corporation from such
Holder;
(ii) the Corporation breaches, in a material respect, any
covenant or other material term or condition of these Articles of Incorporation
relating to the Preferred Shares or of the Securities Purchase Agreement or the
Registration Rights Agreement, as a result of action taken by the Corporation or
the failure of the Corporation to take action, and such breach continues for a
period of ten (10) Business Days after written notice thereof to the Corporation
from a Holder;
(iii) as a result of action taken by the Corporation or the
failure of the Corporation to take action, the Registration Statement (as
defined in the Registration Rights Agreement) is not declared effective by the
120th day following the date on which the Registration Statement is filed with
the Securities and Exchange Commission or, if the Registration Statement has
been declared effective by such date, and the effectiveness of the Registration
Statement lapses for any reason (including without limitation, the issuance of a
stop order) or is unavailable to a Holder for sale of Conversion Shares in
accordance with the terms of the Registration Rights Agreement, and such
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lapse or unavailability continues for a period of five (5) Business Days,
provided that the cause of such lapse or unavailability is not due to factors
solely within the control of such Holder;
(iv) the Common Stock is no longer quoted on the Nasdaq
National Market or listed on the New York Stock Exchange, as a result of action
taken by the Corporation or the failure of the Corporation to take action; and
(v) the sale, conveyance or disposition of all or
substantially all of the assets of the Corporation, the effectuation of a
transaction or series of transactions, in which more than 50% of the voting
power of the Corporation is disposed of, or the consolidation, merger or other
business combination of the Corporation with or into any other entity,
immediately following which the prior stockholders of the Corporation fail to
own, directly or indirectly, at least fifty percent (50%) of the surviving
entity (other than a tender offer for the Common Stock by a third party, where
the Board of Directors of the Corporation has recommended to the Corporation's
shareholders that they refrain from tendering their shares to such third
party)(a "Change of Control Transaction").
(e) Failure to Pay Redemption Amounts. If the Corporation fails to
pay the Mandatory Redemption Price within ten (10) Business Days of the
Mandatory Redemption Date therefor, then each Holder shall have the right to
either (A) to require the Corporation, upon written notice, to immediately
issue, in lieu of the Mandatory Redemption Price, the number of shares of Common
Stock of the Corporation equal to the Mandatory Redemption Price divided by the
Conversion Price in effect on such Conversion Date as is specified by such
Holder in writing to the Corporation or (B) to regain, as of the date of
delivery of written notice thereof to the Corporation (a "Mandatory Redemption
Default Notice"), its rights as a Holder of Preferred Shares, in which case the
Conversion Price upon any subsequent conversion of Preferred Shares will be
equal to the lesser of (x) the lowest Conversion Price occurring during the
period beginning on the date on which the Mandatory Redemption Notice is
delivered to such Holder and ending on the date on which the Mandatory
Redemption Default Notice is delivered to the Corporation and (y) the Conversion
Price in effect on the applicable Conversion Date (it being understood that a
Holder may deliver a Conversion Notice at any time following delivery of a
Mandatory Redemption Default Notice to the Corporation).
7. MISCELLANEOUS.
(a) Failure to Exercise Rights not Waiver. No failure or delay on
the part of a Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege preclude any other or further exercise
thereof. All rights and remedies of a Holder hereunder are cumulative and not
exclusive of any rights or remedies otherwise available.
(b) Remedies, Characterization, Other Obligations, Breaches and
Injunctive Relief. The remedies provided to a Holder in these Articles of
Incorporation shall be cumulative and in addition to all other remedies
available to such Holder hereunder or under any Transaction Document (as defined
in the Securities Purchase Agreement), at law or in equity (including without
limitation a decree of specific performance and/or other injunctive relief), no
remedy contained herein shall be deemed a waiver of compliance with the
provisions giving rise to such remedy and nothing contained herein shall
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limit such Holder's right to pursue actual damages for any failure by the
Corporation to comply with the terms of these Articles of Incorporation as they
relate to the Preferred Shares. The Corporation agrees that there shall be no
characterization concerning this instrument other than as specifically provided
herein. Amounts set forth or provided for herein with respect to payments,
conversion and the like (and the computation thereof) shall be the amounts to be
received by a Holder and shall not, except as expressly provided herein, be
subject to any other obligation of the Corporation (or the performance thereof).
The Corporation acknowledges that a breach by it of its obligations hereunder
will cause irreparable harm to each Holder and that the remedy at law for any
such breach may be inadequate.
(c) Notices. Any notice, demand or request required or permitted
to be given by the Corporation or a Holder pursuant to the terms hereof shall be
in writing and shall be deemed given (i) when delivered personally or by
verifiable facsimile transmission (with a hard copy to follow), (ii) on the next
Business Day after timely delivery to an overnight courier and (iii) on the
Business Day actually received if deposited in the U.S. mail (certified or
registered mail, return receipt requested, postage prepaid), addressed as
follows:
If to the Corporation:
Alydaar Software Corporation
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: J. ▇▇▇▇ ▇▇▇▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
with a copy to:
McGuire, Woods, Battle & ▇▇▇▇▇▇ LLP
Bank of America Corporate Center
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇, Esq.
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
and if to a Holder, at such address as such Holder shall have furnished the
Corporation in writing.
(d) Transfer of Preferred Shares. A Holder may sell or transfer
all or any portion of the Preferred Shares to any person or entity as long as
such sale or transfer is the subject of an effective registration statement
under the Securities Act or is exempt from registration thereunder and otherwise
is made in accordance with the terms of the Securities Purchase Agreement;
provided, however, that transfers of Preferred Shares must be for a minimum
Stated Value of at least $500,000. From and after the date of such sale or
transfer, the transferee thereof shall be deemed to be a Holder. Upon any such
sale or transfer, the Corporation shall, promptly following the return of the
certificate or certificates representing the Preferred Shares that are the
subject of such sale or transfer, issue and
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deliver to such transferee a new certificate in the name of such transferee. The
Corporation shall be entitled to treat the original Holder of Preferred Shares
as the holder thereof unless and until it receives written notice of the sale,
transfer or disposition thereof.
(e) Lost or Stolen Certificate. Upon receipt by the Corporation of
evidence of the loss, theft, destruction or mutilation of a certificate
representing Preferred Shares, and (in the case of loss, theft or destruction)
of indemnity or security reasonably satisfactory to the Corporation, and upon
surrender and cancellation of such certificate if mutilated, the Corporation
shall execute and deliver to the Holder thereof a new certificate identical in
all respects to the original certificate.
(f) Protective Provisions.
(A) So long as shares of Series A Preferred Stock are
outstanding, the Corporation shall not, without first obtaining the approval of
the Holders of at least two-thirds (2/3) of the outstanding shares of Series A
Preferred Stock, alter, change, modify or amend (x) the terms of the Series A
Preferred Stock in any way or (y) the terms of any other capital stock of the
Corporation so as to affect adversely the Series A Preferred Stock; and
(B) So long as at least 50 shares of Series A Preferred
Stock are outstanding, the Corporation shall not, without first obtaining the
approval of the Holders of at least two-thirds (2/3) of the outstanding shares
of Series A Preferred Stock:
(i) create any new class or series of capital
stock having a preference over or ranking pari passu with the Series A Preferred
Stock as to redemption or distribution of assets upon a Liquidation Event or any
other liquidation, dissolution or winding up of the Corporation;
(ii) increase the authorized number of shares of
Series A Preferred Stock;
(iii) re-issue any shares of Series A Preferred
Stock which have been converted or redeemed in accordance with the terms hereof;
(iv) issue any Pari Passu Securities or Senior
Securities (other than debt securities which may be convertible into or
exchangeable for Common Stock or any other equity or convertible security of the
Corporation junior to the Series A Preferred Stock);
(v) redeem, or declare, pay or make any
provision for any distribution of cash or other assets, whether as a dividend
(other than a stock dividend) or otherwise with respect to, the Common Stock or
any other capital stock of the Corporation ranking junior to the Series A
Preferred Stock as to the distribution of assets upon liquidation, dissolution
or winding up of the Corporation; provided, however, that the Corporation may
repurchase shares of Common Stock as long as (i) such repurchase is offered to
all of the Corporation's shareholders (on a pro rata basis or otherwise) and
(ii) the purchase price for the shares to be repurchased is paid out of earnings
of the Corporation for the then current and/or immediately preceding fiscal
year; or
(vi) issue any Series A Preferred Stock except
pursuant to the terms of the Securities Purchase Agreement.
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In the event that the Holders of at least two-thirds of the outstanding
shares of Series A Preferred Stock agree to allow the Corporation to alter or
change the rights, preferences or privileges of the shares of Series A Preferred
Stock pursuant to the terms of paragraph (A) above, then the Corporation will
deliver notice of such approved change to the holders of the Series A Preferred
Stock that did not agree to such alteration or change (the "Dissenting Holders")
and the Dissenting Holders shall have the right for a period of thirty (30) days
following such delivery to convert their Preferred Shares pursuant to the terms
hereof as they existed prior to such alteration or change, or to continue to
hold such Preferred Shares. No such change shall be effective to the extent
that, by its terms, it applies to less than all of the Holders of Preferred
Shares then outstanding."
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the Corporation has executed these Articles of Amendment on
, 1999.
------ ---
ALYDAAR SOFTWARE CORPORATION
By:
----------------------------
Name:
Title:
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