THE MED-DESIGN CORPORATION
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is entered into as of
the Closing Date (as defined herein) by and among The Med-Design Corporation, a
Delaware corporation, and the persons whose signatures appear on the execution
pages of this Agreement.
This Agreement is made pursuant to the Debenture Purchase Agreement between
the Company and each of the Purchasers listed (the "Purchase Agreements"). In
order to induce the Purchasers to enter into the Purchase Agreement, the Company
has agreed to provide the registration rights set forth in this Agreement. The
execution of this Agreement by the Company is a condition to the closing under
the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
Capitalized terms used herein without definition shall have their
respective meanings set forth in the Purchase Agreement. As used in this
Agreement, the following terms shall have the following meanings:
Closing Date: The date assigned thereto in the Purchase Agreement.
Common Stock: The common stock, $0.01 par value per share, of the Company.
Company: The Med-Design Corporation, a Delaware corporation.
Conversion Shares: Shares obtained through the Subordinated Debenture.
Exchange Act: The Securities Exchange Act of 1934, as amended, and the
rules and regulations of the SEC promulgated thereunder.
Losses: See Section 6 hereof.
Placement Agent: Pennsylvania Merchant Group
Prospectus: The prospectus included in any Registration Statement
(including, without limitation, a prospectus that discloses information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Securities Act Rule 430A), as amended or supplemented
by any prospectus supplement, with respect to the terms of the offering of any
portion of the Registrable Securities covered by such Registration Statement and
all other amendments and supplements to the prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such prospectus.
Purchase Agreement: The Debenture Purchase Agreement by and among the
Company and the Purchasers thereunder pursuant to which the Debentures were
issued.
Purchasers: The purchasers listed on the signature pages to the Debenture
Purchase Agreement.
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Registration Expenses: All reasonable expenses incurred by the Company in
complying with Section 3 hereof, including all registration and filing fees,
printing expenses, fees and disbursements of counsel for the Company, and blue
sky fees and expenses in all states listed in Schedule I attached hereto.
Registrable Securities: The Conversion Shares upon original issuance
thereof, and at all times subsequent thereto, until, in the case of any such
security it is no longer required to bear the legend set forth on such security
pursuant to the terms of the Debenture, the Purchase Agreement and applicable
laws which are Restricted Securities, and any Common Stock issued or issuable in
respect of the Conversion Shares, pursuant to any stock split, stock dividend,
recapitalization, or similar event.
Registration Statement: Any registration statement of the Company which
covers any of the Registrable Securities pursuant to the provisions of this
Agreement, including the Prospectus, amendments and supplements to such
registration statement, including post-effective amendments, all exhibits, and
all material incorporated by reference or deemed to be incorporated reference in
such registration statement.
Restricted Securities: The Debentures and the Conversion Shares upon
original issuance thereof, and at all times subsequent thereto, until, in the
case of any such security, it is no longer required to bear the legend set forth
on such security pursuant to the terms of the security, the Purchase Agreement
and applicable law.
Rule 144: Rule 144 under the Securities Act, as such Rule may be amended
from time to time, or any similar rule or regulation hereafter adopted by the
SEC (excluding Rule 144A).
SEC: The Securities and Exchange Commission.
Securities Act: The Securities Act of 1933, as amended, and the rules and
regulations promulgated by the SEC thereunder.
Shelf Registration: See Section 3(a) hereof.
Underwritten registration or underwritten offering: A registration in which
securities of the Company are sold to an underwriter for re-offering to the
public.
2. Securities Subject to this Agreement
The securities entitled to the benefits of this Agreement are the
Registrable Securities.
3. Shelf Registration
(a) Shelf Registration. The Company shall, not later than six months after
the Closing Date, prepare and file with the SEC a Registration Statement for an
offering to be made on a continuous basis pursuant to Rule 415 (or any
appropriate similar rule that may be adopted by the SEC) under the Securities
Act covering the Registrable Securities (the "Shelf Registration"). The Shelf
Registration shall be on a Form S-3 or another appropriate form (unless the
holders of the Registrable Securities offered thereby reasonably request a
specific form) permitting registration of such Registrable Securities for resale
by such holders in the manner or manners reasonably designated by them
(including, without limitation, one or more underwritten offerings).
(b) Effectiveness. The Company shall use reasonable efforts to cause the
Shelf Registration to become effective under the Securities Act as soon as
practicable following the Closing Date. Subject to
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the requirements of the Securities Act including, without limitation,
requirements relating to updating prospectuses through post-effective amendments
or otherwise, the Company shall use reasonable efforts to keep the Shelf
Registration continuously effective until June 30, 2005 (the "Expiration
Date"); provided, that in the event of a Suspension Period, as set forth in
Section 5(d) hereof, the Company shall extend the period of effectiveness of
such Shelf Registration by the number of days of each such Suspension Period.
Priority on Shelf Registration. If any of the Registrable Securities to be
registered pursuant to Shelf Registration are to be sold in a firm commitment
underwritten offering, and if the managing underwriters advise the Company and
the holders of such Registrable Securities that in their opinion the amount of
Registrable Securities proposed to be sold in such offering exceeds the amount
of Registrable Securities which can be sold in such offering, there shall be
included in such firm commitment underwritten offering the amount of such
Registrable Securities requested to be included in such registration which in
the opinion of such underwriters can be sold, and such amount shall be allocated
pro rata among the holders of such Registrable Securities requested to be
included in such registration on the basis of the number shares of Common Stock
represented by Registrable Securities requested to be included therein by such
holders.
4. Holdback Agreements.
(a) Restrictions on Public Sale by Holders of Registrable Securities. Each
holder of Registrable Securities whose Registrable Securities are covered by a
Registration Statement filed pursuant to Section 3 hereof agrees, if requested
by the managing underwriters in an underwritten offering (to the extent timely
notified in writing by the Company or the managing underwriters), not to effect
any public sale or distribution of securities of the Company of any class
included in such Registration Statement, including a sale pursuant to Rule 144
(except as part of such underwritten offering), during the 10-day period prior
to, and the 90-day period beginning on, the effective date of any underwritten
offering made pursuant to such Registration Statement.
The foregoing provisions shall not apply to any holder of Registrable
Securities if such holder is prevented by applicable statute or regulation from
entering into any such agreement; provided, however, that any such holder shall
undertake in its request to participate in any such underwritten offering not to
effect any public sale or distribution of the class of Registrable Securities
covered by such Registration Statement (except as part of such underwritten
offering) during such period unless it has provided five (5) business days
prior written notice of such sale or distribution to the managing underwriter or
underwriters.
5. Expenses and Procedures.
(a) Expenses of Registration. All Registration Expenses (exclusive of
underwriting discounts and commissions) shall be borne by the Company. Each
holder shall bear all underwriting discounts, selling commissions, sales
concessions and similar expenses applicable to the sale of securities
attributable to the Registrable Securities sold by such holder.
(b) Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to Section 3, the
Company will keep the holders advised as to the initiation of registration,
qualification and compliance and as to the completion thereof. At its expense,
the Company will furnish such number of Prospectuses and other documents
incident thereto as the holders from time to time may reasonably request.
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(c) Information. The Company may require each seller of Registrable
Securities as to which any registration is being effected to furnish such
information regarding the distribution of such Registrable Securities as the
Company may from time to time reasonably request and the Company may exclude
from such registration the Registrable Securities of any seller who unreasonably
fails to furnish such information after receiving such request.
(d) Delay or Suspension. Notwithstanding anything herein to the contrary,
the Company may, at any time, delay the filing of the Shelf Registration for a
period of up to 60 days following the Filing Date or suspend the effectiveness
of any Registration Statement for a period of up to 90 days in the aggregate in
any calendar year, as appropriate (a "Suspension Period"), by giving notice to
each holder of Registrable Securities to be included in the Registration
Statement, if the Company shall have determined that the Company may be
required to disclose any material corporate development which disclosure may
have a material effect on the Company. Each holder of Registrable Securities
agrees by acquisition of such Registrable Securities that, upon receipt of any
notice from the Company of a Suspension Period, such holder shall forthwith
discontinue disposition of such Registrable Securities covered by such
Registration Statement or Prospectus until such holder (i) is advised in writing
by the Company that the use of the applicable Prospectus may be resumed, (ii)
has received copies of a supplemental or amended prospectus, if applicable, and
(iii) has received copies of any additional or supplemental filings which are
incorporated or deemed to be incorporated by reference in such Prospectus. The
Company shall prepare, file and furnish to each holder of Registrable Securities
immediately upon the expiration of any Suspension Period, appropriate
supplements or amendments, if applicable, to the Prospectus and appropriate
documents, if applicable, incorporated by reference in the Registration
Statement.
6. Indemnification
(a) Indemnification by Company. The Company shall, without limitation as to
time, indemnify and hold harmless, to the full extent permitted by law, each
holder of Registrable Securities, its officers, directors, agents and employees,
each person who controls such holder (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act), and the officers, directors,
agents or employees of any such controlling person, from and against all losses,
claims, damages, liabilities, costs (including, without limitation, all
reasonable attorneys' fees) and expenses (collectively, "Losses), as incurred,
arising out of or based upon any untrue statement or alleged untrue statement of
a material fact contained in any Registration Statement, Prospectus or
preliminary prospectus, or arising out of or based upon any omission or alleged
omission of 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
in the case of any Prospectus) not Misleading, except insofar as the same are
based solely upon information furnished to the Company by such holder for use
therein; provided, however, that the Company shall not be liable in any such
case to the extent that any such Loss arises out of or is based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
any preliminary prospectus or Prospectus if (i) such holder failed to send or
deliver a copy of the Prospectus or Prospectus supplement with or prior to the
delivery of written confirmation of the sale of Registrable Securities and (ii)
the Prospectus or Prospectus supplement would have corrected such untrue
statement or omission. If requested, the Company shall also indemnify
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in the distribution, their officers, directors,
agents and employees and each person who controls such persons (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
to the same extent as provided above with respect to the indemnification of the
holders of Registrable Securities.
(b) Indemnification by Holder of Registrable Securities. In connection with
any Registration Statement in which a holder of Registrable Securities is
participating, such holder of Registrable Securities shall furnish to the
Company in writing such information as the Company may reasonably request for
use
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in connection with any Registration Statement or Prospectus. Such holder hereby
agrees to indemnify and hold harmless, to the full extent permitted by law, the
Company, and its officers, directors, agents and employees, each person who
controls the Company (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act) and the officers, directors, agents or employees
of any such controlling person, from and against all Losses arising out of or
based upon any untrue statement of a material fact contained in any Registration
Statement, Prospectus or preliminary prospectus, or arising out of or based upon
any omission of 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 in the case of any Prospectus) not misleading, to the extent, but only to
the extent, that such untrue statement or omission is contained in any
information so furnished in writing by such holder to the Company for use in
such Registration Statement, Prospectus or preliminary prospectus. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Company or any holder and any of their respective
directors, officers, agents, employees or controlling persons (within the
meaning of Section 15 of the securities Act or Section 20 of the Exchange Act)
and shall survive the transfer of such securities by such holder. The Company
shall be entitled to receive indemnities from accountants, underwriters,
selling brokers, dealer managers and similar securities industry professionals
participating in the distribution to the same extent as provided above with
respect to information so furnished by such persons specifically for inclusion
in any Registration Statement, Prospectus or preliminary prospectus, provided,
that the failure of the Company to obtain any such indemnity shall not relieve
the Company of any of its obligations hereunder.
(c) Conduct of Indemnification Proceedings. If any action or proceeding
(including any governmental investigation or inquiry) shall be brought or any
claim shall be asserted against any person entitled to indemnity hereunder (an
"indemnified party"), such indemnified party shall promptly notify the party
from which such indemnity is sought (the "indemnifying party") in writing, and
the indemnifying party shall assume the defense thereof, including the
employment of counsel reasonably satisfactory to the indemnified party and the
payment of all fees and expenses incurred in connection with the defense
thereof. All such fees and expenses (including any fees and expenses incurred in
connection with investigating or preparing to defend such action or proceeding)
shall be paid to the indemnified party, as incurred, within 20 days of written
notice thereof to the indemnifying party; provided, however, that if, in
accordance with this Section 6, the indemnifying party is not liable to the
indemnified party, such fees and expenses shall be returned promptly to the
indemnifying party. Any such indemnified party shall have the right to employ
separate counsel in any such action, claim or proceeding and to participate in
the defense thereof, but the fees and expenses of such counsel shall be the
expense of such indemnified party unless (a) the indemnifying party has agreed
to pay such fees and expenses, (b) the indemnifying party shall have failed
promptly to assume the defense of such action, claim or proceeding and to employ
counsel reasonably satisfactory to the indemnified party in any such action,
claim or proceeding, or (c) the named parties to any such action, claim or
proceeding (including any impleaded parties) include both such indemnified party
and the indemnifying party, and such indemnified party shall have been advised
by counsel that there may be one or more legal defenses available to it which
are different from or additional to those available to the indemnifying party
(in which case, if such indemnified party notifies the indemnifying party in
writing that it elects to employ separate counsel at the expense of the
indemnifying party, the indemnifying party shall not have the right to assume
the defense of such action, claim or proceeding on behalf of such indemnified
party, it being understood, however, that the indemnifying party shall not, in
connection with any one such action, claim or proceeding or separate but
substantially similar or related actions, claims or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys (together with appropriate local counsel) at any time for all such
indemnified parties, unless in the opinion of counsel for such indemnified
party a conflict of interest may exist between such indemnified party and any
other of such indemnified parties with respect to such action, claim or
proceeding, in which event the indemnifying party shall be obligated to pay the
fees and expenses of such additional counsel or counsels). No indemnifying
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party will consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof the release of such
indemnified party from all liability in respect to such claim or litigation
without the written consent (which consent will not be unreasonably withheld) of
the indemnified party. No indemnified party shall consent to entry of any
judgment or enter into any settlement without the written consent (which consent
will not be unreasonably withheld) of the indemnifying party from which
indemnity or contribution is sought.
(d) Contribution. If the indemnification provided for in this Section 6 is
unavailable to an indemnified party under Section 6(a) or 6(b) hereof (other
than by reason of exceptions provided in those Sections) in respect of any
Losses, then each applicable indemnifying party in lieu of indemnifying such
indemnified party shall contribute to the amount paid or payable by such
indemnified party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the indemnifying party and
indemnified party in connection with the actions, statements or omissions which
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such indemnifying party and the indemnified party shall be
determined by reference to, among other things, whether any action in question,
including any untrue statement or alleged untrue statement of a material fact or
omission or alleged omission of a material fact, has been taken or made by, or
relates to information supplied by, such indemnifying party or indemnified
party, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such action, statement or omission. The amount
paid or payable by a party as a result of any Losses shall be deemed to include,
subject to the limitations set forth in Section 6(c), any legal or other fees or
expenses reasonably incurred by such party in connection with any action, suit,
claim, investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 6(d) were determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation.
7. Rule 144
The Company shall file the reports required to be filed by it under the
Securities Act and the Exchange Act and the rules and regulations adopted by the
SEC thereunder, and will take such further action as any holder of Registrable
Securities may reasonably request, all to the extent required from time to time
to enable such holder to sell Registrable Securities without registration under
the Securities Act within the limitation of the exemption provided by Rule 144
or Rule 144A. Upon the request of any holder of Registrable Securities, the
Company shall deliver to such holder a written statement as to whether the
Company has complied with such information and requirements. Notwithstanding the
foregoing, nothing in this Section 7 shall be deemed to require the Company to
register any of its securities under any section of the Exchange Act.
8. Underwritten Registrations
If any of the Registrable Securities covered by any Shelf Registration are
to be sold in an underwritten offering, the investment banker or investment
bankers and manager or managers that will administer the offering will be
selected by the Company, provided that such investment bank or manager shall be
reasonably satisfactory to a majority of the holders of Registrable Securities
to be included in the underwritten offering.
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No person may participate in any underwritten registration hereunder unless
such person (i) agrees to sell such person's Registrable Securities on the basis
provided in any underwriting arrangements approved by the persons entitled
hereunder to approve such arrangements, and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required under the terms of such underwriting arrangements.
9. Miscellaneous
(a) Amendments and Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
unless the Company obtains the written consent of holders of at least 66 2/3 %
of the then outstanding Registrable Securities affected by such amendment,
modification or supplement. Notwithstanding the foregoing, a waiver or consent
to depart from the provisions hereof with respect to a matter which relates
exclusively to the rights of holders of Registrable Securities whose securities
are being sold pursuant to a Registration Statement and which does not directly
or indirectly affect the rights of holders of Registrable Securities whose
securities are not being sold pursuant to such Registration Statement may be
given by holders of a majority of the Registrable Securities being sold by such
holders.
(b) Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand-delivery, registered first-class
mail, next day air courier, telex, or telecopy: (i) If to a holder of
Registrable Securities, at the most current address given by such holder to the
Company in accordance with the provisions of this Section 9(b), which address
initially is, with respect to each purchaser, the address set forth on the
signature page attached hereto; and (ii) if to the Company initially at the
address set forth on the first page of the Purchase Agreement, attention:
Secretary and thereafter at such other address, notice of which is given in
accordance with the provisions of this Section 9(b), with a copy to ▇▇▇▇▇▇ ▇▇▇▇▇
& ▇▇▇▇▇▇▇, Philadelphia, PA.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; two business days after
being deposited in the mail, postage prepaid, if mailed; one business day after
being sent by next day air courier; when answered back, if telexed; and when
receipt acknowledged, if telecopied.
(c) Transfer of Registration Rights. The rights granted to the holders
pursuant to this Agreement to cause the Company to register securities may be
assigned in connection with the transfer, assignment or sale of any Registrable
Security to the extent such securities and rights may be transferred, assigned
or sold pursuant to applicable laws and to the agreements to which the
particular holder is a party; provided, however, that no transfer or assignment
of such rights shall be effective or valid unless the purchaser, transferee or
assignee, after giving effect to the transfer, assignment or sale of the
Registrable Securities, owns or has the right to acquire at least 5,000 shares
of Common Stock.
(d) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(e) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(f) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the Commonwealth of Pennsylvania without regard to
principles of conflict of laws.
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(g) Severability. If any term, provision, covenant or restriction of this
Agreement is held by a court of competent jurisdiction to be invalid, void or
unenforceable, the remainder of the terms, provisions, covenants and
restrictions set forth herein shall remain in full force and effect and shall in
no way be affected, impaired or invalidated, and the parties hereto shall use
their best efforts to find and employ an alternative means to achieve the same
or substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be the
intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
(h) Entire Agreement. This Agreement is intended by the parties to be a
final expression of their agreement and a complete and exclusive statement of
the agreement and understanding of the parties hereto in respect of the subject
matter contained herein. There are no restrictions, promises, warranties nor
undertakings, other than those set forth or referred to herein with respect to
the registration rights granted by the Company with respect to the securities
sold pursuant to the Purchase Agreement. This Agreement supersedes all prior
agreements and understandings between the parties with respect to such subject
matter.
(i) Attorneys' Fees. In any action proceeding brought to enforce any
provision of this Agreement, or where any provision hereof is validly asserted
as a defense, the successful party shall be entitled to recover reasonable
attorneys' fees in addition to its costs and expenses and any other available
remedy.
IN WITNESS WHEREOF, the parties have executed this agreement as of the date
first written
THE MED-DESIGN CORPORATION
By:
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▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
President and Chief Executive Officer
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SCHEDULE 1
New York
Pennsylvania
California
New Jersey
Florida
THE MED-DESIGN CORPORATION
DEBENTURE PURCHASE AGREEMENT
TABLE OF CONTENTS
1. PURCHASE AND SALE OF DEBENTURES.............................. 2
1.1 Issue of Convertible Collateralized Debentures.......... 2
2. CLOSING DATE; DELIVERY....................................... 2
2.1 Closing.................................................. 2
2.2 DELIVERY..................................................... 3
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY................ 3
3.1 Organization........................................ 3
3.2 Capitalization...................................... 3
3.3 Authority, etc...................................... 3
3.4 Securities Filings.................................. 4
3.5 Issuance of the Debentures; etc..................... 4
3.6 No Conflict with Law or Documents................... 4
3.7 Consents, Approvals and Private Offering............ 5
3.8 Absence of Certain Developments..................... 5
3.9 Litigation.......................................... 5
3.10 Registration Rights................................. 5
3.11 Disclosure.......................................... 5
3.12 Debenture Interest.................................. 5
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS............. 6
4.1 Legal Power......................................... 6
4.2 Due Execution....................................... 6
4.3 Investment Representations ......................... 6
4.4 Pennsylvania Requirements .......................... 7
5. CERTAIN COVENANTS OF THE COMPANY............................. 7
5.1 Information......................................... 7
5.2 Maintenance of Properties and Leases; Insurance..... 8
5.3 Rights, Licenses, Etc............................... 9
5.4 Payment Of Taxes And Claims......................... 9
5.5 Compliance With Laws, Etc........................... 9
5.6 Further Assurances.................................. 9
5.7 Accounts And Records................................ 9
5.8 Cooperation In Private Sale......................... 9
5.9 Communication With Accountants...................... 10
5.10 Inspection.......................................... 10
5.11 Limitation on Liens................................. 10
5.12 Transactions with Affiliates........................ 10
5.13 Merger Consolidation, Sale or Transfer of Assets.... 10
5.14 Change in Business.................................. 11
6. REPRESENTATIONS OF PLACEMENT AGENT; COMPENSATION OF
PLACEMENT AGENT.............................................. 11
6.1 Sales To Accredited Investors....................... 11
6.2 Regulation D Compliance............................. 11
6.3 Compliance Generally................................ 11
6.4 Placement Agent Fees................................ 11
6.5 Right of First Refusal to Manage Future Offerings... 11
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7. REPURCHASE AND CONVERSION.................................... 12
7.1 Repurchase of Debentures at Option of the Holder
Upon Change in...................................... 12
7.2 Effect of Repurchase Notice......................... 14
7.3 Deposit of Repurchase Price......................... 15
7.4 Debentures Repurchased in Part...................... 15
7.5 Compliance with Securities Laws upon Repurchase
of Debentures....................................... 15
7.6 Holder's Conversion Privilege; Right of Company
to Require Conversion............................... 15
7.7 Conversion Procedure................................ 16
7.8 Fractional Shares................................... 17
7.9 Taxes on Conversion................................. 17
7.10 Company to Provide Stock............................ 17
7.11 Adjustment of Conversion Price...................... 18
7.12 No Adjustment....................................... 20
7.13 Equivalent Adjustments.............................. 20
7.14 Adjustment for Tax Purposes......................... 21
7.15 Notice of Adjustment................................ 21
7.16 Notice of Certain Transactions...................... 21
7.17 Effect of Reclassification, Consolidation,
Merger or Sale on Conversion Privilege.............. 21
8. DEFAULT AND REMEDIES......................................... 22
8.1 Events of Default................................... 22
8.2 Acceleration........................................ 24
8.3 Other Remedies...................................... 24
8.5 Rights of Holders to Receive Payment................ 24
8.6 Defaulted Interest.................................. 24
9. CONDITIONS TO CLOSING........................................ 25
9.1 Conditions to Obligations of the Purchaser.......... 25
9.2 Conditions to Obligations of the Company............ 25
10. MISCELLANEOUS................................................ 26
10.1 Governing Law....................................... 26
10.2 Successors and Assigns.............................. 26
10.3 Entire Agreement.................................... 26
10.4 Severability........................................ 26
10.5 Amendment and Waiver ............................... 26
10.6 Notices............................................. 27
10.7 Fees and Expenses................................... 27
10.8 Titles and Subtitles................................ 27
10.9 Counterparts........................................ 27
11. CERTAIN DEFINITIONS.......................................... 27
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THE MED-DESIGN CORPORATION
DEBENTURE PURCHASE AGREEMENT
This agreement (this "Agreement") is made as of the Closing Date (as
hereinafter defined) by and among Med-Design Corporation, a Delaware corporation
(the "Company"), with its principal office located at ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇,
▇▇▇▇▇▇▇ ▇▇, ▇▇▇▇▇, Pennsylvania Merchant Group (the "Placement Agent") and each
of the purchasers who are signatories hereto and any other purchasers who are
made a party to this Agreement pursuant to Section 1.1(c) (individually, a
"Purchaser" and collectively, the "Purchasers").
RECITALS
The Company has engaged the Placement Agent as exclusive agent of the
Company in connection with the placement and sale (the "Offering") of $1,500,000
in aggregate principal amount of Convertible Collateralized Debentures (the
"Debentures") substantially in the form of Exhibit I hereto. The Debentures will
be convertible into shares of the Company's $0.01 par value common stock
("Common Stock") commencing on the Closing Date (as hereinafter defined) at an
initial conversion price of $1.25 per share of Common Stock (as same may be
adjusted, the "Conversion Price"). The Debentures are non-callable. However,
after one year from the Closing Date, the Company can force conversion of the
Debentures if the Common Stock trades above $2.00 for 25 consecutive trading
days, as hereinafter more specifically provided. The Debentures will be sold by
the Company to Purchasers pursuant to Rule 506 under the Securities Act of 1933,
as amended (the "Act"). Offers and sales of Debentures will only be made
pursuant to the Confidential Private Offering Memorandum dated June 18, 1998
(together with all amendments, supplements, exhibits and attachments thereto,
the "Offering Materials").
AGREEMENT
In consideration of the mutual promises, representations, warranties and
conditions set forth in this Agreement, the Company, each Purchaser (severally
and not jointly) and the Placement Agent, intending to be legally bound, agree
as follows:
1
1. PURCHASE AND SALE OF DEBENTURES.
1.1 Issue of Convertible Collateralized Debentures.
(a) The Company has authorized the execution, delivery and performance
of this Agreement, with such changes thereto as may be approved by an
officer of the Company (the execution thereof by any officer being
conclusive evidence of such approval), and in connection therewith has
authorized the issuance and sale of up to $1,500,000 aggregate principal
amount of Debentures and up to 1,200,000 shares of Common Stock plus such
additional number of such shares as may be required by adjustments to the
Conversion Price (the "Conversion Shares") pursuant to the conversion of
the Debentures, in accordance with this Agreement.
(b) In reliance upon the Purchaser's representations and warranties
contained in Section 4 hereof and upon the Placement Agent's
representations and warranties contained in Section 6 hereof, and subject
to the terms and conditions set forth herein, the Company hereby agrees to
sell to each Purchaser the aggregate amount of Debentures set forth below
such Purchaser's signature on the subscription page bearing such
Purchaser's name.
(c) In reliance upon the representations and warranties of the Company
contained herein, and subject to the terms and conditions set forth herein,
each Purchaser hereby agrees to purchase the amount of Debentures set forth
below such Purchaser's signature on the subscription page bearing such
Purchaser's name. Each Purchaser shall severally, and not jointly, be
liable for only the amount of Debentures that appears on the subscription
page hereof relating to such Purchaser.
(d) The Company's agreement with each of the Purchasers is a separate
agreement, and the sale of the Debentures to each of the Purchasers is a
separate sale.
2. CLOSING DATE; DELIVERY.
2.1 Closing.
(a) The initial closing of the sale and purchase of the Debentures
under this Agreement (the "Closing"), shall be held at 10:00 a.m. (Pacific
Standard Time) on or before June 22, 1998 (the "Closing Date"), at the
offices of ▇▇▇▇▇▇ ▇▇▇▇▇ & ▇▇▇▇▇▇▇, Philadelphia, PA, or at such other time
and place as the Company and the Placement Agent may agree. There is no
minimum amount of Debentures required for an initial closing.
(b) From time to time prior to and following the Closing Date, the
Company may, but shall not be obligated to, offer and sell the balance of
the Debentures authorized but not sold as of the Closing Date herein to
other purchasers (the "other Purchasers") at one or more subsequent
closings to be held no later than June 22, 1998 unless otherwise extended
by the Company and the Placement Agent. By executing this Agreement, the
Purchasers hereunder agree to the inclusion of such other Purchasers as
parties to this Agreement, the Registration Rights Agreement referenced in
Section 9.1(d) herein (the "Registration Rights Agreement") and the
Security Agreement referenced in Section 9.1(d) (the "Security
Agreement"), and it shall be a condition to each subsequent closing that
the other Purchasers, if any, shall become parties to this Agreement and
the Registration Rights Agreement and the Security Agreement, subject to
the terms
2
hereof and thereof. If such a subsequent closing is held, the terms "Closing"
and "Closing Date", as used herein, shall be deemed to apply to the
initial closing and each such subsequent closing.
2.2 Delivery. At the Closing, subject to the terms and conditions hereof,
the Company shall deliver to each Purchaser the amount of Debentures subscribed
for by such Purchaser, dated as of the Closing Date, against payment of the
purchase price therefor by wire transfer, unless other means of payment shall
have been agreed upon by such Purchaser, on the one hand, and the Company and
the Placement Agent, on the other hand.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Subject to and except as disclosed by the Company in the Offering
Materials, the Company hereby represents to each Purchaser as of the date hereof
as follows, and all such representations and warranties shall be true and
correct as of the Closing Date as if then made and shall survive the Closing:
3.1 Organization. Each of the Company and its Subsidiaries (as defined in
Section 11) is a corporation, duly incorporated, validly existing and in good
standing under the laws of the jurisdiction of its incorporation. Each of the
Company and its Subsidiaries has all requisite power and authority to own or
lease its properties and to conduct its business as now conducted. Each of the
Company and its Subsidiaries holds all licenses and permits required for the
conduct of its business as now conducted, the absence of which, if not obtained,
would have a Material Adverse Effect (as defined in Section 11). Each of the
Company and its Subsidiaries is qualified as a domestic corporation and is in
good standing in all states where the conduct of its business or its ownership
or leasing of property requires such qualification, except where the failure to
so qualify would not have a Material Adverse Effect. The Company has previously
delivered a true and complete copy of its Certificate of Incorporation
("Certificate") and Bylaws to the Placement Agent.
3.2 Capitalization. The authorized, issued and outstanding capital stock of
the Company and its Subsidiaries on March 31, 1998 is as set forth in the Report
on Form 10-QSB (March 31, 1998) which is included in the Offering Materials
(Tab A). Since March 31, 1998, there has been no material change in the
capitalization of the Company or its Subsidiaries, except as has been described
in the Offering Materials. All of the issued and outstanding shares of the
Company's Common Stock have been duly authorized and validly issued and are
fully paid and nonassessable. Except as stated in the Offering Materials and
except for rights granted under the Company's stock plans, there are no existing
subscriptions, options, calls, commitments, agreements, conversion or other
rights of any character (contingent or otherwise) to purchase or otherwise
acquire from the Company or any of its Subsidiaries at any time, or upon the
happening of any stated event, any shares of the capital stock of the Company or
any of its Subsidiaries.
3.3 Authority, etc. The Company has all requisite corporate power and
authority to enter into this Agreement, the Registration Rights Agreement and
the Security Agreement, and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement, the Registration
Rights Agreement and the Security Agreement and the consummation of the
transactions contemplated hereby and thereby, have been duly authorized by all
necessary corporate action on the part of the Company. Upon their execution and
delivery by the Company, such documents will constitute valid and binding
obligations of the Company, enforceable against the Company in accordance with
their terms, except as the indemnification and contribution
3
provisions of any thereof may be limited by principles of public policy, and
subject as to enforceability to applicable bankruptcy, insolvency,
reorganization, moratorium and similar laws relating to or affecting creditor's
rights generally and subject to general equity principles.
3.4 Securities Filings. The Company has timely filed with the Securities
and Exchange Commission (the "SEC") the documents set forth in the Offering
Materials included herein under Tab A and all other reports and all other
filings required to be filed with the SEC under the rules and regulations of the
SEC (collectively, the "SEC Filings").
(a) The SEC Filings, when filed, conformed in all material respects to
the requirements of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the SEC thereunder as of
their respective filing dates and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading. The
documents or portions thereof that were incorporated by reference in the
SEC Filings pursuant to the requirements of the Exchange Act, when such
incorporated documents or portions were first filed with the SEC, conformed
in all material respects with all applicable requirements of the Exchange
Act and the rules and regulations of the SEC thereunder.
(b) The consolidated financial statements of the Company included in
the SEC Filings fairly presented in all material respects the financial
position and results of operations of the Company and its Subsidiaries at
the respective dates and for the respective periods to which they apply;
and such financial statements have been prepared in accordance with
generally accepted accounting principles consistently applied throughout
the periods involved except as otherwise stated therein.
(c) Nowithstanding any provision therein to the contrary, it is
understood by the Company and the Purchasers that the Company is not
representing or warranting any statement in the SEC Filings relating to
future, anticipated or possible circumstances, occurrences or developments.
3.5 Issuance of the Debentures; etc. The Debentures, when issued against
payment therefor pursuant to the terms thereof and hereof, will be duly and
validly authorized and issued, will constitute valid obligations of the Company
enforceable in accordance with their terms, subject to applicable bankruptcy,
insolvency, reorganization, moratorium and similar laws relating to or
affecting creditors' rights generally and subject to equitable principles and
will be entitled to the benefits of this Agreement. The lien granted by the
Company under the Security Agreement will constitute a first lien on all of the
collateral described in the Security Agreement in favor of the Purchasers and
their assignees as holders of the Debentures.
3.6 No Conflict with Law or Documents. The execution, delivery and
consummation of this Agreement, the Registration Rights Agreement and the
Security Agreement and the transactions contemplated hereby and thereby will not
(a) conflict with any provisions of the Certificate or Bylaws of the Company or
any of its Subsidiaries (b) result in any violation of or default or loss of a
benefit under, or permit the acceleration of any obligation under (in each
case, upon the giving of notice, the passage of time, or both) any mortgage,
indenture, lease, agreement or other instrument, permit, franchise, license,
judgement, order, decree, law, ordinance, rule or regulation applicable to the
Company or any of its Subsidiaries.
4
3.7 Consents, Approvals and Private Offering. Except for any filings
required under federal and applicable state securities laws, and with respect to
the perfection of the lien of the Security Agreement, all of which shall have
been made as of the Closing Date to the extent required as of such time, no
consent, approval, order or authorization of, or registration, declaration or
filing with, any federal, state, local or foreign governmental authority is
required to be made or obtained by the Company in connection with the execution
and delivery of this Agreement, the Registration Rights Agreement or the
Security Agreement and the consummation of the transactions contemplated hereby
and thereby.
3.8 Absence of Certain Developments. Except as described in the Offering
Materials, since March 31, 1998, neither the Company nor any of its Subsidiaries
has (a) incurred or become subject to any material liabilities (absolute or
contingent) except current liabilities incurred, and liabilities under contracts
entered into, in the ordinary course of business, consistent with past
practices; (b) mortgaged, pledged or subjected to any lien, charge or other
encumbrance any of its assets, tangible or intangible; (c) sold, assigned or
transferred any of its assets or canceled any debts or obligations except in the
ordinary course of business, consistent with past practices; (d) suffered any
extraordinary losses, or waived any rights of substantial value; (e) entered
into any material transaction other than in the ordinary course of business,
consistent with past practices; or (f) otherwise had any change in its
condition, financial or otherwise, except as shown on or reflected in the
consolidated balance sheet as of March 31, 1998 that is included in the
Company's Report on Form 10-QSB for the quarter ended March 31, 1998, except for
changes in the ordinary course of business, consistent with past practices, none
of which individually or in the aggregate has been materially adverse, and
except further that the Company continues to incur additional substantial losses
of the nature set forth in and/or otherwise contemplated by the Offering
Materials. Except as described in the SEC Filings and the Offering Materials,
neither the Company nor any of its Subsidiaries has entered into any agreement
since March 31, 1998 of the type that would be required under the SEC's rules
and regulations to be filed as an exhibit to a Report on Form 10-KSB.
3.9 Litigation. Except as described in the Offering Materials, to the
Company's knowledge, there are no actions, suits, proceedings or investigations
pending against or affecting the Company or any of its Subsidiaries that could
reasonably be anticipated to result in any Material Adverse Effect.
3.10 Registration Rights. Except for shares issued or issuable in
connection with the Company's existing stock option plans and those disclosed in
the Offering Materials the Company has not granted any rights to have any of the
securities of the Company or any of its Subsidiaries registered under the Act.
3.11 Disclosure. The Offering Materials taken as a whole do not contain any
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.
3.12 Debenture Interest. In order to secure the Company's obligations in
connection with the Debentures and to perfect the Purchasers' Debenture
interests in all of the Company's and its Subsidiaries pending and issued
patents, the Company has made all the necessary filings and has not, nor has any
of its Subsidiaries granted a Debenture interest in such patents to any other
party.
5
4. REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser hereby represents to, and covenants with the Company as
follows:
4.1 Legal Power. Purchaser has the requisite corporate, partnership, trust
or fiduciary power, as appropriate, and is authorized, if Purchaser is a
corporation, partnership or trust, to enter into this Agreement, the
Registration Rights Agreement and the Security Agreement, to purchase the
Debentures hereunder, and to carry out and perform its obligations under the
terms of this Agreement, the Registration Rights Agreement and the Security
Agreement.
4.2 Due Execution. Each of this Agreement, the Registration Rights
Agreement and the Security Agreement has been duly authorized, if Purchaser is a
corporation, partnership, trust or fiduciary, and has been executed and
delivered by the Purchaser, and, upon due execution and delivery by the Company,
this Agreement, the Registration Rights Agreement and the Security Agreement
will be valid and binding agreements of the Purchaser and subject as to
enforceability to applicable bankruptcy, insolvency, reorganization, moratorium
and similar laws relating to or affecting creditor's rights from time to time in
effect and subject to general equity principles.
4.3 Investment Representations.
(a) Purchaser is acquiring the Debentures for its own account, not as
nominee or agent, for investment and not with a view to or for resale in
connection with, any distribution or public offering thereof within the
meaning of the Act, except pursuant to an effective registration statement
under the Act.
(b) Purchaser understands that (i) the Debentures have not been and
upon issuance the Conversion Shares will not have been registered under the
Act by reason of a specific exemption therefrom, and may not be transferred
or resold except pursuant to an effective registration statement or
exemption from registration; (ii) each of the Debentures and, subject to
the registration thereof pursuant to the Registration Rights Agreement,
each of the conversion Shares will be endorsed with the following legends:
(i) THE SECURITY REPRESENTED HEREBY HAS NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY
STATE SECURITIES LAW. THE HOLDER HEREOF, BY PURCHASING THIS SECURITY,
AGREES FOR THE BENEFIT OF MED-DESIGN CORPORATION ("COMPANY") THAT THIS
SECURITY MAY BE RESOLD, PLEDGED OR OTHERWISE TRANSFERRED ONLY (1) TO
THE COMPANY (UPON CONVERSION OR REPURCHASE), OR (2) PURSUANT TO AN
AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT, OR (3)
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF
ANY STATE OF THE UNITED STATES. IN CONNECTION WITH ANY TRANSFER
PURSUANT TO CLAUSE (2) ABOVE, THE HOLDER HEREOF WILL DELIVER TO THE
COMPANY SUCH OPINION OF COUNSEL, CERTIFICATES AND OTHER INFORMATION AS
IT MAY REASONABLY REQUIRE TO CONFIRM THAT THE TRANSFER COMPLIES WITH
THE FOREGOING RESTRICTIONS.
6
(ii) Any legend required to be placed thereon by applicable
federal, state, or Canadian Provincial Securities laws; and
(iii) the Company will instruct any transfer agent not to
register the transfer of any of the Debentures or, subject to
registration thereof in accordance with the Registration Rights
Agreement, the Conversion Shares, unless the conditions specified in
the foregoing legends are satisfied;
(c) Purchaser has received and reviewed the Offering Materials. In
addition, Purchaser has been furnished with such materials, and has been
given access to such information relating to the Company as it or its
qualified representative has requested, and has been afforded the
opportunity to ask questions regarding the Company and the Debentures, in
order to make an informed investment decision.
(d) Purchaser is an "accredited investor" as such term is defined in
Rule 501 of the Act and was not formed for the specific purpose of
acquiring the Debentures.
(e) Purchaser is not a resident of Canada or any territory thereof, or
of any jurisdiction outside the United States and its territories.
4.4 Pennsylvania Requirements.
Each Purchaser who is a Pennsylvania resident, or which has its principal
place of business in Pennsylvania and is not an "institutional investor" within
the meaning of the Pennsylvania Securities Act of 1972 as amended and the
regulations thereunder, hereby agrees not to sell any of the Debentures for a
period of 12 months from the date hereof, except in accordance with the
requirements of section 203(d) of such act and regulation 204.011 thereunder.
5. CERTAIN COVENANTS OF THE COMPANY.
The Company, on behalf of itself and its Subsidiaries (as hereinafter
defined), if any from time to time, shall comply with the following affirmative
and negative covenants:
5.1 Information.
(a) So long as the Company is subject to the periodic reporting
requirements of the Exchange Act, the Company shall deliver to each holder
of Debentures (a "Holder") all annual, quarterly or other reports furnished
to the Company's public securityholders; provided that if the Company is
not subject to the requirements of Section 13 or 15(d) of the Exchange Act,
the Company will promptly furnish to each Holder of Debentures (i) as soon
as available, and in any event within 90 days after the end of each fiscal
year of the Company, a consolidated balance sheet of the Company and its
consolidated Subsidiaries, if any, as of the end of such fiscal year and
the related consolidated statements of income, stockholders' equity and
cash flows for such fiscal year, setting forth in each case in comparative
form the figures for the previous fiscal year, all prepared in accordance
with generally accepted accounting principles and reported on by
independent certified public accountants of recognized national standing;
and (ii) as soon as available, and in any event within 45 days after the
end of each of the first three fiscal quarters of each fiscal year of the
Company, a consolidated balance sheet of the Company and its consolidated
Subsidiaries, if any, as of the end of such quarter and the related
consolidated statements of income and stockholder's
7
equity (together with any other quarterly financial statements being prepared by
the Company at such time), setting forth in each case in comparative form the
figures for the corresponding quarter and the corresponding portion of the
Company's previous fiscal year, all certified (subject to normal year-end
adjustments) as to fairness of presentation and consistency by the chief
financial officer or the chief accounting officer of the Company.
(b) Together with each delivery of reports and other financial
information required by paragraph (a) above, the Company shall deliver to
each Holder of Debentures an officers' certificate of the chief financial
officer of the Company (an "Officers' Certificate") stating that the signer
has reviewed the terms of this Agreement and the Debentures and has made,
or caused to be made under his supervision, a review in reasonable detail
of the transactions and condition of the Company and its Subsidiaries
during the fiscal period covered by such financial statements and that such
review has not disclosed the existence during or at the end of such fiscal
period, and that the signer does not have knowledge of the existence, as at
the date of the Officers' Certificate, of any condition or event which
constitutes a default or Event of Default under the Debentures or, if any
such condition or event existed or exists, specifying the nature and period
of existence thereof and what action, if any, the Company has taken or is
taking or proposes to take with respect thereto.
(c) Promptly upon any executive officer of the Company or any of its
Subsidiaries obtaining knowledge (i) of any condition or event which
constitutes a default or Event of Default under the Debentures, (ii) that
the Holder of any Debenture has given any notice or taken any other action
with respect to a claimed default or Event of Default under the Debentures,
(iii) that any person or entity has given any notice to the Company or any
of its Subsidiaries or taken any other action with respect to a claimed
default or event or condition under any other indebtedness, or (iv) of the
institution of any litigation involving claims against the Company or any
of its Subsidiaries or any adverse determination in any litigation
involving a potential liability to the Company or any of its Subsidiaries,
the Company shall provide to each Holder of a Debenture an Officers'
Certificate specifying the nature and period of existence of any such
condition or event, or specifying the notice given or action taken by such
Holder or person or entity and the nature of such claimed default, Event of
Default, event or condition, or specifying the nature and particulars of
any such litigation and what action, if any, the Company has taken, is
taking or proposes to take with respect thereto.
5.2 Maintenance of Properties and Leases; Insurance. The Company and its
Subsidiaries will maintain or cause to be maintained in good repair, working
order and condition all properties used in the business of the Company and its
Subsidiaries and from time to time will make or cause to be made all appropriate
repairs, renewals, additions, improvements and replacements thereto. The Company
and its Subsidiaries will (i) at all times comply with each provision of all
leases or agreements to which any of them is a party or under which any of them
occupies property and (ii) maintain and keep in effect any leases or agreement
pursuant to which the Company or such Subsidiary leases, uses or occupies any of
its real or personal property; provided, however, that if any such lease or
agreement is cancelled or terminated by the lessor prior to the expiration of
its stated term as the result of a default by the Company thereunder, which
cancellation or termination, individually or in the aggregate, would have a
Material Adverse Effect, the Company shall, (a) provide written notice of such
cancellation or termination to the Holders of Debentures, and (b) within 60 days
of such cancellation or termination of such lease or agreement, either cause
such lease or agreement to be reinstated or enter into a new lease or agreement
of comparable value to the Company as the lease or agreement so cancelled or
terminated. Notwithstanding the foregoing, it
8
shall not be deemed a breach of the covenant set forth in this Section 5.2 if
the Company fails to make a payment of rent under a lease in connection with a
bona fide dispute with the landlord in question. The Company and its
Subsidiaries will maintain or cause to be maintained, with financially sound and
reputable insurers or, as to workers' compensation or similar insurance, in an
insurance fund or by self-insurance authorized by the laws of the jurisdiction
in question, insurance with respect to their respective properties and
businesses against loss or damage of the kinds customarily insured against by
corporations of established reputation engaged in the same or similar businesses
and similarly situated, of such type and in such amounts including appropriate
deductible levels as are customarily carried under similar circumstances by such
other corporations, including without limitation insurance against risks and
liabilities to third parties.
5.3 Rights, Licenses, Etc. The Company will, and will cause each of its
Subsidiaries to, at all times preserve and keep in full force and effect its
corporate existence, rights, licenses, franchises, trademarks and trade names
material to its business, and will qualify and cause each of its Subsidiaries to
qualify to do business in any jurisdiction the ownership of property or the
operation of its business makes such qualification necessary except where the
failure to so qualify would not have a Material Adverse Effect.
5.4 Payment Of Taxes And Claims. The Company will, and will cause each of
its Subsidiaries to, promptly pay all Taxes (as defined in Section 11) before
any penalty or interest accrues thereon, and all claims (including, without
limitation, claims for labor, services, materials and supplies) for sums which
have become due and payable and which by law have or may become a lien upon any
of their properties or assets; provided, however, that no such tax, charge or
claim need be paid if being contested in good faith and if adequate reserves
shall have been made therefor in accordance with GAAP (as defined in Section
11).
5.5 Compliance With Laws, Etc. The Company will, and will cause each of its
Subsidiaries to, comply with the requirements of all applicable laws, rules,
regulations and orders of any court or other governmental authority. The Company
will, and will cause each of its Subsidiaries to, timely make all filings
required to be made by it with all relevant Federal state and/or local
regulatory bodies, except where the failure to so file is not likely to result
in a Material Adverse Effect.
5.6 Further Assurances. From time to time the Company will, and will cause
each of its Subsidiaries to, execute and deliver to the Holders of Debentures,
such other instruments, certificates, agreements and documents and take such
other action and do all other things as may be requested by a Holder in order to
implement or effectuate the terms and provisions of this Agreement.
5.7 Accounts And Records. The Company and all it Subsidiaries will keep
true records and books of account in which full, true and correct entries will
be made of all dealings or transactions in relation to its business and affairs.
5.8 Cooperation In Private Sale. So long as any of the Debentures are
outstanding, the Company will use reasonably efforts to cooperate with any
Holder of the Debentures or the proposed transferee of one or more of the
Debentures to facilitate a proposed transfer, subject to the proposed transferee
executing appropriate confidentiality agreements. To this end, the Company will
make available to any proposed transferee or Holder (i) all information
reasonably requested by such holder, (ii) its appropriate executive officers to
be interviewed, at reasonable times and intervals, by
9
proposed transferees (acting in a coordinated fashion) about the affairs and
status of the Company, and (iii) any other information reasonably required by
the Holder in order to transfer any of the Debentures in compliance with
Section 4(l) of the Act or any other exemption from registration thereunder and
any applicable state securities law.
5.9 Communication With Accountants. The Company authorizes each Holder or a
of a Debenture to communicate directly with its auditors and authorizes the
auditor to disclose to each Holder of a Debenture any and all financial
statements and other supporting financial documents and schedules, including
copies of any management letter with respect to the business, financial
condition and other affairs of the Company. The Company shall, on or before the
Closing Date and at or before the time of its engagement of the auditor for each
fiscal year, obtain and deliver to each Holder of a Debenture a letter from such
auditor authorizing each Holder of a Debenture to rely on the financial
statements of the company certified by such auditor for such fiscal year (the
"Auditor Reliance Letter").
5.10 Inspection. The Company will permit any representatives designated by
each Holder of a Debenture to visit and inspect any of the properties of the
Company or its Subsidiaries, including its books of account and other records
(and to make copies thereof and to take extracts therefrom), and to discuss the
affairs, finances and accounts of the Company and its Subsidiaries with its
offers and its independent certified accountants, all at such reasonable times
and as often as may be reasonably be requested.
5.11 Limitation on Liens. The Company will not, and will not permit any of
its Subsidiaries to, create, incur, assume or permit or suffer to exist any lien
upon any of the collateral covered by the Security Agreement, except for the
interests created in favor of the Holders of Debentures under such Security
Agreement.
5.12 Transactions with Affiliates. The Company will not, and will not
permit any of its Subsidiaries to, directly or indirectly, purchase, acquire or
lease any property to, or otherwise deal with or enter into a transaction or
series of transactions, in the ordinary course of business or otherwise, any
Affiliate (as defined in Section 11) of the Company or its Subsidiaries except
(i) on an arm's length basis in transactions which are on no less favorable
terms to the Company or such Subsidiary than would be the case with a similar
transaction with an unaffiliated person or entity; (ii) reasonable customary and
regular fees to the non-management directors of the Company or any of its
Subsidiaries; (iii) any transaction among the Company and its wholly-owned
Subsidiaries or among such Subsidiaries in the ordinary course of their
respective business; or (iv) any transaction related to compensation or benefit
arrangements in the ordinary course of business or under an employee benefit
plan or trust for the benefit of employees of the Company or its Subsidiaries.
5.13 Merger Consolidation, Sale or Transfer of Assets. The Company
covenants that it shall not, and will not permit any of its Subsidiaries to be a
party to any merger or consolidation with or into any person or entity or sell,
lease or transfer or otherwise dispose of all or substantially all of its
assets, to any person or entity, or dissolve or liquidate except that (i) any
wholly-owned Subsidiary of the Company may merge into the Company or another
wholly-owned Subsidiary of the Company if the Company or such other wholly-owned
Subsidiary, as the case may be, shall be the surviving corporation, and if,
immediately after giving effect to such transaction, no condition or event shall
exist which constitutes a default or an Event of Default under the Debentures,
and (ii) any Subsidiary of the Company may sell, lease, transfer or otherwise
dispose of any of its assets to
10
the Company or to any other wholly-owned Subsidiary of the Company, whether by
dissolution, liquidation or otherwise.
5.14 Change in Business. Neither the Company nor any of its Subsidiaries
will enter into or engage in any business other than that currently engaged in
or as currently anticipated and disclosed in the Offering Materials.
6. REPRESENTATIONS OF PLACEMENT AGENT; COMPENSATION OF PLACEMENT AGENT.
The Company has authorized the Placement Agent to conduct the private
placement of the Debentures (the "Private Placement") under Rule 506 under the
Act, and the Placement Agent represents and agrees with the Company as follows:
6.1 Sales To Accredited Investors. Placement Agent has and will only make
offers and sales of the Debentures to Purchasers it reasonably believes to be
"accredited investors" as that term is defined in Rule 501 (a) under the Act;
6.2 Regulation D Compliance. Offers and sales of the Debentures have
and will be made in compliance with Regulation D, to the extent applicable to
the Placement Agent, and the Placement Agent has not and shall not offer to sell
the Debentures by any form of general solicitation or general advertising that
is prohibited by Rule 502(c) promulgated under the Act.
6.3 Compliance Generally. The Placement Agent has and will observe all
Securities laws and regulations applicable to it in any jurisdiction in which it
has or may offer, sell or deliver any of the Debentures and it will not,
directly or indirectly, offer, sell or deliver any of the Debentures or
distribute or publish any prospectus, circular, advertisement or other offering
material in relation to any of the Debentures in or from any state in the United
States or country or jurisdiction except under circumstances that will result in
compliance with any applicable laws and regulations.
6.4 Placement Agent Fees. Upon the initial closing, the Company shall
reimburse the Placement Agent for its reasonable, accountable, out-of-pocket
expenses, and the fees of Placement Agent's counsel, which shall be limited to
an aggregate of $30,000. In consideration for the services rendered by the
Placement Agent hereunder, the Company agrees to pay the Placement Agent on the
Closing Date and on the date of any subsequent Closing, a commission of two
percent (2.0%) of the aggregate principal amount raised. If a Closing shall not
have taken place and this Agreement is terminated, neither party shall be
obligated to the other party, except that the Company shall reimburse the
Placement Agent for its reasonable, out-of-pocket expenses.
6.5 Right of First Refusal to Manage Future Offerings. For a period of two
(2) years commencing on the Closing Date hereunder, the Placement Agent shall
have a right of first refusal to act as the managing underwriter or minimally as
co-manager with at least 50% of the economics (or in the case of a three-handed
managed deal, 33 1/3 of the economics), for any and all future public and
private equity offerings (excluding offerings to Company employees, or to others
as consideration for the purchase of assets for use in the Company's business,
or in one or more business combinations) of the Company, or any successor to or
any Subsidiary of the Company. The Placement Agent must exercise this right of
first refusal within thirty (30) days of receipt of written notice from the
Company, or its successor or Subsidiary, of its intention to offer securities
for sale.
11
7. REPURCHASE AND CONVERSION.
7.1 Repurchase of Debentures at Option of the Holder Upon Change in Control
(a)(i) If at any time that Debentures remain outstanding there shall
have occurred a Change in Control (as hereinafter defined), Debentures
shall be repurchased by the Company at the option of the Holder thereof, at
a purchase price (the "Repurchase Price") equal to the principal amount
thereof plus accrued interest up to and including the date of repurchase,
which shall be a date (the "Repurchase Date") fixed by the Company that is
not less than 45 days nor more than 60 days after the date of the Company
Notice (as hereinafter defined), subject to satisfaction by or on behalf of
the Holder of the requirements set forth in paragraph (c) of this Section
7.1. Any failure by the Company to comply with this Section 7.1 to offer
to repurchase, or to repurchase, the Debentures shall constitute an Event
of Default under Section 8.1(c) unless cured as therein provided.
(ii) (A) A Change in Control shall be deemed to have occurred at such
time after the Closing Date as there shall occur:
(1) the acquisition by any person (including any syndicate or
group deemed to be a "person" under Section 13(d)(3) or 14(d)(2) of
the Exchange Act or any successor provision to either of the
foregoing) of beneficial ownership, directly or indirectly, of shares
of capital stock of the Company entitling such person to exercise more
than 50% of the total voting power of all voting securities of the
Company; or
(2) any consolidation of the Company with, or merger of the
Company into, any other person, any merger of another person into the
Company, or any sale or transfer of all or substantially all of the
assets of the Company to another person (other than (a) a
consolidation or merger which does not result in any reclassification,
conversion, exchange or cancellation of outstanding shares of capital
stock other than shares of capital stock owned by any of the parties
to the consolidation or merger and in which the consolidated net worth
of the surviving corporation (as determined in accordance with GAAP)
immediately after the transaction equals or exceeds the consolidated
net worth of the Company immediately prior to such transaction or (b)
a merger which is effected solely to change the jurisdiction of
incorporation of the Company or (c) any consolidation with or merger
of the Company into a wholly owned Subsidiary, or any sale or transfer
by the Company of all or substantially all of its assets to one or
more of its wholly owned Subsidiaries in any one transaction or a
series of transactions; provided in each case that the resulting
corporation or each such Subsidiary assumes or guarantees the
obligations of the Company under the Debentures and the consolidated
net worth of the surviving or acquiring corporation in any such
consolidation, merger or sale of assets immediately after the
consummation of such transaction equals or exceeds the consolidated
net worth of the Company immediately prior to such transaction).
(B) "Beneficial owner" shall be determined in accordance with Rule
l3d-3 promulgated by the SEC under the Exchange Act, as in effect on the
Closing Date of, except that a person shall be deemed to be the "beneficial
owner" of all Debentures that such person has the right to acquire, whether
such right is exercisable immediately or only after the passage of time.
12
(C) "Voting securities" means all outstanding securities of any class
or classes (however designated) of the Company entitled to vote generally
in the election of the Board of Directors of the Company.
(b) Within 30 days after the occurrence of a Change in Control, the
Company shall mail a written notice (the "Company Notice") by first-class
mail. The notice shall include the form of a Repurchase Notice (as defined
below) to be completed by the Holder and shall state:
(1) the date and particulars of such Change in Control;
(2) the date by which the Repurchase Notice pursuant to this Section 7.1
must be given;
(3) the Repurchase Date;
(4) the Repurchase Price;
(5) briefly, the conversion rights of the Debentures including, without
limitation, the Conversion Price and any adjustments thereto;
(6) the name and address of the Paying Agent and the Conversion Agent;
(7) that Debentures as to which a Repurchase Notice has been given may be
converted into Common Stock only to the extent that the Repurchase
Notice has been withdrawn in accordance with the terms of this
Indenture;
(8) the procedures that the Holder must follow to exercise rights under
this Section 7.1; and
(9) the procedures for withdrawing a Repurchase Notice, including a form of
notice of withdrawal.
(c) A Holder may exercise its rights specified in subsection (a) of
this Section 7.1 upon delivery of a written notice of the exercise of such
rights (a "Repurchase Notice") to the Paying Agent at any time prior to
the close of business on the Repurchase Date, stating:
(1) the certificate number of each Debenture that the Holder will deliver
to be repurchased;
(2) the portion of the principal amount of each Debenture that the Holder
will deliver to be repurchased, which portion must be $1,000 or an
integral multiple thereof, and
(3) that such Debenture shall be repurchased pursuant to the terms and
conditions specified in this Agreement
The delivery of such Debenture to the Paying Agent prior to, on or after
the Repurchase Date (together with all necessary endorsements) at the office of
the Paying Agent shall be a condition to
13
the receipt by the Holder of the Repurchase Price therefor; provided, however,
that such Repurchase Price shall be so paid pursuant to this Section 7.1 only if
the Debenture so delivered to the Paying Agent shall conform in all respects to
the description thereof set forth in the related Repurchase Notice. The Company
shall repurchase from the Holder thereof, pursuant to this Section 7.1, a
portion of a Debenture if the principal amount of such portion is $1,000 or an
integral multiple of $1,000. Provisions of this Agreement that apply to the
repurchase of all of a Debenture also apply to the repurchase of such portion of
such Debenture. Notwithstanding anything herein to the contrary, any Holder
delivering to the Paying Agent the Repurchase Notice contemplated by this
Section 7.1(c) shall have the right to withdraw such Repurchase Notice in
whole or in a portion thereof that is $1,000 or an integral multiple thereof at
any time prior to the close of business on the Repurchase Date by delivery of a
written notice of withdrawal to the Paying Agent in accordance with Section 7.2.
The Paying Agent shall promptly notify the Company of the receipt by it of any
Repurchase Notice or written withdrawal thereof
7.2 Effect of Repurchase Notice
Upon receipt by the Paying Agent of the Repurchase Notice, the Holder of
the Debenture in respect of which such Repurchase Notice was given shall (unless
such Repurchase Notice is withdrawn as specified below) thereafter be entitled
to receive solely the Repurchase Price with respect to such Debenture. Such
Repurchase Price shall be paid to such Holder promptly following the later of
(i) the Repurchase Date with respect to such Debenture (provided the conditions
in Section 7.1(c) have been satisfied) and (ii) the time of delivery of such
Debenture to the Paying Agent by the Holder thereof in the manner required by
Section 7.1(c). Debentures in respect of which a Repurchase Notice has been
given by the Holder thereof may not be converted into shares of Common Stock on
or after the date of the delivery of such Repurchase Notice unless such
Repurchase Notice has first been validly withdrawn.
A Repurchase Notice may be withdrawn by means of a written notice of
withdrawal delivered by the Holder to the office of the Paying Agent at any time
prior to the close of business on the Repurchase Date to which it relates,
specifying:
(1) the certificate number of each Debenture in respect of which such
notice of withdrawal is being submitted;
(2) the principal amount of the Debenture or portion thereof with respect
to which such notice of withdrawal is being submitted; and
(3) the principal amount, if any, of such Debenture that remains subject to
the original Repurchase Notice and that has been or will be delivered
for purchase by the Company.
There shall be no purchase of any Debentures pursuant to Section 7.1 if
there has occurred (prior to, on or after, as the case may be, the giving, by
the Holders of such Debentures, of the required Repurchase Notice) and is
continuing an Event of Default (other than a default in the payment of the
Repurchase Price with respect to such Debentures).
14
7.3 Deposit of Repurchase Price.
On or before the Repurchase Date, the Company shall deposit with the Paying
Agent (or, if the Company is acting as the Paying Agent, shall segregate and
hold in trust) an amount of money sufficient to pay the aggregate Repurchase
Price of all the Debentures or portions thereof that are to be repurchased as of
such Repurchase Date. If the Paying Agent holds, in accordance with the terms
hereof, money sufficient to pay the Repurchase Price of any Debenture tendered
for repurchase on the Repurchase Date, then, on and after the Repurchase Date,
such Debenture will cease to be outstanding and interest on such Debenture will
cease to accrue and will be deemed paid, whether or not such Debenture is
delivered to the Paying Agent, and all other rights of the Holder in respect
thereof shall terminate (other than the right to receive the Repurchase Price
upon delivery of such Debenture).
7.4 Debentures Repurchased in Part.
Any Debenture that is to be repurchased only in part shall be surrendered
at the office of the Paying Agent (with, if the Company so requires, due
endorsement by, or a written instrument of transfer in form satisfactory to the
Company duly executed by, the Holder thereof or such Holder's attorney duly
authorized in writing), and the Company shall execute and deliver to the Holder
of such Debenture, without service charge, a new Debenture or Debentures, or
such other denomination or denominations as may be requested by such Holder, in
aggregate principal amount equal to, and in exchange for, the portion of the
principal amount of the Debenture so surrendered that is not purchased.
7.5 Compliance with Securities Laws upon Repurchase of Debentures.
In connection with any offer to repurchase or repurchase of Debentures
under Section 7.1 hereof (provided that such offer or repurchase constitutes an
"issuer tender offer" for purposes of Rule 13 e-4 (which term, as used herein,
includes any successor provision thereto) at the time of such offer or
repurchase), the Company shall (i) comply with Rule 13e-4 and Rule l4e-1 under
the Exchange Act, (ii) file the related Schedule 13E-4 (or any successor
schedule, form or report) under the Exchange Act, and (iii) otherwise comply
with all Federal and state Debentures laws so as to permit the rights of the
Holders and obligations of the Company under Sections 7.1 through 7.4 to be
exercised in the time and in the manner specified therein.
7.6 Holder's Conversion Privilege; Right of Company to Require Conversion.
(a) At any time prior to maturity or earlier conversion, a Holder of a
Debenture may convert such Debenture into Conversion Shares at the
Conversion Price then in effect. The number of Conversion Shares issuable
upon conversion of a Debenture shall be determined by dividing the
principal amount of the Debenture or portion thereof surrendered for
conversion by the Conversion Price in effect on the conversion date. The
initial Conversion Price of $1.25 is subject to adjustment as provided in
Section 7.11. A Holder may convert a portion of a Debenture equal to $1,000
or any integral multiple thereof. Provisions of this Purchase Agreement
that apply to conversion of all of a Debenture also apply to conversion of
a portion of a Debenture.
(b) A Debenture in respect of which a Holder has delivered a
Repurchase Notice pursuant to Section 7.1(c) exercising the option of
such Holder to require the Company to repurchase
15
such Debenture may be converted only if such Repurchase Notice is withdrawn by a
written notice of withdrawal delivered to the Paying Agent prior to the close of
business on the Repurchase Date in accordance with Section 7.1(c).
(c) At any time following the later of (1) the first anniversary of
the Closing Date, or (ii) the expiration of a period of 25 consecutive
trading days in each of which the closing price (as determined in
accordance with Section 7.11(e) below) exceeds $2.00 (as appropriately
adjusted to reflect adjustments to the Conversion Price pursuant to Section
7.11(b)), and provided (A) there is not then existing any event or
condition that constitutes or, with or without notice or the passage would
constitute, a default or Event of Default under the Debentures and (B) no
Holder of a Debenture is then entitled to elect to require the Company to
repurchase such Debenture pursuant to Section 7.1 above, the Company may
elect to require the Holders of all, but not less than all outstanding
Debentures, to convert all, but not less than all, outstanding Debentures
upon 30 days prior written notice to the Holders. The conversion date in
connection with such a required conversion shall be specified in such
notice and shall be no earlier than the 30th day following delivery of such
notice. The notice of the Company's election to require conversion shall
not preclude the exercise by a Holder of its optional right of conversion.
(d) A Holder of Debentures is not entitled to any rights of a holder
of Common Stock until such Holder has converted his Debentures into Common
Stock and, upon such conversion, only to the extent such Debentures are
deemed to have been converted into Common Stock pursuant to this Section 7.
7.7 Conversion Procedure.
(a) (i) To convert a Debenture at the option of the Holder, a Holder
must (A) complete and manually sign the conversion notice on the back of
the Debenture and deliver such notice to the Conversion Agent, (B)
surrender the Debenture to the Conversion Agent, (C) furnish appropriate
endorsements and transfer documents if required by the Registrar or the
Conversion Agent and (D) pay any transfer or similar tax, if required. With
regard to a conversion at the option of the Holder, the date on which the
Holder satisfies all of the foregoing requirements is the conversion date.
(ii) To convert a Debenture at the election of the Company, the
Holder shall complete the requirements of clauses (i)(B), (C) and (D) above
by the conversion date specified in the Company's notice of its election to
cause a conversion.
(b) As soon as practicable after the conversion date, the Company
shall deliver to the Holder through the Conversion Agent a certificate for
the number of whole shares of Common Stock issuable upon the conversion and
cash in lieu of any fractional shares pursuant to Section 7.8. The person
in whose name the Common Stock certificate is registered shall be deemed to
be a stockholder of record on the conversion date; provided, however, that
no surrender of a Debenture on any date when the stock transfer books of
the Company shall be closed shall be effective to constitute the person or
persons entitled to receive the shares of Common Stock upon such conversion
as the record holder or holders of such shares of Common Stock on such
date, but such surrender shall be effective to constitute the person or
persons entitled to receive such shares of Common Stock as the record
holder or holders thereof for all purposes at the close of business on the
next succeeding day on which such stock transfer books are open; provided
further, that such conversion shall be at the conversion rate in effect on
the date that such Debenture shall have been
16
surrendered for conversion, as if the stock transfer books of the Company had
not been closed. Upon conversion of a Debenture, such person shall no longer be
a Holder of such Debenture.
(c) No payment or adjustment will be made for accrued interest on a
converted Debenture or for dividends or distributions on shares of Common
Stock issued upon conversion of a Debenture, but if any Holder surrenders a
Debenture for conversion between the record date for the payment of an
installment of interest and the next interest payment date, then,
notwithstanding such conversion, the interest payable on such interest
payment date shall be paid to the Holder of such Debenture on such record
date. In such event, such Debenture, when surrendered for conversion, must
be accompanied by delivery of a check or draft payable to the Conversion
Agent in an amount equal to the interest payable on such interest payment
date on the portion so converted. If such payment does not accompany such
Debenture, the Debenture shall not be converted; provided, however that no
such check or draft shall be required if such Debenture is surrendered for
conversion on the interest payment date. If the Company defaults in the
payment of interest payable on the interest payment date, the Conversion
Agent shall repay such funds to the Holder.
(d) If a Holder converts more than one Debenture at the same time, the
number of shares of Common Stock issuable upon the conversion shall be
based on the aggregate principal amount of Debentures converted.
(e) Upon surrender of a Debenture that is converted in part, the
Company shall execute, and deliver to the Holder a new Debenture equal in
principal amount to the unconverted portion of the Debenture surrendered.
7.8 Fractional Shares
The Company will not issue fractional shares of Common Stock upon
conversion of Debentures. In lieu thereof, the Company will pay an amount in
cash based upon the current market price of the Common Stock on the trading day
prior to the date of conversion, determined as provided in Section 7.11(e).
7.9 Taxes on Conversion.
If a Holder converts a Debenture, the Company shall pay any documentary,
stamp or similar issue or transfer tax due on the issue of shares of Common
Stock upon such conversion. However, the Holder shall pay any such tax which is
due because the Holder requests the shares to be issued in a name other than the
Holder's name. The Conversion Agent may refuse to deliver the certificates
representing the Common Stock being issued in a name other than the Holder's
name until the Conversion Agent receives a sum sufficient to pay any tax which
will be due because the shares are to be issued in a name other than the
Holder's name. Nothing herein shall preclude any tax withholding required by law
or regulations.
7.10 Company to Provide Stock.
(a) The Company shall, prior to issuance of any Debentures hereunder,
and from time to time as may be necessary, reserve, out of its authorized
but unissued Common Stock a sufficient number of shares of Common Stock to
permit the conversion of all outstanding Debentures for shares of Common
Stock. The shares of Common Stock or other Debentures issued upon
conversion of the Debentures shall bear any legend required by law. All
shares of Common Stock
17
delivered upon conversion of the Debentures shall be newly issued shares or
treasury shares, shall be duly authorized, validly issued, fully paid and
non-assessable and shall be free from preemptive rights and free of any lien or
adverse claim.
(b) The Company will endeavor promptly to comply with all Federal and
state securities laws regulating the offer and delivery of shares of Common
Stock upon conversion of Debentures, if any, and will list or cause to have
quoted such shares of Common Stock on each national securities exchange or
in the over-the-counter market or such other market on which the Common
Stock is then listed or quoted.
7.11 Adjustment of Conversion Price.
The Conversion Price shall be adjusted from time to time by the Company as
follows:
(a) In the event the Company (i) fails for any reason to cause a
registration statement covering all of the Conversion Shares into which all
outstanding Debentures could be converted to be filed under the Act and to
become effective, and to remain effective, by and as of the 180th day
following the Closing Date, or (ii) fails thereafter to maintain such
registration statement in effect with respect to all such Conversion
Shares, in each case without same being subject to any stop order, or (iii)
otherwise fails to perform its duties with respect to the registration of
the Conversion Shares pursuant to the Registration Rights Agreement such
that all or any portion of the Conversion Shares may not legally be offered
or sold pursuant to an effective registration statement, then for each
month, or portion thereof, between the 180th day following the Closing Date
and the maturity of the Debentures that any such failure occurs or
continues the Conversion Price, as theretofore adjusted, shall be reduced
by $.0625 (as concomitantly adjusted to reflect prior adjustment to the
Conversion Price other than adjustments pursuant to this paragraph (a)),
provided that the aggregate reduction of the Conversion Price pursuant to
this paragraph (a) shall not exceed $375 (as concomitantly adjusted to
reflect prior adjustments to the Conversion Price other than adjustments
pursuant to this paragraph (a)).
(b) In case the Company shall (i) pay a dividend in shares of Common
Stock to holders of Common Stock, (ii) make a distribution in shares of
Common Stock to holders of Common Stock, (iii) subdivide its outstanding
Common Stock into a greater number of shares, or (iv) combine its
outstanding Common Stock into a smaller number of shares, the Conversion
Price in effect immediately prior thereto shall be adjusted so that the
Holder of any Debenture thereafter surrendered for conversion shall be
entitled to receive the number of shares of Common Stock which he would
have owned (attributable to Conversion Shares) had such Debenture been
converted immediately prior to the happening of such event. An adjustment
made pursuant to this paragraph (b) shall become effective immediately
after the record date in the case of a dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision or combination.
(c) In case the Company shall issue rights or warrants to all or
substantially all holders of its Common Stock entitling them to subscribe
for or purchase shares of Common Stock (or securities convertible into
Common Stock) at a price per share less than the current market price per
share of Common Stock (as determined in accordance with paragraph (e)
below) at the record date for the determination of stockholders entitled to
receive such rights or warrants, the Conversion Price in effect immediately
prior thereto shall be adjusted so that the same shall equal the price
determined by multiplying the Conversion Price in effect immediately prior
to such record date by a fraction of which the numerator shall be the
number of shares of Common Stock outstanding on
18
such record date, plus the number of shares which the aggregate subscription or
purchase price for the total number of shares of Common Stock offered by the
rights or warrants so issued (or the aggregate conversion price of the
convertible securities offered by such rights or warrants) would purchase at
such current market price, and of which the denominator shall be the number of
shares of Common Stock outstanding, on such record date plus the number of
additional shares of Common Stock offered by such rights or warrants (or into
which the convertible securities so offered by such rights or warrants are
convertible). Such adjustment shall be made successively whenever any such
rights or warrants are issued, and shall become effective immediately after such
record date. If at the end of the period during which such rights or warrants
are exercisable not all rights or warrants shall have been exercised, the
adjusted Conversion Price shall be immediately readjusted to what it would have
been upon application of the foregoing adjustment substituting the number of
additional shares of Common Stock actually issued (or the number of shares of
Common Stock issuable upon conversion of convertible securities actually issued)
for the total number of shares of Common Stock offered (or the convertible
securities offered).
(d) In case the Company shall distribute to all or substantially all
holders of its Common Stock any shares of capital stock of the Company
(other than Common Stock) or evidences of its indebtedness, other
securities or other assets (excluding cash dividends or other cash
distributions to the extent paid from retained earnings of the Company with
funds legally available for such dividends or distributions under the laws
of the Company's state of incorporation), or shall distribute to all or
substantially all holders of its Common Stock rights or warrants to
subscribe for or purchase any of its securities (excluding those referred
to in paragraph (c) above), then in each such case the Conversion Price
shall be adjusted so that the same shall equal the price determined by
multiplying the Conversion Price in effect immediately prior to the date of
such distribution by a fraction of which the numerator shall be the current
market price per share (as defined in paragraph (e) below) of the Common
Stock on the record date mentioned below less the fair market value on such
record date (as determined in good faith by the Board of Directors of the
Company) of the portion of the capital stock or evidences of indebtedness,
other securities or assets so distributed or of such rights or warrants, in
each case as applicable to one share of Common Stock, and of which the
denominator shall be the current market price per share (as defined in
paragraph (e) below) of the Common Stock on such record date. Such
adjustment shall become effective immediately after the record date for the
determination of shareholders entitled to receive such distribution.
Notwithstanding the foregoing, in the event that the Company shall
distribute rights or warrants (other than those referred to in paragraph
(c) above) ("Rights") pro rata to holders of Common Stock, the Company may,
in lieu of making any adjustment pursuant to this Section 7.11 make proper
provision so that each holder of a Debenture who converts such Debenture
(or any portion thereof) after the record date for such distribution and
prior to the expiration or redemption of the Rights shall be entitled to
receive upon such conversion, in addition to the shares of Common Stock
issuable upon such conversion (the "Conversion Shares"), a number of Rights
to be determined as follows: (i) if such conversion occurs on or prior to
the date for the distribution to the holders of Rights of separate
certificates evidencing such Rights (the "Distribution Date"), the same
number of Rights to which a holder of a number of shares of Common Stock
equal to the number of Conversion Shares is entitled at the time of such
conversion in accordance with the terms and provisions of and applicable to
the Rights; and (ii) if such conversion occurs after the Distribution Date,
the same number of Rights to which a holder of the number of shares of
Common Stock into which the principal amount of the Debenture so converted
was convertible immediately prior to the
19
Distribution Date would have been entitled on the Distribution Date and
provisions of and applicable to the Rights.
(e) For the purpose of any computation under paragraph (d) above, the
current market price per share of Common Stock on any date shall be deemed
to be the average of the daily closing prices for 20 consecutive trading
days commencing 30 trading days before the record date with respect to any
distribution, issuance or other event requiring such computation. The
closing price for each day shall be the last reported sales price or, in
case no such reported sale takes place on such date, the average of the
reported closing bid and asked prices in either case on the principal
national securities exchange on which the Common Stock is listed or
admitted to trading or, if not listed or admitted to trading on any
national securities exchange, the closing sales price of the Common Stock
as quoted by NASDAQ, or in case no reported sale takes place, the average
of the closing bid and asked prices as quoted by NASDAQ or any comparable
system, or if the Common Stock is not quoted on NASDAQ or any comparable
system, the closing sales price or, in case no reported sale takes place,
the average of the closing bid and asked prices, as furnished by any two
members of the National Association of Securities Dealers, Inc. selected
from time to time by the Company for that purpose.
(f) In any case in which this Section 7.11 shall require that an
adjustment be made immediately following a record date established for
purposes of this Section 7.11, the Company may elect to defer (but only
until five business days following the mailing by the Company of notice of
an adjustment in accordance with Section 7.15 below) issuing to the holder
of any Debenture converted after such record date the shares of Common
Stock and other capital stock of the Company issuable upon such conversion
over and above the shares of Common Stock and other capital stock of the
Company issuable upon such conversion only on the basis of the Conversion
Price prior to adjustment; and, in lieu of the shares the issuance of which
is so deferred, the Company shall issue or cause its transfer agents to
issue due bills or other appropriate evidence of the right to receive such
shares.
7.12 No Adjustment.
No adjustment in the Conversion Price shall be required unless the
adjustment would require an increase or decrease of at least 1% in the
Conversion Price as last adjusted; provide, however, that any adjustments which
by reason of this Section 7.12 are not required to be made shall be carried
forward and taken into account in any subsequent adjustment. All calculations
with respect to conversion under this Section 7 shall be made to the nearest
cent or to the nearest one-hundredth of a share, as the case may be. No
adjustment to the Conversion Price shall be made for cash dividends or
distributions to the extent paid from retained earnings of the Company with
funds legally available therefor under the laws of the Company's state of
incorporation. No adjustment need be made for rights to purchase Common Stock or
issuances of Common Stock pursuant to a Company plan for reinvestment of
dividends or interest. No adjustment need be made for a change in the par value
or a change to no par value of the Common Stock. To the extent that the
Debentures become convertible into cash, no adjustment need be made thereafter
as to the cash. Interest will not accrue on the cash.
7.13 Equivalent Adjustments.
In the event that, as a result of an adjustment made pursuant to Section
7.11 above, the holder of any Debenture thereafter surrendered for conversion
shall become entitled to receive any shares
20
of capital stock of the Company other than shares of its Common Stock,
thereafter the Conversion Price of such other shares so receivable upon
Conversion of any Debentures shall be subject to adjustment from time to time in
a manner and on terms as nearly equivalent as practicable to the provisions with
respect to the conversion of Common Stock contained in this Section 7.
7.14 Adjustment for Tax Purposes.
The Company shall be entitled to make such reductions in the Conversion
Price, in addition to those required by Section 7.11, as it in its discretion
shall determine to be advisable in order that any stock dividends, subdivision
of shares, distribution of rights to purchase stock or other securities, or a
distribution of securities convertible into or exchangeable for stock hereafter
made by the Company to its stockholders shall not be taxable.
7.15 Notice of Adjustment.
Whenever the Conversion Price is adjusted, or Debentureholders become
entitled to other securities or due bills the Company shall promptly mail to
Debentureholders a notice of the adjustment and an Officers' Certificate briefly
stating the facts requiring the adjustment and the manner of computing it.
7.16 Notice of Certain Transactions.
In the event that:
(1) the Company takes any action which would require an adjustment in
the Conversion Price;
(2) the Company consolidates or merges with, or transfers all or
substantially all of its assets to, another corporation and
stockholders of the Company must approve the transaction; or
(3) there is a dissolution or liquidation of the Company;
the Company shall mail to Debentureholders a notice stating the proposed record
or effective date, as the case may be. The Company shall mail the notice at
least 10 days before the earlier of the proposed record date or the proposed
effective date. Failure to mail such notice or any defect therein shall not
affect the validity of any transaction referred to in clause (1), (2) or (3) of
this Section 7.16.
7.17 Effect of Reclassification, Consolidation, Merger or Sale on
Conversion Privilege.
If any of the following shall occur, namely: (i) any reclassification or
change of outstanding shares of Common Stock (other than a change in par value,
or from par value to no par value, or from no par value to par value, or as a
result of a subdivision or combination); (ii) any consolidation or merger to
which the Company is a party other than a merger in which the Company is the
continuing corporation and which does not result in any reclassification of, or
change (other than a change in name, or par value, or from par value to no par
value, or from no par value to par value, or as a result of a subdivision or
combination) in, outstanding shares of Common Stock; or (iii) any sale or
conveyance of all or substantially all of the property or business of the
Company, then the Company, or such successor or purchasing corporation, as the
case may be, shall, as a condition
21
precedent to such reclassification, change, consolidation, merger, sale or
conveyance, execute and deliver to each Holder of Debentures a supplemental
statement providing that the Holder of each Debenture then outstanding
shall have the right to convert such Debenture into the kind and amount of
shares of stock and other securities and property (including cash) receivable
upon such reclassification, change, consolidation, merger, sale or conveyance by
a holder of the number of shares of Common Stock deliverable upon conversion of
such Debenture immediately prior to such reclassification, change,
consolidation, merger, sale or conveyance. Such supplemental statement shall
provide for adjustments of the Conversion Price which shall be as nearly
equivalent as may be practicable to the adjustments of the Conversion Price
provided for elsewhere in this Section 7. The foregoing, however, shall not in
any way affect the right a Holder of a Debenture may otherwise have, pursuant to
clause (ii) of the last sentence of Section 7.11(d), to receive Rights upon
conversion of a Debenture. If, in the case of any such consolidation, merger,
sale or conveyance the stock or other securities and property (including cash)
receivable thereupon by a holder of Common Stock includes shares of stock or
other securities and property of a corporation other than the successor or
purchasing corporation, as the case may be, in such consolidation, merger, sale
or conveyance, then such supplemental agreement shall also be executed by such
other corporation and shall contain such additional provisions to protect the
interests of the Holders of the Debentures as the Board of Directors of the
Company shall reasonably consider necessary by reason of the foregoing. The
provision of this Section 7.17 shall similarly apply to successive
consolidations, mergers, sales or conveyances. In the event the Company shall
execute a supplemental agreement pursuant to this Section 7.17, the Company
shall promptly send to each Holder of Debentures an Officers' Certificate
briefly stating the reasons therefor, the kind or amount of shares of stock or
other securities or property (including cash) receivable by Holders of the
Debentures upon the conversion of their Debentures after any such
reclassification, change, consolidation, merger, sale or conveyance, any
adjustment to be made with respect thereto and that all conditions precedent
have been complied with.
8. DEFAULT AND REMEDIES
8.1 Events of Default
(a) An "Event of Default" occurs if
(1) the Company defaults in the payment of interest on any
Debenture when the same becomes due and payable and the default
continues for a period of 5 business days;
(2) the Company defaults in the payment of the principal of
any Debenture when the same becomes due and payable at maturity,
upon repurchase or otherwise;
(3) the Company (i) (A) fails for any reason to cause a
registration statement covering all of the Conversion Shares into
which all of the outstanding Debentures could be converted to be
filed under the act and to become effective, and to remain
effective, by and as of the first anniversary of the Closing
Date, or (B) fails thereafter to maintain such registration
statement in effect with respect to all such Conversion Shares,
in each case without same being subject to any stop order, (ii)
fails to comply with any other covenant, warranty or agreement
contained in the Debentures or this Agreement and the default
under (i) (A), (i) (B) or (ii) above continues for a period of 30
days after notice thereof;
22
(4) the Company shall fail to pay at maturity or at a date
fixed for prepayment or by acceleration (provided, however, such
acceleration is not withdrawn, cancelled or otherwise annulled
within 10 days following the occurrence of such acceleration)
principal of, premium, if any, or interest on any Indebtedness
(as hereinafter defined) other than the Debentures;
(5) final judgments or orders are rendered against the
Company which require the payment in money by the Company, either
individually or in the aggregate of an amount (to the extent not
covered by insurance) that is more than $100,000 and such
judgments or orders remain unsatisfied, undischarged, unvacated,
unbonded and unstayed for more than 30 days and are not being
contested in good faith by appropriate proceedings;
(6) the Company or any Subsidiary pursuant to or within the
meaning of any Bankruptcy Law (as hereinafter defined):
(A) commences a voluntary case or proceeding;
(B) consents to the entry of an order for relief
against it in an involuntary case or proceeding;
(C) consents to the appointment of a Custodian (as
hereinafter defined) of it or for all or substantially all
of its property; or involuntary case or proceeding;
(D) makes a general assignment for the benefit of its
creditors;
(7) a court of competent jurisdiction enters an order or
decree under any Bankruptcy Law that:
(A) is for relief against the Company or any Subsidiary
in an involuntary case or proceeding;
(B) appoints a Custodian of the Company or any
Subsidiary or for all or substantially all of the property
of any of them; or
(C) orders the liquidation of the Company or any
Subsidiary; and in each case the order or decree remains
unstayed and in effect for 60 days.
(b) For purposes of this Agreement, the following terms shall have the
following meaning:
(i) The term "Bankruptcy Law" means Title 11, U.S. Code or any similar
Federal or state law for the relief of debtors.
(ii) the term "Custodian" means any receiver, trustee, assignee,
liquidator, sequestrator or similar official under any Bankruptcy Law.
(iii) The term "Indebtedness" means (i) any obligation, contingent or
otherwise (a) for borrowed money, (b) evidence by a note, debenture or
similar instrument (including
23
a purchase money obligation), (c) under-capitalized lease obligations, (d) in
respect of letters of credit (including reimbursement obligations with respect
thereto) or (e) to pay the deferred purchase price of property or services; (ii)
any obligation of others directly or indirectly guaranteed by the Company or any
Subsidiaries (including any monetary obligation of a keep-well or similar
nature); (iii) any obligation secured by a mortgage, pledge, lien, encumbrance,
charge or adverse claim affecting title or resulting in an encumbrance to which
the property or assets of the Company or any Subsidiary are subject, whether or
not the obligations secured thereby shall have been assumed by or shall
otherwise be the Company's or any Subsidiary's legal liability; (iv) to the
extent not otherwise included, obligations under currency swap agreements and
interest rate protection agreements or similar agreements; and (v) any and all
deferrals, renewals, extensions and supplements to, any liability of the kind
described in any of the preceding clauses (i), (ii), (iii) or (iv).
8.2 Acceleration.
If an Event of Default (other than an Event of Default specified in Section
8.1 (a) (6) or (7)) occurs the Holder of a Debenture may, by notice to the
Company, declare all unpaid principal of and accrued interest to the date of
acceleration on the Debentures then outstanding (if not then due and payable) to
be due and payable upon any such declaration, and the same shall become and be
immediately due and payable. If an Event of Default specified in Section 8.1
(a) (6) or (7) occurs, all unpaid principal of and accrued interest on the
Debentures then outstanding shall ipso facto become and be immediately due and
payable without any declaration or other act on the part of any Debentureholder.
8.3 Other Remedies.
(a) If an Event of Default occurs and is continuing, the Holder of a
Debenture may pursue any available remedy by proceeding at law or in equity to
collect the payment of the principal of or interest on the Debentures or to
enforce the performance of any provision of the Debentures or this Agreement or
the Security Agreement.
8.4 A delay or omission by any Debentureholder in exercising any right or
remedy accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
8.5 Rights of Holders to Receive Payment.
Notwithstanding any other provision of this Agreement or the Security
Agreement, the right of any Holder of a Debenture to receive payment of
principal of and interest on the Debenture, on or after the respective dates on
which such payments are due expressed in the Debenture, or to bring suit for the
enforcement of any such payment on or after such respective dates, is absolute
and unconditional and shall not be impaired or affected without the consent of
the Holder.
8.6 Defaulted Interest.
If the Company defaults on a payment of interest on a Debenture, it shall
pay the defaulted interest in any lawful manner plus any interest payable on the
defaulted interest, to the Holder of such Debenture on a subsequent special
record date. The Company shall fix such special record date and the payment
date. At least 15 days before such special record date the Company shall mail to
24
such Holder a notice that states the record date, the payment date and the
amount of interest to be paid, and on or before the payment date the Company
shall pay such amount to the record. Holder.
9. CONDITIONS TO CLOSING.
9.1 Conditions to Obligations of the Purchaser. Each Purchaser's obligation
to purchase the Debentures at the Closing is subject to the fulfillment, at or
prior to such Closing, of all of the following conditions:
(a) Representations and Warranties True; Performance of Obligations.
The representations and warranties made by the Company in Section 3 hereof
shall be true and correct in all material respects on the Closing Date with
the same force and effect as if they had been made on and as of said date;
except as described in or contemplated by the Offering Materials, the
business, assets, financial condition and results of operations of the
Company shall not have been adversely affected in any material way prior to
the Closing Date; and the Company shall have performed all obligations and
conditions herein required to be performed by it on or prior to the Closing
Date.
(b) Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated at the Closing hereby and all
documents and instruments incident to such transactions shall be reasonably
satisfactory in substance and form to the Purchaser.
(c) Qualifications, Legal Investment. All authorizations, approvals,
or permits, if any, of any governmental authority or regulatory body of the
United States or of any state that are required in connection with the
lawful sale and issuance of the Debentures pursuant to this Agreement, and
the perfection of a first lien on the patent rights of the Company and to
Subsidiaries as contemplated herein and in the Indentures shall have been
duly obtained and shall be effective on and as of the Closing Date. No stop
order or other order enjoining the sale of the Debentures shall have been
issued and no proceedings for such purpose shall be pending or, to the
knowledge of the Company, threatened by the SEC, or any commissioner of
corporations or similar officer of any state having jurisdiction over this
transaction. At the time of the Closing, the sale and issuance of the
Debentures shall be legally permitted by all laws and regulations to which
the Purchasers and the Company are subject.
(d) Registration Rights Agreement and Security Agreement. The Company
shall have entered into the Registration Rights Agreement and the Security
Agreement in substantially the forms included in the Offering Materials
(Tabs C and D, respectively).
(e) Legal Opinion. Counsel to the Company shall have provided a legal
opinion to the Purchasers dated as of the Closing Date reasonably
acceptable to the Placement Agent.
9.2 Conditions to Obligations of the Company. The Company's obligation to
issue and sell the Debentures at the Closing is subject to the fulfillment to
the Company's satisfaction, on or prior to the Closing, of the following
conditions:
(a) Representations and Warranties True. The representations and
warranties made by each Purchaser in Section 4 and by the Placement Agent
in Section 6 hereof shall be true
25
and correct at the Closing Date with the same force and effect as if they had
been made on and as of the Closing Date.
(b) Performance of Obligations. Each Purchaser and the Placement Agent
shall have performed and compiled with all agreements and conditions herein
required to be performed or complied with by them on or before the Closing
Date, and each Purchaser shall have delivered payment to the Company in
respect of its purchase of Debentures.
(c) Qualifications, Legal Investment. All authorizations, approvals,
or permits, if any, of any governmental authority or regulatory body of the
United States or of any state that are required in connection with the
lawful sale and issuance of the Debentures pursuant to this Agreement shall
have been duly obtained and shall be effective on and as of the Closing
Date. No stop order or other order enjoining the sale of the Debentures
shall have been issued and no proceedings for such purpose shall be pending
or, to the knowledge of the Company, threatened by the SEC or any
commissioner of corporations or similar officer of any state having
jurisdiction over this transaction. At the time of the Closing, the sale
and issuance of the Debentures shall be legally permitted by all laws and
regulations to which each Purchaser and the Company are subject.
10. MISCELLANEOUS.
10.1 Governing Law. This Agreement shall be governed by and construed under
the laws of the Commonwealth of Pennsylvania without regard to principles of
conflict of laws.
10.2 Successors and Assigns. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors, and administrators of the parties hereto.
10.3 Entire Agreement. This Agreement and the Exhibits hereto and thereto,
and the other documents delivered pursuant hereto and thereto, constitute the
full and entire understanding and agreement among the parties with regard to the
subjects hereof and no party shall be liable or bound to any other party in any
manner by any representations, warranties, covenants, or agreements except as
specifically set forth herein or therein. Nothing in this Agreement, express or
implied, is intended to confer upon any party, other than the parties hereto and
their respective successors and assigns, any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
10.4 Severability. In case any provision of this Agreement shall be
invalid, illegal, or unenforceable, it shall to the extent practicable, be
modified so as to make it valid, legal and enforceable and to retain as nearly
as practicable the intent of the parties, and the validity, legality, and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
10.5 Amendment and Waiver. Except as otherwise provided herein, any term of
this Agreement may be amended, and the observance of any term of this Agreement
may be waived (either generally or in a particular instance, either
retroactively or prospectively, and either for a specified period of time or
indefinitely), with the written consent of the Company and the Purchaser and
with respect to any amendment or waiver of the provisions of Section 6, the
Placement Agent. Any amendment or waiver effected in accordance with this
section shall be binding upon each future
26
holder of any Debenture purchased under this Agreement (including Shares into
which such Debentures have been converted) and the Company.
10.6 Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed effectively given upon
personal delivery, on the first business day following mailing by overnight
courier, or on the fifth day following mailing by registered or certified mail,
return receipt requested, postage prepaid, addressed to the Company and the
Purchaser at the respective addresses included herein.
10.7 Fees and Expenses. The Company and the Purchasers shall bear their own
expenses and legal fees incurred on its behalf with respect to this Agreement
and the transactions contemplated hereby; provided, that in the event that the
transactions contemplated hereby close, the Company shall reimburse the
Placement Agent in accordance with the provisions of Section 6.4.
10.8 Titles and Subtitles. The titles of the paragraphs and subparagraphs
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
10.9 Counterparts. Subject to Section 1.1(d), this Agreement may be
executed in any number of counterparts, each of which shall be deemed an
original, but all of which together shall constitute one instrument.
11. CERTAIN DEFINITIONS
For the purpose of this Agreement, the following terms shall have the
meanings specified below:
(a) "Affiliate" means, with respect to any person or entity, any other
person or entity directly or indirectly controlling, controlled by, or
under direct or indirect common control with, such person or entity, but
shall exclude, with respect to the Company, a Holder of a Debenture and any
transferee that might be deemed to be an Affiliate of the Company solely by
reason of its ownership of Securities purchased by a Holder of a Debenture
under this Agreement or Securities issued in exchange for or upon exercise
of any such Securities, or by reason of its benefiting from any agreements
or covenants of the Company contained in this Agreement. A person or entity
shall be deemed to control another person or entity if such person or
entity possesses, directly or indirectly, the power to direct or cause the
direction of the management and pollicies of such other person or entity,
whether through the ownership or voting securities, by contract or
otherwise.
(b) "GAAP" means generally accepted accounting principles in the
United States of America as in effect at the time any determination is made
or financial statement is required hereunder as promulgated by the American
Institute of Certified Public Accountants, the Accounting Principles Board,
the Financial Accounting Standards Board or any other body existing from
time to time which is authorized to establish or interpret such principles,
applied on a consistent basis throughout any applicable period, subject to
any clause required by a change in GAAP; provided, however, that if any
change in generally accepted accounting principles during the term of this
Agreement affects the calculation of any financial covenant contained
herein, the parties hereto
27
hereby agree to amend this Agreement to the effect that each such financial
covenant is not more or less restrictive than such covenant as in effect on the
date hereof.
(c) "Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including any agreement to give any of the
foregoing, any conditional sale or other title retention agreement, any
lease in the nature thereof and the filing of or agreement to give any
financial statement under the Uniform Commercial Code of any jurisdiction).
(d) "Material Adverse Effect" means a material adverse effect on the
business, earnings, condition (financial or other), assets, properties,
operations or prospects of the Company and its Subsidiaries taken as a
whole.
(e) "Subsidiary" means, with respect to any person or entity any
corporation or similar entity, a majority of the voting capital stock or
other voting equity of which shall, at the time as of which any
determination is made, be owned by such person or entity either directly or
through Subsidiaries.
(f) "Taxes" means, as to any person or entity, any net or gross income
taxes, franchise taxes, gross receipts taxes, stamp taxes, value added
taxes, sales taxes, use taxes, transfer taxes, net worth taxes, social
security wage and/or employment or unemployment taxes, gains taxes, profit
taxes, inventory taxes, real and personal property taxes, excise taxes,
taxes measured on or imposed by or on capital, levies, imposts, duties,
licensing fee, registration fees, withholding taxes, gains taxes, profits
taxes, estimate taxes, required deposits and charges of any nature
whatsoever relating to any of the foregoing, including without limitation,
interest, penalties, fines, additions to tax, assessments and deficiencies
related thereto and any liability as a transferee arising under the laws of
any Federal, state or local taxing authority."
28
EXHIBIT I
[FORM OF FACE OF DEBENTURE]
Number _________________________ CUSIP _________________
THE SECURITY REPRESENTED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE "SECURITIES ACT") OR ANY STATE SECURITIES LAW. THE
HOLDER HEREOF, BY PURCHASING THIS SECURITY, AGREES FOR THE BENEFIT OF THE
MED-DESIGN CORPORATION ("COMPANY") THAT THIS SECURITY MAY BE RESOLD, PLEDGED OR
OTHERWISE TRANSFERRED ONLY (1) TO TEE COMPANY (UPON CONVERSION OR REPURCHASE) OR
(2) PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION UNDER THE SECURITIES
ACT, OR (3) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT, IN EACH CASE IN ACCORDANCE WITH ANY APPLICABLE SECURITIES LAWS OF ANY STATE
OF THE UNITED STATES. IN CONNECTION WITH ANY TRANSFER PURSUANT TO CLAUSE (2)
ABOVE, THE HOLDER HEREOF WILL DELIVER TO THE COMPANY SUCH OPINION OF COUNSEL,
CERTIFICATES AND OTHER INFORMATION AS IT MAY REASONABLY REQUIRE TO CONFIRM THAT
THE TRANSFER COMPLIES WITH THE FOREGOING RESTRICTIONS.
THE MED-DESIGN CORPORATION
4% Convertible Collateralized Debenture due 2003
The Med-Design Corporation, a Delaware corporation (the "Company"),
promises to pay to ________________________, or registered assigns, the
principal sum of ___________________ Dollars ($_________) on ____________, 2003
and interest as hereinafter provided.
Interest Payment Dates: ___________________, __________________, ____________
and ______________
Record Dates: ___________________, __________________, ____________ and
______________
This Debenture is convertible at such times and in such manner as
hereinafter specified. Additional provisions of this Debenture are set forth on
the other side of this Debenture and in the Debenture Purchase Agreement
hereinafter referred to.
THE MED-DESIGN CORPORATION
Dated: By:
------------------------
Name:
Title:
[SEAL]
Attest:
By:
---------------------------------
Name:
Title:
This is one of the Debentures referred to in the Debenture Purchase Agreement
among the Company, certain purchasers of Debentures (collectively, the
"Purchasers") and Pennsylvania Merchant Group dated, 1998 (the "Purchase
Agreement"). The terms of this Debenture include the terms of the Purchase
Agreement.
[FORM OF REVERSE SIDE OF DEBENTURE]
The Med-Design Corporation
4% Convertible Collateralized Debenture due 2003
1. Interest.
The Company promises to pay interest on the principal amount of this
Debenture at the rate per annum shown above. The Company shall pay interest
quarterly on _____________, ______________, _________________ and ____________
of each year, commencing ____________, 1998. Interest on the Debenture will
accrue from the most recent date to which interest has been paid or, if no
interest has been paid, from the date of first issuance of the Debenture.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
2. Method of Payment.
The Company will pay interest on this Debenture (except defaulted interest)
on ________________, ___________, and ____________ (each an "Interest Payment
Date") to the person who is the registered Holder of this Debenture at the close
of business on the ___________, ____________, ____________ and ___________,
respectively, next preceding the relevant Interest Payment Date. The Holder must
surrender this Debenture to the Company to collect payment of principal. The
Company will pay principal in money of the United States that at the time of
payment is legal tender for payment of public and private debts. The Company
shall pay interest in such money, or alternatively at its election, the Company
may pay interest or a portion thereof in the form of shares of the Company's
Common Stock. For purposes of the preceding sentence the value of the Company
Common Stock shall be the average of the last reported sale prices thereof for
the five trading days immediately preceding the relevant Interest Payment Date.
The Company, however, may pay principal and cash interest by check or wire
transfer and may mail a cash interest check or certificates for shares of its
Common Stock in lieu thereof to the Holder's last registered address on the
Company's records.
3. Paying Agent, Registrar and Conversion Agent.
Initially, the Company will act as Paying Agent, Registrar and Conversion
Agent. The Company may change any Paying Agent, Registrar or Conversion Agent
and shall provide prompt notice of such change to the Holder.
4. Limitation as to Arnount.
The Debentures are limited to up to $1,500,000 aggregate principal amount.
5. Redemption.
The Debentures are not redeemable or prepayable at the Company's option, in
whole or in part.
6. Repurchase of Debentures at Option of Holder Upon a Change in Control.
If at any time that Debentures remain outstanding there shall have occurred
a Change in Control (as defined in the Purchase Agreement), at the option of the
Holder and subject to the terms and conditions of the Purchase Agreement, the
Company shall repurchase all or any part specified by the Holder (so long as the
principal amount of such part is $1,000 or an integral multiple thereof) of the
Debentures held by such Holder on the Repurchase Date (as defined in the
Purchase Agreement). The Holder shall have the right to withdraw any Repurchase
Notice (as defined in the Purchase Agreement) by delivering a written notice of
withdrawal to the Paying Agent in accordance with the terms of the Purchase
Agreement.
7. Conversion.
The Debenture shall be convertible into shares of the Company's
Common Stock (the "Conversion Shares") at the Conversion Price (as defined in
the Purchase Agreement) at the election of the Holder or, under certain
circumstances, at the election of the Company, in each case, as provided in the
Purchase Agreement. The initial Convqrsion Price is $1.25 per share of Common
Stock, subject to adjustment under certain circumstances as described in the
Purchase Agreement.
8. Security
The Debentures are secured pursuant to the Security Agreement dated
_______________, 1998 among the Company and the Purchasers (the "Security
Agreement").
9. Registration Rights.
The Holders of the Debentures are entitled to the benefits of the
Registration Rights Agreement among the Company and the Purchasers dated
________________, 1998, with respect to the registration with the United States
Securities and Exchange Commission of the Conversion Shares.
10. Denominations. Transfer. Exchange.
The Debentures are in registered form without coupons in denominations of
$1,000 and integral multiples thereof. A Holder may register the transfer of or
exchange Debentures subject to the terms of the Purchase Agreement. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay any taxes or other governmental
charges that may be imposed by law or permitted by the Purchase Agreement.
11. Persons Deemed Owners.
The registered holder of a Debenture may be treated as the owner of it for
all purposes.
12. Unclaimed Money.
If money for the payment of principal or interest remains unclaimed for two
years, the Paying Agent will pay the money back to the Company at its request.
After that, Holders entitled to money must look to the Company for payment.
13. Defaults and Remedies.
An Event of Default is defined in the Purchase Agreement and includes,
among other events: default for 5 business days in payment of interest on the
Debentures; default in payment of principal on the Debentures when due; failure
by the Company for 30 days after notice to it to comply with any of its other
affirmative or negative covenants contained in the Purchase Agreement or the
Debentures; certain events of bankruptcy, insolvency or reorganization of the
Company or any of its subsidiaries; and certain defaults on other indebtedness.
If an Event of Default (other than as a result of certain events of bankruptcy,
insolvency or reorganization) occurs and is continuing, the Holder of a
Debenture then outstanding may declare all unpaid principal of and accrued
interest to the date of acceleration on such Debenture then outstanding to be
due and payable immediately, all as and to the extent provided in the Purchase
Agreement. If an Event of Default occurs as a result of certain events of
bankruptcy, insolvency or reorganization, all unpaid principal of and accrued
interest on the Debentures then outstanding shall become due and payable
immediately without any declaration or other act on the part of any Holder, all
as and to the extent provided in the Purchase Agreement. The rights of a Holder
with respect to the collateral provided for in the Security Agreement shall be
determined in accordance with the Security Agreement.
14. Abbreviations and Definitions.
Customary abbreviations may be used in the name of a Holder or an assignee,
such as: TEN COM (= tenants in common), TEN ENT (= tenants by the entireties),
JT TEN (= joint tenants with right of survivorship and not as tenants in
common), CUST (= Custodian) and U/G/M/A (= Uniform Gifts to Minors Act).
All capitalized terms used in this Debenture and not specifically defined
herein are defined in the Purchase Agreement and are used herein as so defined.
15. Purchase Agreement to Control.
In the case of any conflict between the provisions of this Debenture and
the Purchase Agreement, the provisions of the Purchase Agreement shall control.
The Company will furnish to any Holder, upon written request and without
charge, a copy of the Purchase Agreement. Requests may be made to:
[ ]
OPTION OF HOLDER TO ELECT REPURCHASE
If you want to elect to have this Debenture repurchased by the Company pursuant
to Section __________ of the Purchase Agreement, check the box:
[ ]
If you want to elect to have only part of this Debenture repurchased by the
Company pursuant to Section ____ of the Purchase Agreement, state the amount to
be repurchased:
$ _____________
Date: ________________ Your Signature _____________________________
(Sign exactly as your name
appears on the other side of
this Debenture)
Signature Guarantee:
____________________________________
Date: ______________________
___________________________
NOTICE: The signature to
this assignment must
correspond with the name as
written upon the face of
the within-mentioned
instrument in every
particular, without
alteration or any change
whatsoever.
Signature Guarantee: _________________________________
TO BE COMPLETED BY PURCHASER EF (a) ABOVE IS CHECKED.
The undersigned represents and warrants that it is purchasing this
Debenture for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is an accredited
investor within the meaning of Regulation D under the Securities Act of 1933, as
amended, and is aware that the sale to it is being made in reliance on
Regulation D and acknowledges that it has received such information regarding
the Company as the undersigned has requested pursuant to Regulation D or has
determined not to request such information and that it is aware that the
transferor is relying upon the undersigned's foregoing representation in order
to claim the exemption from registration provided by Regulation D.
Dated: ____________________ ______________________________________________
NOTICE: To be executed by an executive officer
CONVERSION NOTICE
To convert this Debenture into Common Stock of the Company, check the box.
| |
To convert only part of this Debenture, state the amount to be converted:
| |
If you want the stock certificate made out in another person's name, fill in
the form below:
| |
(insert other person's social security or tax I.D. number)
(Print or type other person's name,
address and zip code) _________________________________________________________
Date: _________________________________
Your Signature:* _____________________________________________________________
*(Sign exactly as your name appears
on the other side of this Debenture)
*Signature guaranteed by: ________________________________________________
By: ____________________________________________
*The signature must be guaranteed by a bank, a trust company or a member firm
of the New York Stock Exchange.
TRANSFER NOTICE
FOR VALUE RECEIVED the undersigned registered holder hereby sell(s),
assign(s) and transfer(s) unto
Insert Taxpayer Identification No.
________________________________________________________________________________
________________________________________________________________________________
(Please print or typewrite name and address including zip code of assignee)
________________________________________________________________________________
the within Debenture and all rights thereunder, hereby irrevocably constituting
and appointing
________________________________________________________________________________
attorney to transfer such Debenture on the books of the Company with full
power of substitution in the premises.
THE MED-DESIGN CORPORATION
DEBENTURE PURCHASE AGREEMENT AND
REGISTRATION RIGHTS AGREEMENT
SIGNATURE PAGE
Please complete two copies of the Signature Page and return both copies to:
Pennsylvania Merchant Group, ▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇
▇▇▇▇▇-▇▇▇▇, Attn: ▇▇▇▇ ▇. ▇▇▇▇▇▇.
________________________________ _____________________________
Purchaser's Name-Please Print Nominee Name (if appropriate)
________________________________ _____________________________
Social Debenture/Tax I.D. Number Telephone Number
________________________________ _____________________________
Address City, State and Zip Code
________________________________ _____________________________
Signature Date
________________________________________________________________________________
Amount of Debentures To Be Purchased $ _________________________
FUNDS SHOULD BE WIRED TO: SUMMIT BANK/Trust, Attention: ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Hackensack, NJ ABA #▇▇▇▇▇▇▇▇▇. For credit to the Account of Med-Design
Corporation - Trust Account #2970056354.
AGREED TO AND ACCEPTED:
PENNSYLVANIA MERCHANT GROUP
By: _____________________________ Date: ___________________________
▇▇▇▇ ▇. ▇▇▇▇▇▇
Vice President - Administration
By: _____________________________ Date: ___________________________
29