EXHIBIT 4.12
This Convertible Debenture and Warrant Purchaser Agreement (the
"Agreement"), dated March 31, 1998, by and between QUADRANT INTERNATIONAL INC.,
a Pennsylvania corporation (the "Company"), and each of the purchasers who are
signatories on the execution pages hereto (individually, an "Investor" and
collectively, the "Investors").
W I T N E S S E T H
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WHEREAS, the Company is currently negotiating the sale of preferred stock
to one or more investors for an aggregate purchase price of at least $10,000,000
(the "Class B Preferred Stock Financing"), such stock to be designated as Class
B Convertible Preferred Stock of the Company (the "Class B Preferred Stock"),
the preferences, limitations and rights of which are currently being negotiated
but shall provide that the stock be convertible at the option of its holders,
from time to time and at any time, into fully paid, validly issued and
nonassessable shares of the common stock of the Company, par value $.01 per
share (the "Common Stock"), on a share for share basis; and
WHEREAS, the Company desires financing in the aggregate amount of
$3,000,000 (the "Bridge Financing") of which $2,00,000 will be used to provide
an irrevocable letter of credit for the benefit of Solectron Texas, L.P. and
Solectron (Suzhou) Technology Co., Ltd. (the "Letter of Credit"); and
WHEREAS, based on and subject to the terms and conditions of this
Agreement, the Investors are willing to provide that portion of the Bridge
Financing which will be used to provide the Letter of Credit by acquiring from
the Company, for the aggregate purchase price set forth immediately below each
Investor's name on the execution pages hereto (the "Execution Pages"), (i) a
debenture in the principal amount set forth immediately below each such
Investor's name on the Execution Pages (each a "Debenture" and collectively the
"Debentures") convertible, at the option of each Investor, as set forth in the
Debenture, into either shares of Class B Preferred Stock or shares of Common
Stock, and (ii) a warrant (each a "Warrant" and collectively, the "Warrants") to
purchase that number of shares of Common Stock set forth immediately below each
such Investor's name on the Execution Pages.
NOW, THEREFORE, the parties hereto agree as follows:
1. PURCHASE AND SALE OF DEBENTURES AND WARRANTS.
1.1 PURCHASE AND SALE. Subject to the terms and conditions of this
Agreement, the Company hereby issues and sells to each Investor, and each
Investor hereby purchases from the Company, the Debenture and the Warrant for
the purchase price (the "Purchase Price") set forth immediately below such
Investor's name on the Execution Pages.
1.2 THE DEBENTURE. Each Debenture shall be in the aggregate principal
amount set forth immediately below each such Investor's name on the Execution
Pages, shall become due and payable on May 31, 1998 unless earlier terminated or
converted as provided therein (the "Debenture Due Date"), shall bear interest at
the rate of 6% per annum from the date of issuance, which interest shall be
payable in arrears in shares of Common Stock on the Debenture Due Date, and
shall have such other terms and conditions as are set forth in the form of
Debenture attached hereto as Exhibit A.
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1.3 THE WARRANT. Each Warrant shall grant the Investor the right to
purchase from time to time and at any time for a period of three years from the
date of this Agreement up to the aggregate number of shares of Common Stock set
forth immediately below each such Investor's name on the Execution Pages, at an
exercise price per share and subject to such other terms and conditions as are
set forth in the form of Warrant attached hereto as Exhibit B.
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1.4 SECURITY INTEREST. In order to secure the Company's obligation to
pay the principal, premium if any, and interest under the Debentures, the
Company shall (i) assign to each Investor (pursuant to a Collateral Assignment
Agreement in the form attached hereto as Exhibit C) certain of the Company's
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rights with respect to 23,000 Cinemasters (the "Products") to be delivered to
Dell Products, L.P. ("Dell") by the Company pursuant to that certain letter
agreement (the "Letter Agreement") between the Company and Dell dated January 6,
1998, (the "Assignment") and (ii) grant to each Investor (pursuant to a Security
Agreement in the form attached hereto as Exhibit D), pro rata based on the
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relationship that the dollar amount of such Investor's Debenture bears to the
aggregate amount of all Debentures issued under this Purchase Agreement, a first
lien and security interest in and to the proceeds payable to the Company by Dell
under the Letter Agreement with respect to the Products (the "Security Interest"
and together with the Assignment, the "Security Interests"). The Security
Interests with respect to any Investor shall terminate on the earlier to occur
of (a) the closing of the Class B Financing and (b) payment by the Company of
the principal amount of such Investor's Debenture.
2. THE CLOSING.
2.1 DELIVERIES OF THE COMPANY. Concurrently with the execution of this
Agreement, the Company is delivering to each Investor:
(a) the Debenture;
(b) the Warrant;
(c) a certificate, executed by the President of the Company,
dated the date hereof, certifying that there does not exist as of the
date hereof a state of facts that would constitute an "Event of
Default" under this Agreement or the Debentures (collectively, all such
defaults being hereinafter referred to as "Defaults"), or which would,
with notice or lapse of time, or both, constitute such a Default, and
the Company is not in default under the terms, conditions or provisions
of its Articles of Incorporation, as amended, its By-laws, or any
indenture, mortgage or deed of trust or other material contract,
agreement, lease, instrument, court order, judgment, arbitration award,
or decree to which it is a party or by which it is bound or which state
of facts would, with notice or lapse of time, or both, constitute such
a default (collectively, "Other Defaults");
(d) copies of (i) resolutions adopted by the Board of Directors
of the Company authorizing and approving this Agreement, the issuance
of the Debentures, the Warrants, the shares of Class B Preferred Stock
into which the Debentures may be converted, assuming the closing of the
Class B Preferred Stock Financing (the "Conversion Preferred Shares"),
upon the filing of the
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Articles Amendment (as defined below), the shares of Common Stock into
which the Debentures may be converted as set forth in the Debentures
(the "Conversion Common Shares"), upon the filing of the Articles
Amendment, the shares of Common Stock to be issued as interest on the
Debentures (the "Interest Common Shares") and, upon the filing of the
Articles Amendment, the shares of Common Stock to be issued upon
exercise of the Warrants (the "Warrant Common Shares"), and the
consummation of all other transactions contemplated hereby, as and to
the extent required by applicable law, and (ii) action by partial
written consent of the shareholders of the Company representing more
than 50% of the outstanding voting securities of the Company (the
"Majority Shareholders") approving, among other matters, an amendment
(the "Articles Amendment") to the Company's Amended and Restated
Articles of Incorporation, as amended (as further amended by the
Articles Amendment, the "Articles of Incorporation"), to increase the
authorized capital stock of the Company, all such resolutions and
written consents being certified by the Secretary of the Company;
(e) copies of the Company's Articles of Incorporation and By-laws
as then in effect, all certified by the Secretary of the Company;
(f) a Subsistence Certificate for the Company issued by the
Secretary of the Commonwealth of the Commonwealth of
Pennsylvania, dated as of a recent date;
(g) an opinion letter, from Cozen and ▇'▇▇▇▇▇▇, counsel to the
Company, addressed to the Investor, dated the date hereof, in
form and substance satisfactory to the Investor;
(h) a certificate of incumbency signed by the Secretary of the
Company, certifying the names, titles and signatures of the
Company's officers and directors;
(i) an unqualified opinion of KPMG Peat Marwick LLP on the
Company's financial statements for the fiscal year ended
December 31, 1996; and
(j) a receipt for the full amount of the Purchase Price, before
deduction of the fees and expenses payable under Section 13.6.
2.2 DELIVERIES OF EACH INVESTOR AT THE CLOSING. Concurrently with the
execution of this Agreement, each Investor shall (i) pay the Purchase Price
(less fees and expenses payable under Section 13.6 for which the Investor has
submitted invoices at least one business day prior to the date hereof) to the
Company by wire transfer of immediately available funds in accordance with the
Company's written wire instructions, and (ii) deliver to the Company a receipt
for the fees and expenses deducted from the Purchase Price.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. As of the date of this
Agreement, the Company represents and warrants to each Investor (regardless of
any investigation made or information obtained by such Investor), as a material
inducement to the Investor to enter into this Agreement, as follows:
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3.1 ORGANIZATION AND STANDING. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Pennsylvania. The Company has all requisite corporate power and
authority to own and lease its properties and to conduct its business as
presently conducted. The Company is duly qualified to do business as a foreign
corporation and is in good standing under the laws of each jurisdiction listed
in Schedule 3.1 attached hereto, such jurisdictions being all the jurisdictions
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in which it owns or leases properties or conducts any business so as to require
such qualification, except where the failure to be so qualified would not have a
material adverse effect on the Company. The minute books and stock records of
the Company are complete and accurate in all material respects and all
signatures included therein are the genuine signatures of the persons whose
signatures are required. As used in this Agreement, "material adverse effect"
means any material adverse effect on the business, properties, assets,
operations, results of operations, liabilities, or financial condition of the
Company, taken as a whole, or on the transactions contemplated hereby or by the
agreements and instruments to be entered into in connection herewith.
3.2 SUBSIDIARIES, ETC. Except as set forth in Schedule 3.2, the
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Company has no subsidiaries and does not own any capital stock, security,
partnership interest or other interest of any kind in any corporation,
partnership, joint venture, association or other entity.
3.3 CAPITALIZATION. As of the date of this Agreement, and after giving
effect to the Articles Amendment, the Company's authorized capital stock
consists of (a) 50,000,000 shares of Common Stock, of which [14,183,835] shares
are issued and outstanding, 6,500,000 shares are reserved and available for
issuance pursuant to the Company's stock option and purchase plans, each
outstanding grant of which is described in Schedule 3.3, at the exercise prices
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set forth on Schedule 3.3 , and [6,963,351] shares are available for issuance
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pursuant to currently outstanding options and warrants granted outside of the
Company's stock option and purchase plans, each of which is described in
Schedule 3.3, and (b) 31,523,684 shares of Preferred Stock, of which 6,523,684
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shares are designated Class A Convertible Preferred Stock, par value $.01 per
share (the "Class A Preferred Stock"), of which no shares are issued and
outstanding and all of which are reserved for issuance upon the exercise of all
the warrants (collectively, the "Prior Warrants") to purchase Class A Preferred
Stock at the exercise prices set forth in Schedule 3.3. There are no treasury
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shares held by the Company. All outstanding shares of capital stock of the
Company have been, or upon issuance will be, validly issued, fully paid and
nonassessable. Except as disclosed in Schedule 3.3, no shares of capital stock
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of the Company are subject to preemptive rights or any other similar rights or
any liens or encumbrances suffered or permitted by the Company or were issued in
violation of the Securities Act of 1933, as amended (the "Securities Act"), or
applicable state, provincial or municipal securities laws. Except as set forth
in this Section 3.3 or in Schedule 3.3, as of the date of this Agreement, (i)
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there are no outstanding options, warrants, scrip, rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, any shares of capital stock of the
Company, or contracts, commitments, understandings or arrangements by which the
Company is or may become bound to issue additional shares of capital stock of
the Company or options, warrants, scrip, rights to subscribe to, calls or
commitments of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for, any shares of capital stock of the
Company, (ii) there are no outstanding debt securities, (iii) there are no
agreements or arrangements under which the Company is obligated to register the
sale of any of its securities under the Securities Act (except
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this Agreement) and (iv) there are no outstanding securities of the Company
which contain any redemption or similar provisions, or any contracts,
commitments, understandings or arrangements by which the Company is or may
become bound to redeem or purchase a security of the Company. Except as
disclosed in Schedule 3.3, there are no securities or instruments containing
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anti-dilution or similar provisions that will be triggered by the issuance of
the Debenture, the Warrant or any Conversion Shares (collectively, the
"Securities"). The Company has furnished to the Investor true and correct copies
of the Company's Articles of Incorporation and By-laws, and the terms of all
securities convertible into or exercisable for any shares of capital stock of
the Company and the material rights of the holders thereof in respect thereto. A
current shareholders' list giving the names, addresses and number of shares of
capital stock of the Company owned by each shareholder of the Company is
attached hereto as part of Schedule 3.3.
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3.4 AUTHORIZATION. Subject to the filing of the Articles Amendment,
which shall occur on December 29, 1997 (the "Effective Date"), the Company has
all necessary corporate power and authority to enter into and perform this
Agreement, the Debenture, the Warrant and each of the other agreements entered
into by the parties hereto in connection with the transactions contemplated by
this Agreement (collectively, the "Transaction Documents"), and to issue and
deliver the Securities in accordance with the terms hereof and thereof. The
execution, delivery and performance of the Transaction Documents by the Company
and the consummation of the transactions contemplated hereby and thereof,
including, without limitation, the issuance and sale of the Debenture and the
Warrant, and the issuance of the Conversion Preferred Shares (assuming the
closing of the Class B Preferred Stock Financing), the Conversion Common Shares,
the Interest Common Shares and the Warrant Common Shares (collectively, the
"Conversion Shares"), have been duly authorized by the Company's Board of
Directors and no further consent or authorization is required by the Company,
its Board of Directors or its shareholders except in connection with the
authorization and issuance of the Class B Preferred Stock, the terms of which
are still being negotiated in connection with the Class B Preferred Stock
Financing. The Transaction Documents have been duly executed and delivered by
the Company. Each of the Transaction Documents constitutes a valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, except as such enforceability may be limited by general principles of
equity or applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to or affecting generally the enforcement
of creditors' rights and remedies.
3.5 ISSUANCE OF SECURITIES. The Debenture and the Warrant are duly
authorized for issuance and sale to the Investor by the Company pursuant hereto
and, upon issuance in accordance with the terms hereof, shall be valid and
binding obligations of the Company, enforceable against the Company in
accordance with their terms, except as such enforceability may be limited by
general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to or affecting
generally the enforcement of creditors' rights and remedies. Upon the Effective
Date, the Conversion Common Shares will have been duly authorized and reserved
for issuance upon conversion of the Debenture and upon such issuance the
Conversion Common Shares will be validly issued, fully paid and nonassessable
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and free from all taxes, liens and charges with respect to the issue thereof.
Upon the Effective Date, the Interest Common Shares will have been duly
authorized and reserved for issuance in accordance with the terms and conditions
of this Agreement and the Debenture and, upon such issuance will be fully paid
and nonassessable and free from all taxes, liens and charges with respect to the
issue thereof. Upon the Effective Date, the Warrant Common Shares will have
been duly authorized and reserved for issuance upon exercise of the Warrants in
accordance with the terms and conditions of this Agreement and the Warrants, and
upon such issuance will be fully paid and nonassessable and free from all taxes,
liens and charges with respect to the issue thereof. Subject to the filing, if
required, of a Form D, the issuance by the Company of the Securities is exempt
from registration under the Securities Act.
3.6 CONTRACTS, LEASES, AGREEMENTS AND OTHER COMMITMENTS. Except as
described on Schedule 3.6, the Company is not a party to or bound by any
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written, oral or implied contract, agreement, lease, power of attorney,
guaranty, surety arrangement, or other commitment in excess of $50,000
including, but not limited to, any contract or agreement for the purchase or
sale of merchandise or for the rendering of services, but excluding any purchase
orders to the Company in the normal course of its business.
3.7 BREACH. The Company is not in violation or breach of any of the
terms, conditions or provisions of the Articles of Incorporation or the By-laws,
or in material violation or material breach of any indenture, mortgage or deed
of trust or other material contract, agreement, lease, instrument, court order,
judgment, arbitration award or decree to which it is a party or by which it is
bound.
3.8 EMPLOYEES, OFFICERS AND DIRECTORS. A current list of the names and
addresses of all officers and directors of the Company is attached hereto as
Schedule 3.8. Except as described on Schedule 3.8, the Company has not entered
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into any employment or other agreements with any of its employees, officers or
directors, or any of its former employees, officers or directors.
3.9 COMPLIANCE WITH LAWS. Except as described in Schedule 3.9, the
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Company is in compliance with all existing requirements of laws, including but
not limited to federal, state, local and foreign laws, rules and regulations,
and all existing requirements of all governmental bodies or agencies having
jurisdiction over it, the failure to comply with which might have a material
adverse effect on the Company, its assets, business or prospects.
3.10 CONFLICT WITH DOCUMENTS. Except as disclosed in Schedule 3.10 or
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as explicitly provided in this Agreement, the execution, delivery and
performance of the Transaction Documents by the Company and the consummation of
the transactions contemplated hereby and thereby (including, without limitation,
the reservation for issuance and the issuance of the Conversion Shares other
than the Conversion Preferred Shares), either immediately or with the passage of
time or the giving of notice or both, will not:
(a) conflict with or cause a material breach or an Event of
Default under any of the terms, conditions or provisions of, result in
a termination or modification of, or cause any acceleration of any
obligation of the Company under any material contract, lease or other
instrument to which the Company is bound or by which any of the
Company's properties or assets may be affected;
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(b) subject to the filing of the Articles Amendment on the
Effective Date, result in a violation of the Articles of Incorporation
or the By-laws or any statute, law, rule or regulation or any order,
judgment or decree to which the Company or any of its properties or
assets are subject; or
(c) result in the creation or imposition of any lien, charge or
encumbrance against the Company or any of the Company's material
properties or assets.
[3.11 FINANCIAL STATEMENTS. The Company has furnished to the Investor
copies of its audited annual financial statements for the fiscal year ended
December 31, 1996, and its unaudited financial statements for each month in 1997
through October and for the year of 1997 through October 31, 1997, all of which
are attached hereto as Schedule 3.11. The audited and unaudited financial
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statements referred to above are correct and in accordance with the Company's
books and records, and each presents fairly, in all material respects, the
Company's financial position at the end of the period specified and the results
of its operations and financial condition for such period, subject to normal
recurring adjustments.]
3.12 TAXES. The Company has filed all applicable federal, state, local
and foreign tax returns required to be filed to date, in accordance with the
provisions of law pertaining thereto, and has paid all taxes, interest,
penalties and assessments required to have been paid to date. The Company has
not been advised that any of its returns, whether federal, state, local or
foreign, have been or are being audited as of the date hereof.
3.13 LITIGATION. There is no action, suit, proceeding, inquiry or
investigation before or by any court, public board, government agency, self-
regulatory organization or body pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its properties or rights,
the Common Stock or any of the Company's officers or directors in their
capacities as such.
3.14 INTANGIBLE PROPERTY. Except as set forth on Schedule 3.14, the
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Company has all right, title and interest in and to all intangible property and
technology, and to the best of the knowledge of the Company, all permits,
licenses and other authority, necessary to the conduct of its business as
presently constituted and conducted, and as proposed to be constituted and
conducted.
3.15 TRADEMARKS, PATENTS, ETC. The corporate names of the Company, and
the trade names, trademarks, and service marks listed on Schedule 3.15 are the
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only names and marks which are used by the Company in the operation of its
business. Except as set forth on Schedule 3.15, no claim has been asserted
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against the Company involving any conflict or claim of conflict of its trade
names, trademarks or service marks or with the trade names, trademarks, service
marks or corporate names of others, and, to the best of the knowledge of the
Company and except as set forth on Schedule 3.15, there is no basis for any such
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claim of conflict. Except as set forth on Schedule 3.15 and to the best of the
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knowledge of the Company, the Company is the sole and exclusive owner of its
trade names, trademarks and service marks and has the sole and exclusive right
to use such trade names, trademarks and service marks. The Company is the
registered owner of the United States and foreign patents listed on Schedule
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3.15 and has
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applications pending with the U.S. Patent Office and/or foreign patent offices
for the patents listed on Schedule 3.15 as being patents pending. The Company
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has no knowledge of any adverse claim of any kind with respect to any of such
patents or patent applications, nor does it have any knowledge, or reason to
know, that a patent will not issue on any such patent application. Except as set
forth on Schedule 3.15 and to the best of the knowledge of the Company, no
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process used by the Company or any product manufactured or sold by the Company
infringes upon any patent, patent application, trademark, trade name or service
▇▇▇▇ of any other party. There has been no claim of infringement of and, to the
best of the knowledge of the Company and except as set forth on Schedule 3.15,
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the Company is not infringing on any third party's patent, license, trademark,
trade name, service ▇▇▇▇, copyright or other proprietary right.
3.16 ENVIRONMENTAL LAWS. (i) The Company (x) is in compliance with any
and all applicable foreign, federal, state and local laws and regulations
relating to the protection of human health and safety or emissions, discharges,
releases, threatened releases, removal, remediation or abatement of pollutants,
contaminants, chemicals or industrial, hazardous or toxic substances or wastes
into or in the environment (including without limitation air, surface water,
ground water or land), or otherwise used in connection with the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants, hazardous or toxic substances or wastes,
as defined under such applicable laws ("Environmental Laws"), (y) has received
all permits, licenses or other approvals required of it under applicable
Environmental Laws to conduct its business and (z) is in compliance with all
terms and conditions of any such permit, license or approval, except to the
extent that the matters within clauses (x), (y) or (z) above would not have a
material adverse effect.
(ii) There is no substance designated a "hazardous substance" by any
Environmental Law, including asbestos, petroleum, urea formaldehyde insulation
and petroleum by-products ("Hazardous Substance") present at any of the real
property currently owned or leased by the Company, except to the extent that
such presence could not reasonably be expected to have a material adverse
effect; and with respect to such real property, to the knowledge of the Company,
there has not occurred (x) any release or any threatened release of a Hazardous
Substance or (y) any discharge or threatened discharge of any Hazardous
Substance into the ground, surface or navigable waters, which discharge or
threatened discharge violates any federal, state, local or foreign laws, rules
or regulations concerning water pollution.
(iii) The Company has not disposed of, transported, or arranged for
the transportation or disposal of any Hazardous Substance where such disposal,
transportation or arrangement would give rise to liability pursuant to any
Environmental Law other than any such liabilities that could not reasonably be
expected to have a material adverse effect.
(iv) To the knowledge of the Company, there are no underground
storage tanks, asbestos-containing materials, polychlorinated biphenyls or urea
formaldehyde insulation at any of the real property currently owned or leased by
the Company in violation of any Environmental Law.
3.17 INSURANCE. The Company maintains insurance on all of its
insurable properties as listed on Schedule 3.17 attached hereto. All such
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insurance policies are in full force
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and effect and the Company is not in default of any provision thereof. The
Company has not received notice from the issuer of any such insurance policies
of its intention to cancel or refusal to renew any policy issued by it.
3.18 GOVERNMENTAL CONSENT. No permit, consent, approval or
authorization of, or filing with, any governmental regulatory authority or
agency is required of the Company in connection with the execution, delivery and
performance of the Transaction Documents, or the consummation of the
transactions contemplated hereby and thereby, except as may be required by any
federal or state securities laws, with which the Company will comply.
3.19 LIABILITIES. The Company has no liabilities, whether related to
tax or non-tax matters, known or unknown, due or not yet due, liquidated or
unliquidated, fixed or contingent, or otherwise, except (i) as provided in the
balance sheet of the Company as of October 31, 1997 set forth at Schedule 3.11,
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(ii) as set forth on Schedule 3.19 or (iii) for liabilities of a non-material
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nature incurred in the normal course of the Company's business since that date.
3.20 ASSETS. The Company has good and marketable title to all of its
assets free and clear of all liens, charges, claims, encumbrances and defects of
any kind or character, except as set forth on Schedule 3.20 (collectively,
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"Permitted Liens"). To the best of the knowledge of the Company, all equipment,
furniture and fixtures, and other tangible personal property of the Company are
in good operating condition and repair and do not currently require any repairs
other than normal routine maintenance to maintain such property in good
operating condition and repair.
3.21 CONFLICTING INTERESTS. Except as set forth on Schedule 3.21 no
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director, officer, or any relative or affiliate of any director or officer, or,
to the best of the knowledge of the Company, any employee or shareholder of the
Company or any relative or affiliate of any of the employees or shareholders (a)
has any pecuniary interest in any supplier or customer of the Company or in any
other business enterprise with which the Company conducts business or with which
the Company is in competition; or (b) is indebted to the Company for money
borrowed.
3.22 NO PAYMENTS TO SHAREHOLDERS OR OTHERS. Except as set forth on
Schedule 3.22, there has not been any purchase or redemption of any shares of
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stock of the Company by the Company or any transfer, distribution or payment by
it, directly or indirectly, of any money or other property or assets to any
shareholder or to any other person, other than (i) payments made in the ordinary
course of business for goods and services in arm's length transactions, and (ii)
wages paid to non-executive employees. The salaries and benefits payable to the
officers of the Company have not been increased since May 31, 1997.
3.23 ABSENCE OF MATERIAL CHANGES. Except as set forth in Schedule 3.23
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attached hereto, since December 31, 1996:
(a) there has not been and there is not threatened any material
adverse change in the financial condition, business, prospects or
affairs of the Company or any material physical damage or loss to any
of its properties or assets or to the
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premises occupied by it (whether or not such damage or loss is covered
by insurance);
(b) the Company has not taken any action outside of the ordinary
and usual course of its business, except as related to the transactions
contemplated hereby;
(c) the Company has not borrowed any money or become
contingently liable for any obligation or liability of others;
(d) the Company has paid all of its debts and obligations as
they became due;
(e) except for the Debenture to be issued hereunder, the Company
has not incurred any debt, liability or obligation of any nature to any
party, except for obligations arising from the purchase of goods or the
rendition of services in the ordinary course of business;
(f) the Company has not knowingly waived any right of
substantial value;
(g) the Company has maintained its books, accounts and records
in the usual, customary and ordinary manner; and
(h) the Company has used its best efforts to preserve its
business organization intact, to keep available the services of its
employees, and to preserve its relationships with its customers,
suppliers and others with whom it deals.
3.24 STATEMENTS AND OTHER DOCUMENTS NOT MISLEADING. No provisions in
the Transaction Documents relating to the Company or any other document,
schedule, exhibit or other information furnished by the Company to the Investor
in connection with the execution, delivery and performance of the Transaction
Documents, or the consummation of the transactions contemplated hereby and
thereby, contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact required to be stated in order to
make the statement, in light of the circumstances in which it is made, not
misleading.
4. REPRESENTATIONS AND WARRANTIES OF EACH INVESTOR AND RESTRICTIONS ON
TRANSFER.
4.1 REPRESENTATIONS AND WARRANTIES BY THE INVESTORS. Each Investor
represents and warrants to the Company as follows:
(a) The Investor (i) is acquiring the Debenture and the Warrant
and (ii) upon conversion of the Debenture or the Class B Preferred
Stock, or upon exercise of the Warrant, will acquire the applicable
Conversion Shares then issuable, for investment for its own accounts
and not with a view to, or for resale in connection with, any
distribution of the Securities. The Investor understands
10
that the Securities have not been registered under the Securities Act,
or under any state securities or "Blue Sky" laws, and, as a result, are
subject to substantial restrictions on transfer. The Investor
acknowledges that the Securities must be held indefinitely unless
subsequently registered under the Securities Act and any applicable
state securities or "Blue Sky" laws, or exemptions from registration
under the Securities Act and such laws are available; provided,
however, that by making the representations herein, the Investor does
not agree to hold any of the Securities for any minimum or other
specific term and reserves the right to dispose of the Securities at
any time in accordance with or pursuant to a registration statement or
an exemption from registration under the Securities Act and any
applicable state securities or "Blue Sky" laws.
(b) This Agreement has been duly executed and delivered by the
Investor and constitutes a valid and legally binding obligation of the
Investor, enforceable in accordance with its terms, subject, as to
enforcement, to bankruptcy, insolvency, reorganization and other laws
of general applicability relating to or affecting creditors rights and
to general equity principles.
(c) The Investor is an "accredited investor," as that term is
defined in Rule 501(a) of Regulation D under the Securities Act.
(d) [STATE REPRESENTATION]
4.2 LEGENDS. The Investor understands that the certificates or other
instruments representing the Debenture and the Warrant and, until such time as
the sale of the Conversion Shares have been registered under the Securities Act,
the stock certificates representing the Conversion Shares, except as set forth
below, shall bear a restrictive legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE
SECURITIES LAWS AND MAY NOT BE TRANSFERRED IN THE ABSENCE OF SUCH
REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND SUCH LAWS.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped if, unless otherwise required by state securities laws, (i) such
Securities are registered for sale under the Securities Act, (ii) in connection
with a sale transaction, such holder provides the Company with an opinion of
counsel, in a form reasonably acceptable to the Company's counsel, to the effect
that a public sale, assignment or transfer of such Securities may be made
without registration under the Securities Act, or (iii) such holder provides the
Company with an opinion of counsel, in a form reasonably acceptable to the
Company's counsel, that such Securities can be sold pursuant to Rule 144(k)
promulgated under the Securities Act (or a successor rule thereto) ("Rule 144").
The Investor acknowledges, covenants and agrees to sell the Securities
represented by a certificate(s) from which the legend has been removed, only
pursuant to (i) a registration statement effective
11
under the Securities Act, or (ii) advice of counsel that such sale is exempt
from registration required by Section 5 of the Securities Act.
5. CONTINUATION AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties contained in Sections 3.3, 3.4 and 3.5 hereof
shall survive the consummation of the transactions provided for in the
Transaction Documents and shall not terminate. All other representations and
warranties contained herein shall survive the consummation of the transactions
provided for in the Transaction Documents for a period beginning on the date
hereof up to and including the earlier of the conversion of all Class B
Preferred Stock held by the Investor into Common Stock or December 31, 1999;
provided, however, that such period shall not end prior to December 31, 1998.
No such representation or warranty shall be deemed to have been waived, affected
or impaired by any investigation made by any person or persons.
6. AFFIRMATIVE COVENANTS OF THE COMPANY. The Company hereby covenants to
comply with the following affirmative covenants, unless waived by the Investor
(or Atlantic Coastal Ventures, L.P., in which case the Investor shall be deemed
to have also waived such covenant), as long as the Debenture remains
outstanding; provided, however, that in the event the Debenture is converted
into shares of Class B Preferred Stock, the Company shall provide to the
Investor all such information and rights as the Company provides to any other
holder of Class B Preferred Stock, whether pursuant to the Company's Articles of
Incorporation, as amended, contract or otherwise; and provided, further, that
the Company shall comply with Section 6.2, unless waived by the Investor (or
Atlantic Coastal Ventures, L.P., in which case the Investor shall be deemed to
have also waived such covenant), until the earlier of (i) such time as the
Investor owns no Debentures, no Warrants, no Class B Preferred Stock and fewer
than 100,000 shares of Common Stock or (ii) the closing of an underwritten
initial public offering of any of the Company's securities under the Securities
Act (or any successor statute), yielding gross proceeds to the Company of at
least $7,500,000.
6.1 FINANCIAL STATEMENTS. The Company shall furnish to the Investor
the following financial statements, reports and other documents, such financial
statements to be prepared in accordance with generally accepted accounting
principles consistently applied, certified by the Company's chief executive or
financial officer:
(a) as soon as available, and in any event within 90 days after
the end of each fiscal year of the Company, a balance sheet of the
Company as of the end of such fiscal year and related statements of
operations, shareholders' equity and cash flows for such fiscal year,
all in reasonable detail and setting forth in comparative form the
figures as of the end of and for the previous fiscal year, which
financial statements shall have been audited, and shall be accompanied
by an unqualified opinion addressed to the Company from "Big Six"
independent auditors or other independent auditors that are reasonably
satisfactory to the Investor, together with a copy of such auditors'
letter to Company's management;
(b) as soon as available, and in any event within 20 days after
the end of each month for such month and for the year to date, an
unaudited balance sheet and unaudited statements of operations,
shareholders' equity and cash flows,
12
together with a comparison of such financial statements with the budget
of the Company for such period; and
(c) as soon as available, and in any event at least 60 days prior
to the end of each fiscal year of the Company, an annual budget and
business plan for the subsequent fiscal year, which budget and business
plan shall include a monthly breakdown of financial statements, which
breakdown shall include the underlying assumptions and a brief
qualitative description of the Company's plan by the Company's Chief
Executive Officer in support of such budget and business plan, which
also shall have been approved and accepted by the Board of Directors of
the Company. If during the course of operations for any such month it
becomes apparent that deviations from such financial statements, budget
and business plan have occurred, the Company shall submit to its Board
of Directors a statement of such deviation within five business days
from the date of the Company's knowledge of such deviation (the
"Statement"). The Statement shall detail the manner in which a new
financial projection deviates from the annual business plan and the
reason therefor. The Board of Directors shall have the right to ask
questions or request any other reasonable additional information with
respect to the Statement. Any and all subsequent deviations from such
financial statements shall be resubmitted to the Board of Directors of
the Company for approval and acceptance or for required further
revision until such approval and acceptance is obtained.
In the event that the Company at any time hereafter is required, by law or by
generally accepted accounting principles, to consolidate its financial
statements with those of a subsidiary corporation, the Company shall thereafter
furnish the financial statements required by this Section 6.1 on a consolidated
basis, and the monthly and annual financial statements specified above shall be
furnished with consolidating financial statements.
6.2 ADDITIONAL INFORMATION.
(a) The Company shall, as promptly as possible (but, in any
event, within ten days) after obtaining knowledge of the occurrence of
any "Default" (as such term is defined in Section 2.1(c) above), or any
other material adverse development or event, furnish the Investor with
a detailed written notice of such default or event and the proposed
response of Company management.
(b) The Company shall, as promptly as possible (but, in any
event, within ten days) after the commencement thereof, furnish the
Investor with notice of all material actions, suits and proceedings
before any court or governmental agency, commission, board, bureau,
department or instrumentality, domestic or foreign, affecting the
Company.
(c) The Company shall promptly furnish the Investor with all
notices for and minutes of meetings of the shareholders and/or
directors of the Company, and all written consents taken by the
shareholders and/or directors of the Company.
13
(d) The Company shall, as promptly as possible (but, in any
event, within ten days) after sending, making available, or filing the
same, furnish the Investor with all reports and financial statements
that the Company shall send or make available to the shareholders or
the directors of the Company or the Securities and Exchange Commission.
(e) The Company shall promptly furnish the Investor with copies
of all material contracts, indentures, instruments and agreements the
Company provides to any investor in the Class B Preferred Stock
Financing or in any other additional bridge financing, when such
documents are provided to such investor.
(f) The Company shall furnish the Investor with such other
information with respect to the business, properties, assets, or the
condition of operations, financial or otherwise, of the Company as the
Investor may, from time to time, reasonably request.
(g) The Investor agrees not to disclose to third parties any
information concerning the Company which is furnished to the Investor
by the Company and designated as confidential, except as required by
law, legal process or its fiduciary duty to report financial and
business information to its partners, shareholders, directors or
affiliates and to such other persons as the Investor, in the exercise
of its prudent business judgment, may select and shall use reasonable
commercial efforts to have such persons maintain such confidentiality
of the confidential information. The term "confidential information"
does not include information which (i) was or becomes generally
available to the public other than as a result of a disclosure by the
Investor, or (ii) was or becomes available to the Investor on a non-
confidential basis from a source other than the Company, provided that
such source is not bound by a confidentiality agreement with the
Company.
6.3 INSPECTION. The Company shall permit, at any reasonable time and
from time to time upon reasonable advance notice, the Investor or its duly
authorized agents or representatives to examine and make copies of, and extracts
from, the Company's records, books of account, documents and other materials, to
visit its properties, and to discuss the affairs, finances and accounts of the
Company with any of the Company's officers, consultants, directors or
independent accountants.
6.4 COMPLIANCE WITH ARTICLES OF INCORPORATION AND BY-LAWS. The Company
shall perform and observe all the obligations and provisions set forth in the
Articles of Incorporation and the By-laws.
6.5 MAINTAIN RIGHTS AND FACILITIES. The Company shall maintain and
preserve its corporate existence and all permits, rights and franchises
necessary to the conduct of its business in full force and effect and adequate
for its business as presently conducted and proposed to be conducted. The
Company shall maintain complete and exclusive ownership of, but shall have the
right to license or sublicense, its patents, trademarks, trade names, service
marks, and other proprietary rights.
14
6.6 BOOKS AND RECORDS. The Company shall make and keep books, records
and accounts, which, in reasonable detail accurately and fairly reflect its
transactions, and shall devise and maintain a system of internal accounting
controls sufficient to provide reasonable assurances that: (a) transactions are
executed in accordance with management's general or specific authorization; (b)
transactions are recorded as necessary to permit preparation of the financial
statements required herein and to maintain accountability for assets; and (c)
access to assets is permitted only in accordance with management's general or
specific instructions and recorded assets are compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
difference.
6.7 OTHER INSURANCE. The Company shall maintain insurance against such
risks and in at least such amounts as is customarily carried by companies
engaged in the same or a similar business, under valid and enforceable policies
issued by insurers of recognized responsibility.
6.8 CONTRACTS AND AGREEMENTS. The Company shall comply in all material
respects with the provisions of all material contracts, indentures, instruments
and agreements to which it is a party or by which the Company or its properties
are bound, and with all other material obligations which the Company incurs or
to which it becomes subject.
6.9 TAXES. The Company shall pay and discharge when due all federal,
state, local, and foreign taxes, assessments, penalties, interest and
governmental charges which become payable by the Company or which shall be
imposed upon its properties, and all claims for labor, materials or supplies
which if unpaid might by law become a lien upon any of its properties; provided,
however, that the Company may in good faith contest any tax, assessment,
penalty, or charge, provided that such contest is asserted in accordance with
applicable procedures.
6.10 COMPLIANCE WITH LAWS. The Company shall comply with all laws,
rules and regulations of all governmental authorities and agencies applicable to
the Company, its business or its properties, the failure to comply with which
might have a material adverse effect on the Company.
7. NEGATIVE COVENANTS. The Company hereby covenants that as long as the
Debenture remains outstanding the Company shall comply with the following
negative covenants unless such covenant is waived by the Investor; provided,
however, that a waiver of any covenant or the approval of any action hereunder
by Atlantic Coastal Ventures, L.P. ("Atlantic") shall be deemed to constitute a
waiver of such covenant or approval of such action by the Investor.
7.1 CONDUCT OF BUSINESS. The Company shall not:
(a) (i) merge or consolidate with or into, or permit any
subsidiary to merge or consolidate with or into, any other corporation
or other entity or entities; (ii) reorganize, dissolve or liquidate the
Company, or adopt any plan of reorganization, dissolution or
liquidation of the Company; (iii) sell, assign or otherwise dispose of
all or any substantial portion of its assets; or (iv) acquire all or
any substantial portion of the voting stock or assets of another
corporation or
15
other entity or entities; provided, however, the Company may complete
its proposed acquisition of ▇▇▇▇▇ Development Hard- & Software
Engineering, GmbH, with the cash portion of the purchase price not to
exceed $2,500,000 (excluding any applicable taxes that the Company has
agreed to assume);
(b) except as otherwise required, permitted or acknowledged by
this Agreement or any Schedule hereto, create, authorize or issue any
additional shares of capital stock or any rights to acquire any shares
of capital stock or any other security, or repurchase any shares of its
capital stock except from employees upon termination of employment;
(c) incur, create, assume or guarantee any indebtedness which
ranks senior or pari passu in the right of payment to the Debenture,
other than additional pari passu bridge financing of up to $750,000 on
the same terms and considerations contemplated hereby, which the
Company may obtain following the execution of this Agreement;
(d) except as contemplated by this Agreement, amend the Articles
of Incorporation or the By-laws; or
(e) effect any material change in the nature of the business of
the Company, or apply the assets of the Company other than for the
conduct of the business of the Company, as such business is conducted
and proposed to be conducted.
7.2 LIENS AND ENCUMBRANCES. Except for Permitted Liens (as defined in
Section 3.20), the Company shall not create, assume, or permit to exist any
lien, security interest, pledge or other encumbrance, under conditional or
installment sale arrangements or otherwise, with respect to its properties or
assets, whether tangible or intangible, now owned or hereafter acquired, except
for liens for current taxes not delinquent.
7.3 DIVIDENDS. The Company shall not declare or pay any dividend
payable in cash or other property or make or authorize any other distribution,
directly or indirectly, on any class of the Company's capital stock or redeem or
purchase any of the securities of the Company, other than as required, permitted
or acknowledged by this Agreement or the Articles of Incorporation.
7.4 AGREEMENTS. The Company shall not enter into any contract,
agreement, lease or other instrument which, by its terms, restricts, in any
material respect, the Company's ability to make payment on the Debenture, or
which otherwise restricts, in any material respect, the Company's ability to
perform under the Transaction Documents.
7.5 INSIDER TRANSACTIONS. Except as disclosed in Schedules 3.21 and
--------------
3.22, the Company shall not enter into any transaction with any of its officers,
----
directors or shareholders, unless such transaction is an arm's-length
transaction on fair and reasonable terms, and shall not increase in any way the
compensation payable, directly or indirectly, to any of the Company's officers.
16
7.6 CAPITAL EXPENDITURES. The Company shall not incur, in any twelve-
month period, capital expenditures (including expenditures for capitalized
leases) in excess of $150,000 or any single capital expenditure in excess of
$60,000, unless such expenditures were explicitly included in an approved budget
of the Company. Notwithstanding the foregoing, the Company shall obtain the
prior written approval of the Investor with respect to any expenditure submitted
to NEPA Venture Fund II, L.P. ("NEPA II") for its approval.
7.7 PAYMENTS, NO DEFAULT. The Company shall make all required payments
of rent, taxes, debts and other material obligations of the Company promptly
when due. The Company shall not be in default with respect to any material
contracts, agreements or instruments to which the Company is a party or by which
the Company is bound.
7.8 MATERIAL CONTRACTS. The Company shall not, during any fiscal year
of the Company, enter into material contracts, other than in the ordinary course
of business, pursuant to which the Company would incur liabilities in excess of
$50,000 individually or $100,000 in the aggregate, unless the Board of Directors
of the Company has previously approved the execution of such contracts or such
contracts were explicitly included in an approved budget of the Company.
Notwithstanding the foregoing, the Company shall obtain the prior written
approval of the Investor with respect to any material contracts submitted to
NEPA II for its approval.
8. REGISTRATION AND RELATED RIGHTS.
8.1 PIGGYBACK REGISTRATION.
(a) As used in this Section 8, "Registration Stock" shall mean
any Securities or any other shares of Common Stock, Class B Preferred
Stock or other securities received by holders of the Securities upon
any stock split, stock dividend, recapitalization, merger,
consolidation or similar event; provided, however, that Registration
Stock shall not include any Securities or such other securities
disposed of pursuant to one or more registration statements under the
Securities Act, or which have been sold pursuant to Rule 144 (as
previously defined) or which have otherwise been sold without
registration under the Securities Act. For purposes of this Section 8,
any record holder of securities convertible into Registration Stock (or
exercisable for or payable in Registration Stock) shall be deemed to be
the holder of the Registration Stock issuable upon such conversion
and/or exercise and/or payment.
(b) If the Company should seek to register under the Securities
Act or qualify any of the securities holdings of the Company or any of
its shareholders (except in connection with any stock option plan,
stock purchase plan, savings or similar plan or an acquisition, merger
or exchange of stock, to be registered on Forms ▇-▇, ▇-▇ or any
successor forms under the Securities Act) and if the form of
registration statement proposed to be used otherwise may be used for
the registration of the Registration Stock, then, on each such
occasion, the Company shall furnish the Investor with at least 30 days
prior written notice thereof. At the written request of the Investor,
given within 20 days after the receipt of such
17
notice, the Company will use its best efforts to cause all of the
Registration Stock for which registration shall have been requested by
the Investor to be included in such registration statement. In the
event that the proposed registration by the Company is, in whole or in
part, an underwritten public offering of securities of the Company, and
the managing underwriter determines and advises in writing that the
inclusion of all Registration Stock proposed to be included in the
underwritten public offering and other issued and outstanding shares of
Common Stock proposed to be included therein by persons other than (i)
holders of Registration Stock or (ii) holders of Subordinate Shares (as
defined in Section 8.4) with rights equal to those of the holders of
Registration Stock ("Other Registration Stock") (such other shares
which are not Registration Stock or Other Registration Stock being the
"Other Shares") would interfere with the successful marketing
(including pricing) of the securities, then the number of shares of
Registration Stock, Other Registration Stock and Other Shares to be
included in such underwritten public offering shall be reduced first,
pro rata among the holders of Other Shares; second, if necessary, pro
rata among the holders of Registration Stock and Other Registration
Stock combined, based on the number of shares requested by holders
thereof to be registered in such underwritten public offering; and
lastly, if necessary, among the Company's shares requested by the
Company to be registered; provided, however, that the holders of
Registration Stock do not then elect to exercise their rights under
Section 8.2; and, further provided, that in no event, without the
consent of the holders of at least 67% of the Registration Stock, shall
the percentage of the Registration Stock that is included in such
registration statement be less than the percentage of the securities of
any other shareholder included therein. In the event that the Company
offers any of its securities in an offering exempt from registration
under the Securities Act pursuant to Regulation A, the Company will
provide to the holders of Registration Stock rights comparable to those
provided herein.
8.2 DEMAND REGISTRATION.
(a) After the closing of an underwritten offering of the Common
Stock, if at any time the Company is requested in writing by the
holders of not less than 67% of the Registration Stock to effect the
registration under the Securities Act of at least 33 1/3% of the
Registration Stock, the Company shall promptly give written notice of
such proposed registration to all record holders of Registration Stock.
Such holders shall have the right, by giving written notice to the
Company within 30 days from receipt of the Company's notice, to elect
to have included in such registration such of their Registration Stock
as such holders may request in such notice of election. Thereupon, the
Company shall, as expeditiously as possible, use its best efforts to
effect the registration, on a form of general use under the Securities
Act, of all shares of Registration Stock which the Company has been
requested to register; provided, however, that if the holders of not
less than 67% of the Registration Stock shall so request (and at least
50% of the Registration Stock is being registered), the Company shall
file such registration statement pursuant to Rule 415 or any successor
rule or regulation under the Securities Act, so as to permit the
continuous or delayed offering of the
18
Registration Stock in accordance with the intended method of
disposition specified in the notice of the exercise of rights under
this Section 8.2(a), to the extent such offering qualifies under such
rule or regulation, but in no event shall the Company be required to
maintain the effectiveness of such registration statement beyond a two
year period. The Company shall be obligated to cause to become
effective one registration statement pursuant to which Registration
Stock is sold under this Section 8.2(a).
(b) In addition and not in limitation of the rights set forth in
Sections 8.1(b) and 8.2(a), at such time as the Company shall have
qualified for the use of a short form Form S-3 in an offering solely
for the accounts of persons other than the Company (or any similar form
or forms promulgated by the Securities and Exchange Commission), the
holders of not less than 67% of the Registration Stock shall have the
right to request an unlimited number of registrations on Form S-3 or
other similar forms. Holders shall have the right, by giving written
notice to the Company within 20 days from receipt of notice from the
Company of such request, to elect to have included in such registration
such of their Registration Stock as such holders may request in such
notice of election. Thereupon, the Company shall, as expeditiously as
possible, use its best efforts to effect the registration, on Form S-3
of all shares of Registration Stock which the Company has been
requested to register. The Company shall not be required to effect any
such registration more than once every twelve months. Registrations
effected on Form S-3 shall not be considered to be demand registrations
pursuant to Section 8.2(a) hereof.
(c) The Company may include in a registration requested under
this Section 8.2 any additional authorized shares of the Common Stock
of the Company, whether or not issued, for sale by the Company or for
sale by others; provided, however, that such shares shall not be
included to the extent that the holders of a majority of the shares of
Registration Stock included therein determine in good faith that the
inclusion of such shares will interfere with the successful marketing
of the shares of Registration Stock to be included therein; and,
provided, further, that, upon the election of the holders of a majority
of the shares of Registration Stock included therein, or if the number
of shares to be so included equals or exceeds the number of shares of
Registration Stock included therein by the holders of Registration
Stock, such registration shall be deemed to be a registration pursuant
to Section 8.1(b) hereof.
(d) The underwriter and the terms of the underwriting for any
registration pursuant to this Section 8.2 shall be mutually acceptable
to the Company and the Investor.
(e) Notwithstanding anything contained in this Agreement to the
contrary:
(i) The Company reserves the right to delay any such
registration pursuant to Section 8 for a period of not more than
sixty days,
19
or to withhold efforts to cause such registration statement to
become effective for a period of not more than sixty days, if the
Board of Directors of the Company determines in good faith that
such registration might (A) interfere with or affect the
negotiation or completion of any material transaction that is
being contemplated by the Company, or (B) involve initial or
continuing disclosure obligations materially adverse to the best
interests of the Company's shareholders. If, after a registration
statement becomes effective, the Company advises the holders of
the Registration Stock covered by such registration statement that
the Company considers it appropriate for the registration
statement to be amended, the holders of such shares shall suspend
any further sales of their registered shares until the Company
advises them that the registration statement has been amended. The
time periods referred to in this Section 8 shall be extended for
an additional number of business days during which the rights to
sell shares was suspended.
(ii) The Company shall not be obligated to file a
registration statement pursuant to Section 8.2 within three months
after the effective date of any registration under which piggyback
rights were granted pursuant to Section 8.1.
8.3 FURTHER OBLIGATIONS OF THE COMPANY. Whenever the Company is
required to register any of the Registration Stock pursuant to any of the
provisions of this Section 8, the Company shall also be obligated to:
(a) prepare for filing and file with the Securities and Exchange
Commission promptly thereafter a registration statement and such
amendments and supplements to said registration statement and the
prospectus used in connection therewith as may be necessary to keep
said registration statement effective and to comply with the provisions
of the Securities Act with respect to the sale of securities covered by
said registration statement for the period necessary (but, other than
as otherwise provided in Section 8.2(a), in no event more than nine
months) to complete the proposed public offering;
(b) furnish to each selling holder so requesting such copies of
preliminary and final prospectus and such other documents as said
holder may reasonably request to facilitate the public offering of such
holder's Registration Stock;
(c) use its best efforts to register or qualify the Registration
Stock covered by said registration statement under the securities or
"Blue Sky" laws of such jurisdictions as the holders of Registration
Stock may reasonably request, to keep such registration or
qualification in effect for so long as such registration statement
remains in effect, and do any and all other acts and things that may be
reasonably necessary or advisable to enable such seller to consummate
the disposition in such jurisdictions of its Registration Stock covered
by such registration statement, except that the Company shall not for
any such purpose be
20
required to qualify generally to do business as a foreign corporation
in any jurisdiction wherein it would not, but for the requirements of
this subdivision (c), be obligated to be so qualified, or to subject
itself to taxation in any such jurisdiction, or to consent to general
service of process in any such jurisdiction;
(d) furnish to the selling holders, and any underwriters or
broker-dealers through whom the Registration Stock may be sold, an
opinion or opinions of counsel for the Company and a "cold comfort"
letter or letters of the independent auditors for the Company, in form
and substance customary for similar offerings;
(e) permit each selling holder or the selling holder's counsel or
other representatives, at the selling holder's expense, to inspect and
copy such corporate documents and records as may reasonably be
requested by them;
(f) if so requested, furnish to each selling holder a copy of all
documents filed and all correspondence to or from the Securities and
Exchange Commission in connection with any such offering;
(g) immediately notify each seller of Registration Stock covered
by such registration statement, at any time when a prospectus relating
thereto is required to be delivered under the Securities Act, upon
discovery that, or upon the happening of any event as a result of
which, the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances then existing, and at the request of any such seller or
holder, prepare and furnish to such seller and holder a reasonable
number of copies of a supplement to or an amendment of such prospectus
as may be necessary so that, as thereafter delivered to the purchasers
of such Registration Stock, such prospectus shall not include an untrue
statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing;
(h) otherwise use its best efforts to comply with all applicable
rules and regulations of the Securities and Exchange Commission, and
make available to its security holders, as soon as reasonably
practicable, an earnings statement covering a period of at least twelve
months, but not more than eighteen months, beginning with the first
month of the first fiscal quarter after the effective date of such
registration statement, which earnings statement shall satisfy the
provisions of Section 13(a) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"); and
(i) provide and cause to be maintained a transfer agent and
registrar for all registrable securities covered by such registration
statement from and after a date not later than the effective date of
such registration statement.
21
If requested by the Company, each seller of Registration Stock as to which any
registration is being effected shall furnish the Company with such information
regarding such seller and the distribution of such securities as the Company may
from time to time reasonably request in writing as shall be required by law or
by the Securities and Exchange Commission in connection therewith.
8.4 REGISTRATION RIGHTS EQUAL OR SUPERIOR. The Company shall not grant
any registration rights or register any securities for the account of any person
other than holders of Registration Stock unless permitted to do so by the
written consent of the holders of not less than 67% of the Registration Stock
(such securities being the "Subordinate Shares").
8.5 EXPENSES, ETC. All expenses in connection with the preparation and
filing of any registration statement under this Section 8, any registration or
qualification under the securities or "Blue Sky" laws of states in which the
offering will be made under such registration statement, and any filing fee of
the National Association of Securities Dealers, Inc. relating to such offering,
shall be borne in full by the Company, except for any (i) underwriters' or
brokers' commissions applicable to the shares to be sold by a holder of
Registration Stock, (ii) fees required to be paid by a selling shareholder
rather than the Company in order to comply with "Blue Sky" or state securities
laws, (iii) other fees or expenses expressly applicable to securities being sold
by the selling shareholder, and (iv) fees or expenses of any selling
shareholders' counsel.
8.6 INDEMNIFICATION. The Company shall indemnify the selling holders
of Registration Stock, and, to the extent required in any agreement with any
underwriter or broker-dealer through whom the Registration Stock may be sold,
any such underwriter or broker-dealer and each person, if any, who controls any
such underwriter or broker-dealer (within the meaning of the Securities Act)
against all losses, claims, damages, liabilities, expenses or actions in respect
thereof (under the Securities Act or common law or otherwise) caused by any
untrue statement or alleged untrue statement of a material fact contained in any
registration statement under which such Registration Stock was registered under
the Securities Act, any preliminary or final prospectus contained therein, or
any amendment or supplement thereto (unless cured by an amendment or supplement
to the prospectus delivered to the selling holders prior to the sales of the
Registration Stock that is subject to the claimed right of indemnification), or
caused by any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading (unless cured by an amendment or supplement to the prospectus
delivered to the selling holders prior to the sales of the Registration Stock
that is subject to the claimed right of indemnification); and will reimburse the
selling holders of Registration Stock for any legal or other out-of-pocket
expenses reasonably incurred by such selling holders in connection with
investigating or defending against such loss, claim, damage, liability or
action; except insofar as such losses, claims, damages, liabilities or expenses
are caused by any untrue statement or omission contained in information
furnished in writing to the Company by such selling holders expressly for use
therein. In connection with any such registration statement, the selling holders
of Registration Stock will furnish the company in writing such information as
may reasonably be requested by the Company for use in any such registration
statement or prospectus and will indemnify the Company, its directors and
officers, and, to the extent required in any agreement with any underwriter or
broker-dealer, each such underwriter or broker-dealer and each person, if any,
who controls the Company or any
22
underwriter or broker-dealer (within the meaning of the Securities Act) against
any losses, claims, damages, liabilities, expenses and actions in respect
thereof (under the Securities Act or common law or otherwise) caused by any
untrue statement or alleged untrue statement of a material fact required to be
stated in such registration statement or prospectus and necessary to make the
statements therein not misleading; and will reimburse the Company for any legal
or other out-of-pocket expenses reasonably incurred by it in connection with
investigating or defending against such loss, claim, damage, liability or
action; but only to the extent that such untrue statement or omission was
contained in information so furnished in writing by the selling holders of
Registration Stock expressly for use therein, and only to the extent of proceeds
received by the selling holders of Registration Stock in the offering. The
Company further agrees and the selling shareholders shall agree that, in
connection with any underwritten public offering, the Company also will enter
into customary contribution arrangements with the selling holders of
Registration Stock and the underwriters or broker-dealers through whom the
Registration Stock may be sold, with respect to situations in which
indemnification is potentially unavailable.
8.7 WITHDRAWAL. If a public offering is not completed within nine
months after the effective date of any registration statement filed by the
Company pursuant to Section 8.1(b), other than an offering under Rule 415 as
described in Section 8.2(a), the Company reserves the right, at its option, to
withdraw from registration any securities offered by the Company which have not
been sold during such period, provided that no securities offered by any holder
of Registration Stock shall be withdrawn without the consent of the holders of
50% of the Registration Stock.
8.8 EXCHANGE ACT. As promptly as possible following receipt of a
written request therefor from the holders of 50% of the outstanding Registration
Stock at any time while the Company either (a) is subject to periodic reporting
pursuant to Section 15(d) of the Exchange Act or (b) has 300 or more
shareholders of record, the Company shall register its Common Stock under
Section 12 of the Exchange Act, arrange for its Common Stock to be listed on a
national stock exchange or included for quotation on the Nasdaq National Market,
as requested, and shall keep effective such registration and maintain such
listing or inclusion, and shall use its best efforts timely to file such
information, documents and reports as the Securities and Exchange Commission may
require or prescribe that the Company file in connection therewith. The Company
will, at the request of any holder of Registration Stock, advise such holder in
writing as to whether all reports required to be filed by the Company under
Section 13 of the Exchange Act during the 12 months preceding such request (or
for such shorter period as the Company was required to file such reports) have
been filed, and any other information which the holder may reasonably require in
order to comply with Rule 144, or any other comparable rule, as then in effect.
9. EVENTS OF DEFAULT.
Each of the following shall constitute an Event of Default under this
Agreement:
9.1 DEFAULT ON PAYMENTS TO THE INVESTOR. The failure of the Company to
make (a) any principal or interest payment on the Debenture when due, or (b) any
other payment upon any other written obligation of the Company to the Investor
within 15 days after written
23
notice from the Investor to the Company; regardless of whether any such failure
to make the payments described in (a) and (b) above is due to a legal inability
or the incapacity of the Company to make any such payments.
9.2 INFORMATION, REPRESENTATIONS AND WARRANTIES. Any information
furnished or representation or warranty made or given by the Company herein
shall prove to have been untrue when made or given in any material respect or
shall have omitted to state a material fact respecting the matters set forth
therein necessary to make the matters set forth therein not misleading.
9.3 COVENANTS AND AGREEMENTS. The failure of the Company to observe,
perform or abide by any other covenant, warranty, agreement or provision in any
of the Transaction Documents, which failure is not cured to the Investor's
reasonable satisfaction within 30 days after written notice from the Investor to
the Company of its occurrence; provided, however, that no Event of Default shall
be considered to have occurred if the failure is not the failure to pay money
and is of such a nature that it reasonably cannot be cured within the Cure
Period, but if it is curable and the Company in good faith begins efforts to
cure it within the Cure Period and continues diligently to do so, the Company
shall have an additional 30 days from the date on which the Cure Period ends to
effect the cure. If the failure continues after the expiration of such
additional 30 day period, regardless of whether such failure might be curable at
some time beyond such additional 30 day period, such failure shall nevertheless
be considered an Event of Default.
9.4 DEFAULT ON OTHER OBLIGATIONS. The occurrence of a material default
following the expiration of any applicable cure period, if any, in any material
obligation of the Company or any violation of law or refusal of regulatory
permission which has a material adverse effect on the Company's operations.
9.5 CERTAIN EVENTS AS TO THE COMPANY. The Company shall (A) admit in
writing its inability to pay its debts generally as they become due; (B) file a
petition or answer or consent seeking relief under the Federal Bankruptcy Code,
as now constituted or hereafter amended, or any other applicable federal or
state bankruptcy or insolvency law or other similar law, not discharged or
vacated or set aside or stayed within 45 days; (C) consent to the institution of
proceedings under any law referenced in (B) above, not discharged or vacated or
set aside or stayed within 45 days, or to the filing of any such petition, not
discharged or vacated or set aside or stayed within 45 days or to the
appointment or taking possession of a receiver, liquidator, assignee, trustee,
custodian (or other similar official) of the Company or any subsidiary or of any
substantial part of their property; (D) fail generally to pay its debts as such
debts become due, or take corporate action in furtherance of any such action;
(E) make an assignment for the benefit of its creditors; or (F) fail to meet any
of its material monetary obligations; provided, however, that no Event of
Default shall be considered to have occurred under subsection 9.5(F) if the
failure to meet such material monetary obligations is due to a good faith
dispute between such parties, which dispute shall continue for no more than 30
days; provided, however, that upon the expiration of such 30 day period, the
Company shall have, upon notice to the Investor an additional 30 day period to
resolve the dispute. If the dispute is not resolved after the expiration of
such additional 30 day period, regardless whether such dispute may be resolved
at some time
24
beyond such additional 30 day period, such failure under subsection 9.5(F) shall
nevertheless be considered an Event of Default.
10. RIGHTS OF INVESTOR UPON DEFAULT.
10.1 RIGHTS ON DEFAULT. If there shall occur and be continuing an
Event of Default as defined in the foregoing Section 9, as long as the Debenture
is outstanding, the Investor may, by written notice to the Company, declare the
Company to be in default hereunder, whereupon, if the Investor so specifies in
such notice, the Debenture and all other indebtedness of the Company to the
Investor now or hereafter incurred, shall become immediately due and payable
without further demand, presentation or notice of any kind.
10.2 ADDITIONAL RIGHTS. The Investor shall have such additional
rights and remedies as are contained herein, in the Debenture, the Warrant, the
Class B Preferred Stock, or in any other documents and agreements delivered or
given in connection herewith, and all rights which it might have at law or
equity, all of which rights and remedies shall be cumulative.
11. LOCK-UP AGREEMENT. In the event that the Company determines to effect
an underwritten initial public offering, the Investor agrees that, for a period
of 180 days following the effective date of any registration filed in connection
therewith, the Investor will not directly or indirectly sell, transfer or
otherwise dispose of, any shares of Class B Preferred Stock, any shares of
Common Stock, or any right to acquire shares of Common Stock owned by the
Investor without the prior written consent of the underwriter(s) of such initial
public offering.
12. FURTHER ASSURANCE. The Company and the Investor agree to execute and
deliver all such other instruments and take all such other actions as any party
may reasonably request from time to time after the date hereof and without
payment of further consideration, in order to effectuate the transactions
provided for herein. The parties shall cooperate fully with each other and with
their respective counsel and accountants in connection with any steps required
to be taken as part of their respective obligations under this Agreement.
13. MISCELLANEOUS.
13.1 WAIVERS AND AMENDMENTS. No waiver by either party of any
condition, or the breach of any term or covenant contained in this Agreement,
whether by conduct or otherwise, in any one or more instances, shall be deemed
or construed as a further or continuing waiver of any such condition or breach
or a waiver of any other condition. Neither this Agreement nor any provision
hereof may be changed, waived, discharged or terminated other than by an
agreement in writing signed by all of the parties hereto.
13.2 GOVERNING LAW. This Agreement and all questions relating to its
validity, interpretation, performance and enforcement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania,
notwithstanding any conflict-of-law provisions to the contrary.
13.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, this Agreement shall be binding upon and inure to the benefit of the
parties hereto, and their respective representatives, successors and assigns.
25
13.4 ENTIRE AGREEMENT. This Agreement and the other documents
delivered in connection with the transactions contemplated hereby or thereby
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof, and supersedes all prior
agreements, understandings, inducements or conditions, express or implied, oral
or written, except as herein or therein contained. The express terms hereof
control and supersede any course of performance and/or usage of trade
inconsistent with any of the terms hereof.
13.5 NOTICES. All notices, requests, demands and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed to have been duly made and received when personally served, or when
mailed by first class mail or overnight, by courier service such as Federal
Express, postage prepaid, or telecopied with answer back receipt and hard copy
sent in the manner set forth above, addressed as set forth below:
(i) If to the Company, then to:
Quadrant International, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopier No.: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: President
with a copy, given in the manner prescribed above, to:
Cozen and ▇'▇▇▇▇▇▇
The Atrium
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Telecopier No;: (▇▇▇) ▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, Esq.
(ii) If to the Investors, then to:
_____________________________________________________
_____________________________________________________
_____________________________________________________
_____________________________________________________
Telecopier No.:
Any party may alter the address to which communications are to be sent by giving
notice of such change of address in conformity with the provisions of this
Section providing for the giving of notice.
13.6 PAYMENT OF EXPENSES. All reasonable legal fees and expenses
incurred by counsel on behalf of the Investor in connection with this Agreement
and the preparation and negotiation hereof, not to exceed the aggregate amount
of $5,000, shall be paid by the Company from time to time promptly upon
submission of an invoice therefore.
26
13.7 BROKERS. Each party represents that it has not retained any
finder or broker in connection with the transactions contemplated by this
Agreement (other than ▇▇▇▇▇▇ Brothers Inc. ("▇▇▇▇▇▇ Brothers")) and neither
party is under any obligation to pay any finder's or broker's fee in connection
herewith (other than 9% of the Purchase Price payable by the Company to ▇▇▇▇▇▇
Brothers). Each party will indemnify, defend and hold the other party harmless
from any claim based on breach of this representation.
13.8 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy upon any breach or default of the other
party under this Agreement, shall impair any such right, power or remedy, nor
shall it be construed to be a waiver of any such breach or default, or any
acquiescence therein, or of any similar breach or default thereafter occurring;
nor shall any waiver of any single breach or default be deemed a waiver of any
other breach or default theretofore or thereafter occurring. It is further
agreed that any waiver, permit, consent or approval of any kind or character of
any breach or default under this Agreement, or any waiver of any provision or
condition of this Agreement must be in writing and shall be effective only to
the extent specifically set forth in writing, and that all remedies, either
under this Agreement or by law or otherwise, shall be cumulative and not
alternative.
13.9 TITLES. The titles of the Sections of this Agreement are for
convenience of reference only and are not to be considered in construing this
Agreement.
13.10 PROVISIONS SEPARABLE. The provisions of this Agreement are
independent of and separable from each other, and no provision shall be affected
or rendered invalid or unenforceable by virtue of the fact that for any reason
any other or others of them may be invalid or unenforceable in whole or in part.
13.11 EXECUTION; COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which shall be deemed to be an original as
against any party whose signature appears thereon, and all of which shall
together constitute one and the same instrument. This Agreement shall become
binding when one or more counterparts hereof, individually or taken together,
shall bear the signatures of all of the parties reflected hereon as the
signatories.
13.12 EXHIBITS; SCHEDULES. All Exhibits and Schedules attached
hereto are hereby incorporated by reference into, and made a part of, this
Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the day and year first written above.
QUADRANT INTERNATIONAL, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
----------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: Chief Executive Officer
27
SIGNATURE PAGE
(QI 6% CONVERTIBLE SUBORDINATED DEBENTURE DUE MAY 31, 1998 AND WARRANT PURCHASE
AGREEMENT)
PURCHASER: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Name: ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Signature: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------------
Title: _____________________________________
Address: ▇▇▇▇ ▇. ▇▇▇▇▇▇ ▇▇
▇▇▇▇▇▇▇▇▇▇, ▇.▇. ▇▇▇▇▇
ADDRESS TO WHICH SECURITIES SHOULD BE SENT IF DIFFERENT FROM ABOVE:
AGGREGATE SUBSCRIPTION AMOUNT: $250,000
Amount of Debenture: $250,000
Number of Warrants: 15,060
DATE: March 27, 1998
SIGNATURE PAGE
(QI 6% CONVERTIBLE SUBORDINATED DEBENTURE DUE MAY 31, 1998 AND WARRANT PURCHASE
AGREEMENT)
PURCHASER: ▇▇▇▇ ▇▇▇▇▇
Name: ▇▇▇▇ ▇▇▇▇▇
Signature: /s/ ▇▇▇▇ ▇▇▇▇▇
-------------------------------------
Title: _____________________________________
Address: ▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
ADDRESS TO WHICH SECURITIES SHOULD BE SENT IF DIFFERENT FROM ABOVE:
AGGREGATE SUBSCRIPTION AMOUNT: $250,000
Amount of Debenture: $250,000
Number of Warrants: 15,060
DATE:
SIGNATURE PAGE
(QI 6% CONVERTIBLE SUBORDINATED DEBENTURE DUE MAY 31, 1998 AND WARRANT PURCHASE
AGREEMENT)
PURCHASER: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Name: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
Signature: /s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇
-------------------------------------
Title: _____________________________________
Address: ▇▇▇▇ ▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇
ADDRESS TO WHICH SECURITIES SHOULD BE SENT IF DIFFERENT FROM ABOVE:
AGGREGATE SUBSCRIPTION AMOUNT: $250,000
Amount of Debenture: $250,000
Number of Warrants: 15,060
DATE:
