UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For Quarter Ended June 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _______ to ______
Commission file number: 333-15127
AZUREL LTD.
-----------
(Exact Name of Registrant as Specified in its Charter)
DELAWARE 13-3842844
-------- ----------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
509 MADISON AVENUE, NEW YORK, NY 10022
--------------------------------------
(Address of principal
executive office) (Zip Code)
(212) 317- 0712
---------------
(Registrant's telephone number including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
The number of shares of registrant's Common Stock, $.001 par value, outstanding
as of July 31, 1998 was 5,318,745 shares.
<PAGE>
AZUREL LTD. AND SUBSIDIARIES
----------------------------
INDEX
-----
Page
Number
--------
PART I - FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheets 1
Consolidated Statements of Operations 2
Consolidated Statements of Cash Flows 3-4
Notes to Financial Statements 5
Item 2 - Management's Discussion and Analysis or
Plan of Operation 6-8
PART II - OTHER INFORMATION
Item 4 - Submission of Matters to a Vote of Security Holders 9
Item 5 - Other Information 9
Item 6 - Exhibits and reports on Form 8-K 10
SIGNATURE 11
<PAGE>
AZUREL LTD. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1998 1997
--------------- -----------------
(Unaudited)
ASSETS
------
CURRENT ASSETS:
<S> <C> <C>
Cash $ 39,656 $ 414,731
Restricted cash -- 290,521
Accounts receivable, net of allowance for
doubtful accounts of $60,000 1,901,287 1,985,232
Inventories 2,255,919 1,882,807
Prepaid expenses and other current assets 206,856 262,886
Due from stockholders and related parties 155,167 232,921
----------- -----------
TOTAL CURRENT ASSETS 4,558,885 5,069,098
FURNITURE AND EQUIPMENT 1,657,842 1,462,580
----------- -----------
INTANGIBLES 3,029,890 3,137,248
----------- -----------
OTHER ASSETS
Due from related party 135,000 135,000
Deferred financing costs 35,700 35,700
----------- -----------
170,700 170,700
$ 9,417,317 $ 9,839,626
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Revolving line of credit $ 1,303,130 $ 1,133,393
Notes payable 349,457
Accounts payable 1,186,287 819,514
Accrued expenses and other liabilities 200,811 436,899
Customer advances 57,760 104,145
Current portion of long-term debt 703,203 634,294
Due to related parties 119,933 269,916
----------- -----------
TOTAL CURRENT LIABILITIES 3,920,581 3,398,161
----------- -----------
LONG-TERM DEBT 1,351,091 1,623,757
----------- -----------
STOCKHOLDERS' EQUITY:
Preferred stock, $.001 par value, authorized 1,000,000, none
issued or outstanding -- --
Common stock, $.001 par value, authorized 24,000,000 shares,
issued and outstanding 5,293,745 shares 5,294 5,294
Additional paid-in-capital 7,438,001 7,438,001
Accumulated deficit (3,281,893) (2,609,830)
Cumulative translation adjustment (13,582) (13,582)
Stock subscription receivable (2,175) (2,175)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY 4,145,645 4,817,708
----------- -----------
$ 9,417,317 $ 9,839,626
=========== ===========
</TABLE>
See notes to financial statements.
-1-
<PAGE>
AZUREL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
<TABLE>
<CAPTION>
Three Months ended June 30, Six Months ended June 30,
--------------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
<S> <C> <C> <C> <C>
NET SALES $ 3,302,062 $ 3,298,286 $ 6,291,351 $ 6,031,468
COST OF GOODS SOLD 2,190,540 2,562,942 4,323,899 4,670,452
----------- ----------- ----------- -----------
GROSS PROFIT 1,111,522 735,344 1,967,452 1,361,016
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 1,283,163 918,015 2,462,605 1,887,791
----------- ----------- ----------- -----------
LOSS FROM OPERATIONS (171,641) (182,671) (495,153) (526,775)
INTEREST EXPENSE 78,045 104,542 176,910 235,731
----------- ----------- ----------- -----------
NET LOSS $ (249,686) $ (287,213) $ (672,063) $ (762,506)
=========== =========== =========== ===========
NET LOSS PER COMMON SHARE,
BASIC AND ASSUMING DILUTION $ (0.05) $ (0.07) $ (0.13) $ (0.20)
=========== =========== =========== ===========
WEIGHTED AVERAGE COMMON SHARES 5,293,745 3,878,747 5,293,745 3,878,747
=========== =========== =========== ===========
</TABLE>
See notes to financial statements.
-2-
<PAGE>
AZUREL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended June 30,
1998 1997
---- ----
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net loss $(672,063) $(762,506)
--------- ---------
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation 111,556 87,534
Amortization 107,358 101,350
Amortization of deferred financing costs -- 35,121
Changes in assets and liabilities:
Decrease (increase) in accounts receivable 83,945 (387,516)
(Increase) decrease in inventories (373,112) 81,356
Decrease in prepaid expenses and other 56,030 2,990
Decrease (increase) in other assets 77,754 (352)
Increase in accounts payable and accrued expenses 130,685 548,059
(Decrease) in customer advances (46,385) --
--------- ---------
NET CASH USED IN OPERATING ACTIVITIES (524,232) (293,964)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment (306,818) (14,795)
--------- ---------
NET CASH USED IN INVESTING ACTIVITIES (306,818) (14,795)
--------- ---------
CASH FLOW FROM FINANCING ACTIVITIES:
Increase in cash overdraft -- 4,674
Increase in revolving line of credit 169,737 --
Increase in notes payable 418,366 --
Decrease in restricted cash 290,521 --
(Decrease) in related party loans (149,983)
(Increase) in deferred financing costs -- (40,869)
(Increase) in deferred registration costs -- (11,116)
Increase in long term debt -- 571,500
(Decrease) in capital lease obligation -- (8,653)
Payment of long term debt (272,666) (206,777)
--------- ---------
NET CASH PROVIDED BY FINANCING ACTIVITIES 455,975 308,759
--------- ---------
NET (DECREASE) IN CASH (375,075) 0
CASH, beginning of period 414,731 --
--------- ---------
CASH, end of period $ 39,656 $ 0
========= =========
</TABLE>
See notes to financial statements.
-3-
<PAGE>
AZUREL LTD. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Six months Ended June 30,
1998 1997
---- ----
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
<S> <C> <C>
Cash paid for Interest $188,868 $ 157,269
======== =========
Cash paid for Taxes $ -- $ --
======== =========
SUPPLEMENTAL DISCLOSURES OF NON-CASH
INVESTING AND FINANCING ACTIVITIES:
Additional stock issued to shareholder as compensation for acquisition $ 0 $ 0
======== =========
Note issued for the acquisition of Cambridge Business Services $ 0 $ 0
======== =========
Issuance of common stock through conversion of long-term debt $ 0 $ 0
======== =========
Issuance of common stock in connection with acquisition of PLC Group $ 0 $ 0
======== =========
Conversion of debt to common stock $ 0 $ 0
======== =========
Distribution through assumption of long-term debt $ 0 $ 0
======== =========
Purchase of equipment through capital lease $ 0 $ 0
======== =========
Assumption of debt in connection with acquisition of PLC Group $ 0 $ 0
======== =========
Stock issued for services $ 0 $ 0
======== =========
</TABLE>
See notes to financial statements.
-4-
<PAGE>
AZUREL LTD. AND SUBSIDIARIES
----------------------------
NOTES TO FINANCIAL STATEMENTS
-----------------------------
SIX MONTHS ENDED JUNE 30, 1998
------------------------------
(UNAUDITED)
-----------
1. BASIS OF PRESENTATION
---------------------
The accompanying consolidated financial statements as of June 30, 1998
and for the six and three months ended June 30, 1998 and 1997 have not
been audited by independent auditors, but in the opinion of management,
such unaudited statements include all adjustments consisting of normal
recurring accruals necessary for a fair presentation of the financial
position, the results of operations and cash flows for the six months
ended June 30, 1998.
The consolidated financial statements should be read in conjunction
with the financial statements and related notes concerning the
Company's accounting policies and other matters contained in the
Company's annual report on Form 10-KSB. The results for the six months
ended June 30, 1998 are not necessarily indicative of the results
expected for the full year ending December 31, 1998. Certain prior year
amounts have been reclassified to conform with the current year's
presentation.
2. REVOLVING CREDIT FACILITY
On February 6, 1998, the Company refinanced their borrowing arrangement
with Finova Capital Corporation. The line of credit was increased to
$3,500,000 and bears interest at 2.5% per annum above the existing
prime rate. Borrowings are secured by trade receivables, inventories
and a second lien on machinery and equipment. The agreement expires in
February, 2000.
3. EQUIPMENT FINANCING
On March 17, 1998, the Company entered into an agreement with The CIT
Group for financing of machinery and equipment purchases. The total
financing will be $260,000 at approximately 10.5% over a 60 month
period.
4. BEN RICKERT, INC. ACQUISITION
On July 31, 1998, the Company acquired the assets of Ben Rickert, Inc.,
a manufacturer and distributor of cosmetics, fragrances and gift items,
for $1.5 million. The acquisition was financed by $150,000 in cash,
obtained after June 30, and a $1,350,000 note.
-5-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
- ------ -----------------------------------------------------------------------
OF OPERATIONS
-------------
FORWARD LOOKING STATEMENTS AND ASSOCIATED RISKS
This Quarterly Report on Form 10-QSB contains forward-looking
statements within the meaning of Section 27A of the Securities Act of
1933 and Section 21E of the Securities Exchange Act of 1934. The
Company's actual results could differ materially from those set forth
in the forward-looking statements.
The following discussion should be read in conjunction with the
attached consolidated financial statements and notes thereto and with
the Company's audited financial statements and notes thereto for the
fiscal year ended December 31, 1997.
FOR THE SIX MONTHS AND THREE MONTHS ENDED JUNE 30, 1998 AND 1997
Azurel, Ltd., hereinafter "Azurel", through its wholly-owned
subsidiaries, manufactures, markets, and sells private label cosmetics,
fragrances and skincare products. Prior to the completion of the
acquisitions of the subsidiaries, Azurel focused its operations on
negotiating and consummating such acquisitions and developing and
implementing marketing strategies for its Branded Products.
In August 1996, Azurel acquired the stock of Private Label Group (PLC),
and in October 1996, Azurel acquired the stock of Scent Overnight
(currently Scent 1-2-3).
On July 31, 1998, a wholly owned subsidiary of Azurel acquired the
assets of Ben Rickert, Inc. ("Ben Rickert"), a 23-year old cosmetic
company, for $1.5 million. The acquisition of Ben Rickert, with 1997
sales of $13 million, is expected to help Azurel more than double its
core business. Azurel expects to enjoy numerous advantages, such as
transferring some of Ben Rickert's out source manufacturing to PLC, as
well as reducing overhead by combining several departments.
Additionally, the acquisition allows Azurel to enter the soap
manufacturing business and affords the company more clout with `key
accounts' retailers for other Azurel product lines.
RESULTS OF OPERATIONS.
Total revenues for the six and three months ended June 30, 1998 were
$6,291,351 and $3,302,062, respectively, compared to $6,031,468 and
$3,298,286 for the six and three months ended June 30, 1997. This
increase is attributable to an increase in sales at the company's
Azurel Marketing division.
Cost of sales was $4,323,899 and $2,190,540 for the six and three
months ended June 30, 1998 and $4,670,452 and $2,562,942 for the
respective periods ended June 30, 1997. Gross profit as a
-6-
<PAGE>
percentage of revenue was 33.7% and 31.3% for the six and three months
ended June 30, 1998 and 22.6% and 22.3% for the corresponding periods
ended June 30, 1997. The improvement in gross profit percentage in 1998
was due to a more profitable product mix, operating efficiencies and
improved cost controls.
Selling, general and administrative expenses for the six months and
three months ended June 30, 1998 were $2,462,605 and $1,283,163 as
compared to $1,887,791 and $918,015 for the six months and three months
ended June 30, 1997. The increase in selling, general and
administrative expenses was primarily attributable to expenses
associated with the Azurel division, including salaries, product
development, marketing costs and administrative costs associated with
a public company.
For the six months and three months ended June 30, 1998, the Company's
net income included non-cash expenses of $218,914 and $84,941,
respectively. For the same periods in 1997, the Company's net income
included non-cash expenses of $224,005 and $125,522. Such expense was
incurred principally as a result of depreciation and amortization of
assets acquired with the acquisition of PLC.
Interest expense was $176,910 for the six months ended June 30, 1998
and $78,045 for the three months ended June 30, 1998, compared to
$235,731 for the six months and $104,542 for the three months ended
June 30, 1997. This represents interest expense incurred for normal PLC
operations. The decrease is attributable to debt reductions resulting
from funds obtained from the initial public offering in August 1997.
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
The company's primary source of liquidity is accounts receivable of
$1,901,287 and inventory of $2,255,919.
The Company has funded its operations to date primarily through a
combination of debt and equity financing. In August 1997, Azurel
completed its initial public offering of 1,200,000 shares of common
stock and 1,200,000 common stock purchase warrants which resulted in
net proceeds of approximately $4,800,000 to the Company.
In December 1997, the company secured a four year term loan of $800,000
at 11.3% with GE Capital. This loan is secured by the Company's
machinery and equipment.
In February 1998, the Company secured a revolving line of credit in the
amount of $3,500,000 with Finova Capital Corporation until February
2000. This line of credit bears an interest rate of 2.5% above the
prime rate and is secured by the Company's receivables, inventory and a
second lien on machinery and equipment.
In March 1998, the Company obtained a 5-year term loan of $260,000,
secured by new equipment
-7-
<PAGE>
and machinery, at a rate of approximately 10.5%, with The CIT Group.
Cash used in operations for the first six months of 1998 was $524,232
as compared to $293,964 for the first six months of 1997. Cash was used
in 1998 to fund losses before depreciation and amortization of $453,149
and a significant increase in inventory component purchases, partially
offset by a reduction in accounts receivable and other assets.
For the six months ended June 30, 1998, the Company used cash provided
by the CIT loan to purchase machinery and equipment in the amount of
$272,112.
Cash provided through financing activities for the first six months of
1998 was $455,975 as compared to $308,759 for the first six months of
1997. The increase was primarily attributable to the release of
restricted funds held by Finova Capital Corporation as security against
the revolving line of credit and the financing of equipment purchases,
partially offset by paying down the note to the previous PLC owners.
Cash availability as of June 30, 1998, against the Finova revolving
line of credit was approximately $170,000. Management believes that the
current lines of credit with Finova Capital Corporation, GE Capital and
The CIT Group are sufficient to support the working capital needs of
the company.
The July 31, 1998 acquisition of Ben Rickert, Inc. was consummated
through Summit Bank for a combination of $1.5 million, comprised of
$150,000 in cash and $1,350,000 in short term notes.
-8-
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its annual meeting of stockholders on May 28, 1998.
The purpose of the meeting was to vote for the election of six
directors and to ratify the appointment of Feldman Sherb Ehrlich & Co.,
P.C. as the Company's independent certified public accountants. The
following six persons were elected to serve as directors of the
corporation for the ensuing year: Gerard Semhon, Constantine Bezas,
Joseph Truitt Bell, Frank DeSimone, Kay Shortway and Norman Grief.
There were 3,021,269 votes cast in favor, 2,272,476 votes withheld and
0 votes against each of the above-named directors. The appointment of
Feldman Sherb Ehrlich & Co., P.C. as the Company's independent
certified public accountants was approved by the following vote:
3,021,269 in favor, 0 against and 2,272,476 abstentions.
Item 5. OTHER INFORMATION
-----------------
On July 31, 1998, the Company completed the acquisition of the assets
of Ben Rickert, Inc. ("Rickert"), a New Jersey corporation. The
acquisition was completed and the assets were acquired by Ben Rickert
Corp., a wholly-owned subsidiary of the Company, from Summit Bank.
Summit Bank, a secured creditor, took possession of the assets through
foreclosure proceedings as a result of various defaults by Rickert. As
consideration for the assets, the Company paid Summit Bank $150,000 at
the closing and gave Summit Bank a promissory note for $1,350,000 due
October 30, 1998. The note is secured by all of the assets of Ben
Rickert Corp.
The financial statements required to be filed pursuant to Item 7 of
Form 8-K are not in this report on Form 10-QSB. The Company shall
provide such financial statements by amendment within 60 days from the
date that this Form 10-QSB is filed with the Securities and Exchange
Commission.
On August 12, 1998, the Company sold 1,500 shares of its Series A
Convertible Preferred Stock for an aggregate purchase price of
$1,500,000. The Series A Convertible Preferred Stock is convertible
into shares of the Company's Common Stock at the lesser of: (i) $2.00
per share, or (ii) 75% of the closing bid price of a share of the
Company's Common Stock, defined as taking the average of the three
lowest closing bid prices for the twenty consecutive days prior to the
conversion. The purchasers were also issued warrants to purchase
562,500 shares of the Company's Common Stock at an exercise price of
$1.96. The Series A Convertible Preferred Stock purchasers were granted
the right, between February 12, 1999 and August 12, 2000, to purchase
an additional 3,000 shares of Series A Convertible Preferred Stock and
1,125,000 warrants to purchase shares of the Company's Common Stock on
the same terms and conditions as set forth above.
-9-
<PAGE>
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a.) EXHIBIT DESCRIPTION
27 Financial Data Schedule
99.1 Agreement of Sale dated July 31, 1998 by and between
Azurel Ltd., Ben Rickert Corp. and Summit Bank, et al.
99.2 Promissory Note dated July 31, 1998.
99.3 Security Agreement dated July 31, 1998.
99.5 Form of Securities Purchase Agreement dated
August 12, 1998.
99.6 Certificate of Designation of Series A Convertible
Preferred Stock
(b.) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended
June 30, 1998.
-10-
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
AZUREL LTD. AND SUBSIDIARIES
/S/ Gerard Semhon
-----------------
Gerard Semhon
Chief Executive Officer
/S/ Frank DeSimone
------------------
Frank Desimone
Chief Financial Officer
Dated : August 14, 1998
-11-
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 39,656
<SECURITIES> 0
<RECEIVABLES> 1,961,287
<ALLOWANCES> 60,000
<INVENTORY> 2,255,919
<CURRENT-ASSETS> 4,558,885
<PP&E> 4,260,215
<DEPRECIATION> 2,602,373
<TOTAL-ASSETS> 9,417,317
<CURRENT-LIABILITIES> 3,920,581
<BONDS> 0
<COMMON> 0
0
5,294
<OTHER-SE> 4,140,351
<TOTAL-LIABILITY-AND-EQUITY> 9,417,317
<SALES> 6,291,351
<TOTAL-REVENUES> 6,291,351
<CGS> 4,323,899
<TOTAL-COSTS> 4,323,899
<OTHER-EXPENSES> 2,462,605
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 176,910
<INCOME-PRETAX> (672,063)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (672,063)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
</TABLE>
EXHIBIT 99.1
AGREEMENT OF SALE
THIS AGREEMENT OF SALE dated as of July 31, 1998 (this "Agreement"), by
and among:
SUMMIT BANK (f/k/a United Jersey Bank, together with its
successors and assigns, the "Bank") having an office at 750
Walnut Street, Cranford, New Jersey 07016;
BEN RICKERT, INC. (which sometimes does business under the
fictitious name of "Parfums Privilege"), a New Jersey
corporation (either in its own name or doing business as
"Parfums Privilege," the "Company") having its principal place
of business at 359 Newark Pompton Turnpike, Wayne, New Jersey
07470;
ESTATE OF BEN RICKERT (the successor in interest to Ben
Rickert, the "Rickert Guarantor"), having an address c/o Ben
Rickert, Inc., 359 Newark Pompton Turnpike, Wayne, New Jersey
07470;
KIT E. CALLIGARO, an individual having an address at 48 Hoot
Owl Terrace, Kinnelon, New Jersey 07405 (the "Calligaro
Guarantor");
DOUGLAS RICKERT, an individual having an address at 565
Covington Place, Wyckoff, New Jersey 07481 (the "Doug
Guarantor");
A.E. ("CAL") CALLIGARO, having an address at 48 Hoot Owl
Terrace, Kinnelon, New Jersey 07405 (the "Cal Guarantor");
BEN RICKERT CORP., a Delaware corporation (the "Purchaser")
having its principal place of business at 509 Madison Avenue,
Suite 804, New York, New York 10022; and
AZUREL LTD, a Delaware corporation (the "Stockholder") having
its principal place of business at 509 Madison Avenue, Suite
804, New York, New York 10022.
WITNESSETH THAT:
WHEREAS, the Bank and Company entered into a certain loan and
security
<PAGE>
agreement dated as of March 31, 1989, as amended (as so amended, the "Loan
Agreement"; all capitalized terms not otherwise defined herein shall have the
meanings assigned thereto in the Agreement), pursuant to which the Bank agreed
to make the Revolving Loan (less any outstanding amounts under Letters of Credit
and the amount of any payments by the Bank under any Letter of Credit) in the
aggregate principal amount of up to $4,000,000 to the Company; and
WHEREAS, as security for (i) the repayment of amounts due
under the Revolving Note, (ii) the performance by the Company under the Loan
Agreement and (iii) the Company's guaranty of the Bank's loan to Ben Rickert,
the Company granted to the Bank the security interests in the collateral as set
forth in the Loan Agreement and the other Loan Documents; and
WHEREAS, to assure (i) repayment of amounts due under the Loan
Agreement and the Revolving Note and (ii) the performance by the Company under
the Loan Documents, the Rickert Guarantor, the Calligaro Guarantor, the Doug
Guarantor and the Cal Guarantor executed guaranty agreements in favor of the
Bank; and
WHEREAS, in connection with a certain loan made by the Bank to
Ben Rickert as evidenced by the Revised Real Estate Note (as since assumed by
the Calligaro Guarantor), the Company executed and delivered to the Bank the
Revised Company Guaranty, pursuant to which the Company unconditionally
guarantied to the Bank the payment of all amounts due by Ben Rickert (and the
Calligaro Guarantor) under the Revised Real Estate Note;
WHEREAS, various defaults (the "Defaults") exist under the
Loan Agreement and the other Loan Documents and, pursuant to the Fifth
Forbearance Agreement, the Bank agreed to refrain and forbear from exercising
its rights and remedies provided or otherwise granted under the Loan Agreement
and the other Loan Documents, including without limitation the Real Estate Loan
Documents, until July 15, 1998 provided the terms and provisions of the Fifth
Forbearance Agreement were adhered to;
WHEREAS, the Company, the Calligaro Guarantor (both in her
capacity as guarantor and as maker of the Revised Real Estate Note), the Doug
Guarantor and the Cal Guarantor shall sometimes be collectively referred to
herein as the "Obligors"; and
WHEREAS, as a result of the Defaults, the Company and the
Guarantors have agreed that, pursuant to N.J.S.A. 12A:9-503 of the New Jersey
Uniform Commercial Code (the "Code") the Bank may take possession on the Closing
Date (as hereinafter defined) of all Accounts, Inventory, machinery and
equipment (to the extent same does not constitute real property and except for
item (c) on Schedule 1 to the Officer's Certificate of Ben Rickert, Inc. dated
July 31, 1998 delivered in connection with this Agreement), and all proceeds of
any of the foregoing (collectively, the "Collateral") and cause same to be sold
to Purchaser on the terms hereinafter set forth at a private sale pursuant to
N.J.S.A. 12A:9-504 of the Code;
2
<PAGE>
WHEREAS, the Purchaser has agreed to purchase from the Bank
the Collateral subject to the terms and conditions of this Agreement;
NOW, THEREFORE, in consideration of the mutual covenants and
premises contained herein, the parties hereto hereby agree as follows:
INCORPORATION OF RECITALS. The foregoing recitals are hereby
incorporated into this Agreement.
ARTICLE I
DEFINITIONS
.
FOR THE PURPOSES OF THIS AGREEMENT, THE FOLLOWING TERMS SHALL
HAVE THE MEANINGS INDICATED BELOW:
1.1. "AGREEMENT" MEANS THIS AGREEMENT, INCLUDING ALL ADDENDA, EXHIBITS AND
SCHEDULES AS THE SAME MAY BE AMENDED, SUPPLEMENTED, RESTATED OR MODIFIED.
1.2. "CLOSING DATE" MEANS THE DATE ON WHICH ALL PARTIES EXECUTE THIS
AGREEMENT.
1.3. "CLOSING" IS DEFINED IN SECTION 2.2 OF THIS AGREEMENT.
1.4. "EARNEST MONEY" IS DEFINED IN SECTION 2.3(A) OF THIS AGREEMENT.
1.5. "PERSON" MEANS AN INDIVIDUAL, CORPORATION, LIMITED PARTNERSHIP, GENERAL
PARTNERSHIP, LIMITED LIABILITY ENTITY, JOINT VENTURE, ASSOCIATION, JOINT
STOCK COMPANY, TRUST, UNINCORPORATED ORGANIZATION, OR GOVERNMENT OR ANY
AGENCY OR SUBDIVISION THEREOF.
1.6. "PURCHASE PRICE" MEANS $1,500,000.00.
ARTICLE II
PURCHASE AND SALE OF THE COLLATERAL
2. 2.1. PURCHASE AND SALE OF COLLATERAL. FOR valuable consideration, the
sufficiency of which is hereby acknowledged, subject to the terms, provisions
and conditions of this Agreement, Bank hereby agrees to sell, assign and convey
unto Purchaser and Purchaser hereby agrees to purchase and accept from Bank on
the Closing Date, without recourse, and without representations, warranties or
covenants of any kind, the Collateral.
Except as may be otherwise set forth in this Agreement, this sale of the
Collateral is
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made by the Bank WITHOUT ANY REPRESENTATIONS OR WARRANTIES whatsoever, whether
expressed, implied or imposed by law, and is made WITHOUT RECOURSE to the Bank
or any affiliate of Bank. Without limitation, (i) the sale of Collateral is made
WITHOUT any warranties described in N.J.S.A. 12A:3-417 of the Code, and (ii) the
sale of the Collateral is made WITHOUT any representations or warranties with
respect to the genuineness, title, legality, validity, or enforceability of any
of the documents, instruments and agreements which relate to any Collateral or
the completeness of any information or its sources of information contained in
this Agreement or the Collateral, including without limitation any reports or
other information provided by third party professionals. The Purchaser
acknowledges and agrees that the Bank has made no representations or warranties
as to title to or existence of liens on the Collateral or whether any of the
documents, instruments and agreements evidencing the Collateral may be assigned
by the Bank to the Purchaser, or as to the validity, sufficiency or
enforceability of any of the documents, instruments and agreements relating to
the any of the Collateral as same will be assigned to the Purchaser. The sale of
the Collateral is made further WITHOUT any representations or warranties with
respect to the collectability of any amount owed to the Company or the Bank and
is further made WITHOUT any representations or warranties with respect to the
financial condition of any account debtor or the title to or the existence of
any liens or encumbrances on the Collateral or compliance with the Code. The
Purchaser further acknowledges and agrees that the Bank has not made any
representation or warranty as to the existence, value, condition, title,
existence of liens or encumbrances or any other matter whatsoever as to of any
Collateral.
2.2. CLOSING. Bank and Purchaser agree that time is of the essence under this
Agreement and that the Closing of the purchase and sale of the Collateral (the
"Closing") shall be held on the Closing Date at the offices of the Bank at 750
Walnut Avenue, Cranford, New Jersey 07016 or at such other place as is selected
by Bank and reasonable notice of which is given to Purchaser.
2.3. PAYMENT OF PURCHASE PRICE. (a) On the Closing Date, the Purchaser and the
Stockholder shall pay to the Bank, in U.S. Dollars, either in cash or by wire
transfer in immediately available funds, the Purchase Price as follows:
(i) the sum of $150,000.00 (the "Initial Payment"). The Initial Payment
shall, be non-refundable and shall be credited against the outstanding
balance of the Revolving Note; and
(ii) the balance of the Purchase Price shall be payable pursuant to the
terms of a Promissory Note substantially in the form of Exhibit A,
annexed hereto (the "Note") pursuant to which Purchaser and
Stockholder shall jointly and severally agree to pay to the order of
the Bank, the sum of $1,350,000.00 on or before October 30, 1998 (the
"Maturity Date"), with interest only payable monthly until the
Maturity Date at the Base Rate of the Bank plus one (1%) percent.
Monthly
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payments of interest made pursuant to the Note shall be credited
against the Company's monthly obligations under the Revolving Note.
Upon payment in full of the Note on the Maturity Date, the Bank will
discharge its liens against the Collateral.
(iii) Purchaser and Stockholder agree that in addition to this Agreement
and the Note, they shall execute a security agreement, subordination
agreement and financing statements on Form UCC- 1, all in form
acceptable to the Bank, to evidence and/or secure such indebtedness
(collectively with the Note and this Agreement, the "Settlement
Documents").
(b) Purchaser and Stockholder jointly and severally acknowledge and agree
that, subject to satisfaction of the conditions precedent to Closing and
performance by Bank hereunder, all of Purchaser's and Stockholder's obligations
under this Agreement and the other Settlement Documents shall be absolute and
unconditional under any and all circumstances and the amounts evidenced by the
Note and all other amounts payable by Purchaser and Stockholder under this
Agreement shall be paid without notice or demand and without any abatement,
reduction, suspension, diminution, deferral, setoff, defense, counterclaim or
recoupment whatsoever, including, without limitation, any abatement, reduction,
suspension, diminution, deferral, setoff, defense, counterclaim or recoupment
due or alleged to be due to, or by reason of, any past, present or future claims
which Purchaser and/or Stockholder may have against the Company, the Bank, any
other Obligor or any other Person or entity, either under this Agreement or
otherwise, for any reasons whatsoever; nor, be otherwise affected for any reason
whatsoever, including any defect of title in or damage to or loss of possession
or loss of use or destruction of the Collateral or any part or item thereof, any
liens or rights of others with respect to the Collateral or any part or item
thereof, any prohibition or interruption of or other restriction against
Purchaser's or Stockholder's use, operation or possession of the Collateral or
any part or item thereof, or any interference with such use, operation or
possession by any person or entity (including without limitation confiscation,
requisition or other taking by any governmental authority, any person acting
under governmental authority or otherwise, or action of any public or private
person whether by eviction by paramount title or for any other reason
whatsoever), the invalidity or unenforceability or lack of due authorization of
this Agreement, or any other agreement executed in connection herewith, any
defect in the title to, compliance with plans or specifications for condition,
design or fitness for use of all or any of the Collateral, any insolvency,
bankruptcy, reorganization or other proceeding against the Company or any other
Obligor or any other Person or for any other cause whether similar or dissimilar
to the foregoing, any present or future law to the contrary notwithstanding, it
being the intention and agreement of the parties hereto, and the basis of the
bargain, that the amounts evidenced by the Note and other amounts payable by
Purchaser and/or Stockholder under this Agreement and the other Settlement
Documents shall continue to be payable (and shall be payable) in all events in
the manner and at the times provided herein. To the extent permitted by
applicable law, Purchaser and Stockholder hereby waive any and all rights which
either may now
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have or which at any time hereafter may be conferred upon either of them by
statute or otherwise, to terminate, cancel, quit or surrender this Agreement.
Each payment made by the Purchaser and/or Stockholder hereunder and the under
the other Settlement Documents shall be final and Purchaser and/or Stockholder
shall not seek to recover all or any part of such payment (except for any excess
payment made in error) from Bank, or any holder or former holder of the Loan
Documents for any reason whatsoever.
Without limiting the generality of the foregoing, Purchaser and Stockholder
covenant that each will remain obligated under this Agreement and the other
Settlement Documents in accordance with its and their terms, and will not take
any action to terminate, rescind or avoid this Agreement and the other
Settlement Documents for any reason, notwithstanding any insolvency, bankruptcy
reorganization or other proceeding affecting the Company or any other Obligor,
or any property of the Company or any other Obligor or any action which may be
taken by any receiver, trustee or liquidator (or other similar official) or by
any court.
0.1. OBLIGATIONS AND AGREEMENTS OF PURCHASER AND/OR STOCKHOLDER. Purchaser
and/or Stockholder, as applicable, as set forth in Section 2.3(b), above
absolutely and unconditionally agree and Bank consents as follows:
(i) To loan to the Purchaser not less than the sum of $125,000 per week,
starting not later than the last business day of the week in which
this Agreement is executed until the total sum of $1,000,000.00 has
been placed into the Purchaser's account with the Bank (the
"Subordinate Loan"), said monies to be utilized by the Purchaser
solely for the enhancement of inventory for sale and for legitimate
working capital needs of the Purchaser.
(ii) The Bank consents to Stockholder receiving as collateral security for
the Subordinate Loan a lien upon the Collateral (but upon no other
assets of the Company or any other Obligor), provided that said
security interest and Subordinate Loan shall be subject and
subordinated in all respects and in all events to the security
interest of the Bank (which secures the repayment of the Note, the
Revolving Loan and the other obligations of the Obligors under the
Loan Documents) and the Bank's right to payment of the Note, the
Revolving Loan and other obligations of the Obligors under the Loan
Documents; Stockholder agrees that it shall not receive repayment of
any Subordinate Loan or interest thereon and shall not have the
ability to exercise any remedies which it may have against the
Company, Purchaser and/or Stockholder or any other Obligor pursuant
to the Subordinate Loan unless and until the Note has been paid in
full on the Maturity Date. The Stockholder shall execute a
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subordination agreement in the form of Exhibit B hereto. The
Stockholder hereby appoints the Bank its attorney-in-fact with full
power and authority to discharge any financing statements or other
recordings upon the default by the Purchaser and/or Stockholder
hereunder. The power of attorney provided hereby is coupled with an
interest and is irrevocable prior to the full and final payment by
the Purchaser and/or Stockholder of all amounts required by this
Agreement.
(iii) To pay monthly rent to the Calligaro Guarantor as owner of the
Premises located at 359 Newark Pompton Turnpike, Wayne, New Jersey
through February 28, 1999, pursuant to documents reasonably
acceptable in form to the Bank. By executing this Agreement, the
Calligaro Guarantor directs that an amount equal to the amount of
principal, interest tax escrows and other amounts payable under the
Revised Real Estate Note and the other Real Estate Loan Documents
shall be made directly by the Purchaser to the Bank and the Bank
shall apply such monthly payment against amounts due and owing under
the Revised Real Estate Note and other Real Estate Loan Documents. As
to the monthly payment due under the Revised Real Estate Note due for
July, 1998, such payment shall be made by no later than August 5,
1998; the monthly payment due under the Revised Real Estate Note for
August, 1998 shall be made not later than August 15, 1998; and all
payments thereafter under the Revised Real Estate Note shall be made
at the time so required by such note.
(iv) Provided Purchaser and Stockholder fully and timely perform their
respective obligations hereunder and under the Settlement Documents,
the Purchaser is authorized to use the proceeds of accounts
receivable for the working capital purposes of the Purchaser and not
for any other purpose. To the extent after the Closing Date, the Bank
receives proceeds of Collateral, it shall permit Purchaser to use
such proceeds for working capital purposes, subject to the proviso in
the prior sentence of this clause (iv).
(v) Under no circumstances shall Purchaser and/or Stockholder have any
claim against the Rickert Guarantor, the Doug Guarantor, the
Calligaro Guarantor and/or the Cal Guarantor or any of their assets.
(vi) In the event that Purchaser and/or Stockholder default in any of
their respective obligations under this Agreement or any Settlement
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Document, the Bank shall retain the Initial Payment and the Purchaser
shall deliver immediate possession of the Collateral (free and clear
of any lien of the Stockholder) to the Bank and the Bank shall have
the right to exercise all other remedies against Purchaser,
Stockholder and the Obligors, at law or equity, pursuant to this
Agreement, any Settlement Document or any Loan Document.
(vii) At all times amounts outstanding under the Note shall not exceed
seventy-five percent (75%) of Eligible Accounts Receivable of
Purchaser plus forty percent (40%) of Eligible Inventory plus cash on
hand. Purchaser agrees: (i) to provide the Bank with a daily report
(in form acceptable to the Bank) of all cash received and payments
made as permitted by the Budget (together with details as to checks
written ); (ii) to provide the Bank a completed Borrowing Base
Certificate at least once each week and such other information as the
Bank requests; and (iii) to permit periodic field exams (at the
Purchaser's expense) at such times as the Bank deems reasonably
necessary.
0.1. CLOSING DATE. On the Closing Date:
a. The Bank shall concurrently with receipt of the Initial Payment and
all other items and amounts required hereby or deemed reasonably
necessary by the Bank:
(i) sell, assign, convey and transfer to Purchaser, without recourse
and without representations, warranties or covenants of any
kind, all right, title and interest (if any) in and to the
Collateral; and
(ii) deliver to Purchaser a bill of sale in the form attached hereto
as Attachment I.
(b) The Purchaser and/or the Stockholder shall concurrently with receipt
of the Collateral and all other items expressly required hereby:
(i) pay to Bank in immediately available funds the Initial Payment;
(ii) execute the Note and the other Settlement Documents; and
(iii) provide an opinion of counsel of Purchaser and Stockholder
dated as of the Closing Date as to matters reasonably required
by the Bank including, without limitation, as to due
organization, corporate status, authority to enter into this
Agreement and all other Settlement
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Documents and the valid, binding and enforceable effect of this
Agreement and all Settlement Documents.
(c) The Company and the Purchaser shall execute such UCC-3 Financing
Statements as the Bank may request to reflect the continued validity
of the Bank's lien on the Collateral.
0.1. CLOSING EXPENSES. Whether or not the transactions contemplated hereunder
are completed, each party shall be responsible for the payment of its own
closing costs and expenses in negotiating and carrying out its obligations
under this Agreement, including, without limitation, the costs of its
counsel, all other costs and expenses of such party relating to this
Agreement and the documents related thereto.
0.2. CONSENT OF OBLIGORS. The Obligors agree that, subject to the terms hereof,
the Bank may take possession of the Collateral pursuant to N.J.S.A.
12A:9-503 of the Code and, upon receipt by the Bank of the Initial Payment
and upon payment in full of the Note, such amounts shall be credited
against the outstanding principal amount of the Revolving Note. The
Obligors, the Purchaser and the Stockholder agree that, notwithstanding
anything in N.J.S.A. 12A-9-504 to the contrary, the security interest of
the Bank in the Collateral granted by the Company shall continue in full
force and effect upon the sale of the Collateral to the Purchaser as
collateral security for all obligations of the Obligors to the Bank under
the Loan Agreement and the other Loan Documents. The Obligors shall
continue to be fully liable for the remaining outstanding principal amount
of the Revolving Note and all other obligations under the Loan Documents.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PURCHASER AND
STOCKHOLDER
The Purchaser and Stockholder make the following
representations and warranties for the benefit of Bank, each of
which is true and correct as of the date hereof and on the Closing
Date:
1. 1.1. ORGANIZATION, EXISTENCE, ETC. Each of the Purchaser and
Stockholder is duly formed or organized, validly existing and in
good standing under the laws of the jurisdiction of its formation or
organization, and is registered or qualified to conduct business in
all other jurisdictions in which the failure to be so registered or
qualified would materially and adversely affect the ability of
Purchaser or Stockholder to perform its obligations hereunder.
1.2. AUTHORITY AND ENFORCEABILITY, ETC. Each of the Purchaser and Stockholder
has the power and authority to execute, deliver and perform this
Agreement, and related documents to which it is a party and has taken all
necessary action to authorize such execution, delivery
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and performance. The Purchaser's and Stockholder's execution of this
Agreement and its performance of its obligations hereunder are not subject
to any further approval, vote or contingency from any person or committee.
Assuming due authorization, execution and delivery by the Bank, this
Agreement and all obligations of the Purchaser and Stockholder hereunder
are the legal, valid and binding obligations of the Purchaser and/or
Stockholder, as applicable, enforceable in accordance with the terms of
this Agreement, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization or other laws affecting the enforcement of
creditors' rights generally and by general principles of equity
(regardless of whether such enforceability is considered in a proceeding
in equity or at law).
1.3. CONFLICT WITH EXISTING LAWS OR CONTRACTS. The execution and delivery of
this Agreement, and all related documents and the performance of its
obligations hereunder and thereunder by Purchaser and Stockholder do not
conflict with any provision of any law or regulation to which Purchaser
and/or Stockholder are subject to, or conflict with or result in any
breach of or constitute a default under any of the terms, conditions or
provisions of any agreement or instrument to which Purchaser and/or
Stockholder is a party or by which Purchaser and/or Stockholder is bound
or any order or decree applicable to Purchaser and/or Stockholder and will
not result in the creation or imposition of any lien on any of Purchaser's
or Stockholder's respective assets or property which would materially and
adversely affect the ability of Purchaser or Stockholder to perform its
obligations under this Agreement; and Purchaser and Stockholder has
obtained all consents, approvals, authorizations, or orders of any court
or governmental agency or body, if any, required for the execution,
delivery and performance by Purchaser and Stockholder of this Agreement
and any other agreement contemplated hereby.
1.4. LEGAL ACTION AGAINST PURCHASER/STOCKHOLDER. There are no judgments, orders
or decrees of any kind against Purchaser and/or Stockholder unpaid or
unsatisfied of record nor any legal action, suit or other legal or
administrative proceeding pending, threatened or reasonably anticipated
which could be filed before any court or administrative agency which has,
or is likely to have, any material adverse affect on the ability of the
Purchaser and/or Stockholder to perform its obligations under this
Agreement.
1.5. BANKRUPTCY OR DEBT OF PURCHASER/STOCKHOLDER; FINANCIAL CONDITION. Neither
Purchaser nor Stockholder has filed any petition seeking reorganization,
arrangement, composition, readjustment, liquidation, dissolution or
similar relief under any law relating to bankruptcy or insolvency nor has
any petition been filed against Purchaser and/or Stockholder. Neither the
Purchaser, Stockholder, nor any general partner, limited partner,
shareholder or joint venturer in the Purchaser or Stockholder is involved
in any financial difficulties which would impair or prevent a closing
pursuant to this Agreement on the Closing Date.
1.6. DECISION TO PURCHASE. Each of the Purchaser and Stockholder are
sophisticated investors
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and its offer and decision to purchase the Collateral are based upon its
own independent expert evaluations of the Collateral and other materials
deemed relevant by Purchaser and its agents. Neither Purchaser nor
Stockholder has relied in entering into this Agreement upon any oral or
written information from Bank or any of its employees, affiliates, agents
or representatives, other than the express representations and warranties
of Bank contained herein. Purchaser and Stockholder further acknowledge
that no employee or representative of Bank has been authorized, and that
Purchaser and/or Stockholder have not relied upon, any statements or
representations other than those specifically contained in this Agreement.
Purchaser and Stockholder acknowledge that each has had an opportunity to
conduct due diligence regarding the Collateral and the business and
affairs of the Company. Purchaser and Stockholder hereby waive any right
or cause of action it might now or in the future have against the Bank, as
a result of the purchase of the Collateral. Each of the Purchaser and
Stockholder have had the opportunity to conduct all due diligence it
deemed necessary as to the Collateral and the business and affairs of the
Company and the Purchaser and Stockholder have no recourse against Bank
for any misstatements or omissions that may have been made by Company or
on behalf of any Company .
1.7. PURCHASER A SOPHISTICATED INVESTOR. Purchaser has such knowledge and
experience in financial and business matters, relating to the ownership
and collection of the Collateral, that it is capable of evaluating the
merits and risks of prospective investment in Collateral. Purchaser
acknowledges that the Collateral may have limited or no liquidity and it
has the financial capability to hold the Collateral for an indefinite
period of time and to bear the economic risks of, including a complete
loss of its investment in, the purchase and acquisition of the Collateral.
1.8. NO COLLUSION WITH OBLIGORS. Neither the Purchaser nor Stockholder
represents, directly or indirectly, any Obligor and neither is affiliated
or related, directly or indirectly, to any Obligor.
1.9. BROKERS. If a broker was involved in this transaction, the Purchaser, and
Stockholder and the Obligors represent and warrant that the Purchaser, the
Stockholder and/or the Obligors are solely responsible for any fees due to
any broker retained by any of them arising out of this transaction. Each
of the Purchaser, Stockholder and the Obligors jointly and severally
hereby indemnify the Bank from any and all fees, commissions, charges,
costs and expenses of any broker retained by any of them or other similar
party. The provisions hereof shall survive the Closing Date and the
termination of this Agreement. On the Closing Date, the Bank shall be
provided with evidence satisfactory to it as to full payment of all
commissions and expenses of any broker.
ARTICLE IV
REPRESENTATIONS OF BANK
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BANK MAKES THE FOLLOWING REPRESENTATIONS AND WARRANTIES, EACH OF
WHICH IS TRUE AND CORRECT AS OF THE DATE HEREOF:
ORGANIZATION, EXISTENCE, ETC. The Bank is duly formed or organized, validly
existing and in good standing under the laws of the jurisdiction of its
formation or Organization.
Authority and enforceability, etc. the Bank has the power and
authority to execute, deliver and perform this Agreement, including,
but not limited to, the corporate power and authority to deliver to
Purchaser, as of the Closing Date, the Collateral, and related
documents to which it is a party and has taken all necessary corporate
action to authorize such execution, delivery and performance. the
Bank's execution of this Agreement and its performance of its
obligations hereunder are not subject to any further approval, vote or
contingency from any person or committee. Assuming due authorization,
execution and delivery by the other parties hereto, this Agreement and
all obligations of the Bank hereunder are the legal, valid and binding
obligations of Bank, enforceable in accordance with the terms of this
Agreement, except as such enforcement may be limited by bankruptcy,
insolvency, reorganization or other laws affecting the enforcement of
creditors' rights generally and by general principles of equity
(regardless of whether such enforceability is considered in a
proceeding in equity or at law).
ARTICLE V
CONDITIONS PRECEDENT TO CLOSING
3.3.1 CONDITIONS PRECEDENT TO CLOSING. the respective obligations of
the Purchaser, Stockholder and the Bank to complete the
purchase and sale of the Collateral pursuant to this Agreement
are subject to the fulfillment on or prior to Closing Date of
each of the following additional conditions to be fulfilled by
the other, unless the same is specifically waived in writing
by the party for whose benefit the same is to be fulfilled:
5.0.1.PERFORMANCE OF COVENANTS. Purchaser, Stockholder and Bank shall have
performed all of their respective covenants and agreements contained herein
which are required to be performed by each on or prior to the Closing Date.
5.0.2.REPRESENTATIONS AND WARRANTIES. All representations and warranties of the
Purchaser, Stockholder and Bank set forth in this Agreement shall be true in
all material respects at and as of the Closing Date.
5.0.3. GOVERNMENTAL APPROVALS. All requisite federal, state and local
governmental and
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regulatory approvals relating to the transactions contemplated hereby, if
any, shall have been obtained. Without limitation, the Company shall provide
evidence reasonably satisfactory to the Bank that (i) the transactions
contemplated hereby may proceed without violation of the Industrial Site
Recovery Act, N.J.S.A. 13:1K-6 ET SEQ. ("ISRA") and (ii) all clearances of
the New Jersey Division of Taxation have been obtained.
5.0.4.OTHER APPROVALS. Purchaser and Stockholder shall provide certified copies
of appropriate resolutions, directions and consents approving the execution
and delivery of this Agreement and the consummation of the transactions
contemplated thereby together with such other certificates of incumbency and
other evidences of authority as the Bank or its counsel may reasonably
require together with the opinion of Purchaser's and Stockholder's counsel
described in Section 2.5(b) (ii) hereof.
ARTICLE VI
SURVIVAL OF REPRESENTATIONS AND WARRANTIES,
INDEMNIFICATION AND OTHER REMEDIES
1.1.1. SURVIVAL. Each and every representation, warranty and covenant in this
Agreement shall survive the Closing for a period of one (1) year after the
Closing Date with the exception of Indemnification Covenants described in
Section 6.2 which shall survive for a period of six (6) years after the
arising of a Claim.
1.2. PURCHASER'S AND STOCKHOLDER'S INDEMNIFICATION COVENANTS. Purchaser and
Stockholder and their respective successors and assigns shall indemnify,
save and keep Bank, and any parent, subsidiary, participant and affiliate of
Bank, and their successors and assigns harmless against any and all
liabilities, demands, claims, actions or causes of action, assessments,
losses, fines, penalties, costs, damages and expenses, including reasonable
attorney's fees and expert witness fees, sustained or incurred by Bank, its
parents, subsidiaries, participants or affiliates or their successors and
assigns as a result of or arising out of or by virtue of:
(a) the inaccuracy of any representation or warranty made by
Purchaser or Stockholder to Bank herein; or
(b) a breach by Purchaser or Stockholder of any of the covenants of
this Agreement to be performed by it; or
(c) any and all liabilities arising out of any claim based upon the
tortious or unlawful acts or omissions of Purchaser in regard to
any Collateral arising on or after the date hereof; or
(d) any and all liabilities arising out of any Claim made by any
Obligor against Bank with respect to the Collateral arising on or
after the date hereof.
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The Bank may defend any such Claim, cause of action or demand brought
or asserted against it arising out of any of the foregoing set forth in
subparagraphs (a)-(d) of this Section at the expense of the Purchaser and
Stockholder, with counsel designated by the Bank and to the exclusion of the
Purchaser and Stockholder. Alternatively, the Bank may call upon the Purchaser
and Stockholder to defend any such action at the Purchaser's and Stockholder's
sole cost and expense. The Bank may, in the Bank's sole and exclusive
discretion, adjust, settle, or compromise any such Claim, cause of action, or
demand made upon the Bank, and the Purchaser and Stockholder shall indemnify the
Bank for any such amounts or adjusted, settled or compromised, as well as all
costs and expenses (including attorneys' fees) incurred in connection herewith.
The Purchaser and Stockholder acknowledge and agree that their liability and
obligations hereunder are unconditional, unlimited and shall continue in full
force and effect until specifically terminated in writing by a duly authorized
officer of the Bank.
ARTICLE VII
BANK'S REMEDIES
1.1.1. BREACH AFTER TIME OF CLOSING. If for any reason the Purchaser and/or
Stockholder after the Closing Date, breaches this Agreement, including
without limitation, by reason of its failure to make payments due under the
Note or make any payment or loan required hereunder, the Bank shall be
entitled to retain the entire amount of the Purchaser's Initial Payment as
liquidated damages without prejudice to the Bank's other remedies for such
breach or failure, including, without limitation, any and all other rights,
remedies and other relief available to the Bank in this Agreement or any
other Settlement Document or at law or in equity.
ARTICLE VIII
ALLOCATION OF PURCHASE PRICE
2.2.1. ALLOCATION OF PURCHASE PRICE. The Purchase Price shall be allocated as
determined by the Purchaser and Bank on or before the Closing Date. If the
Purchaser and the Bank cannot so agree, such allocation shall be made by the
Purchaser's independent public accountants, which determination shall be
final and such allocation shall be used by the parties for all purposes.
ARTICLE IX
ENVIRONMENTAL MATTERS
3.3.1. ASSUMPTION AND RELEASE - Purchaser, Stockholder and the Obligors hereby
jointly and severally, assume responsibility for, releases, and each
indemnifies, holds harmless and discharges the Bank, and any parent,
subsidiary, participant and affiliate of the Bank, and its successors and
assigns, from any and all claims, requirements to take corrective action,
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remediation costs, civil liabilities or liabilities imposed by any
governmental entity, arising from any Environmental Condition associated
with the Collateral or the transaction contemplated hereby. For the purpose
of this paragraph, the term "Environmental Condition" refers to any
condition involving Regulated Substances with respect to surface or
subsurface soil, ambient air, surface waters, groundwaters, leachate,
run-off, stream or other sediments or similar environmental medium, which
condition requires remedial or corrective action or compliance with permit
requirements, standards, rules, regulations, ordinances or other laws, as
required, interpreted or applied by any governmental entity. For the purpose
of this paragraph, the term "Regulated Substance" refers to (a) any
radioactive material, including any source, special nuclear or by-product
material as defined at 42 U.S.C. 2011 ET SEQ., as amended, (b) any asbestos
in friable form, and (c) any pollutant, dangerous substance, toxic
substance, hazardous waste, hazardous material, hazardous substance or
contaminant as defined or listed in or pursuant to ISRA, the Spill
Compensation and Control Act (N.J.S.A. 58:10-23.11 ET SEQ.), as amended
("Spill Act"), the Solid Waste Management Act (N.J.S.A. 13:1E-1 ET SEQ.), as
amended, the Resource Conservation and Recovery Act (42 U.S.C. ss. 6901 ET
SEQ.), as amended, ("RCRA"), the Comprehensive Environmental Response,
Compensation and Liability Act (42 U.S.C. ss.9601 ET SEQ.), as amended
("CERCLA"), the Water Pollution Control Act (N.J.S.A. 58:10A-1, ET SEQ.), as
amended, the Air Pollution Control Act (N.J.S.A. 26:2C-1 ET SEQ.), as
amended, or any other similar local, state or federal environmental law.
3.2. COVENANT - In the event that any law, regulation, standard, rule, permit
requirement, ordinance or other law or requirement imposes upon the
Purchaser, Stockholder or any Obligor or the real property underlying the
Collateral an obligation to undertake remedial or corrective action with
respect to the real property or to comply with said law, regulation,
standard, rule, permit requirement, ordinance or other law or requirement,
Purchaser, Stockholder and the Obligors convenant and agree to undertake,
address and remediate any and all environmental condition(s) associated with
said obligation. Purchaser, Stockholder and Obligors also jointly and
severally agree to indemnify, release, and hold harmless the Bank, and any
parent, subsidiary, participant and affiliate of the Bank, and its
successors and assigns, from any and all liabilities and/or costs associated
with said obligation.
3.3. WAIVER - Purchaser and Stockholder waive any right, if any, to void this
Agreement under ISRA or otherwise as a result of any violation of or failure
to comply with ISRA by the Company or the Bank.
3.4. SURVIVAL - The Provisions of this Article IX shall survive the payment in
full of the Note.
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<PAGE>
ARTICLE X
NOTICES
4.4.1 NOTICES. Unless otherwise provided for herein, all notices and other
communications required or permitted hereunder shall be in writing and shall
be deemed to have been duly given (a) when delivered, if sent by registered
or certified mail (return receipt requested), (b) when delivered, if
delivered personally, (c) when transmitted, if sent by facsimile or if a
confirmation of transmission is produced bythe sending machine, or (d) when
delivered, if sent by overnight mail or overnight courier, in such case to
the parties at the following addresses or facsimile numbers (or at such
other addresses or facsimile numbers as shall be specified by like notice).
A. If to Bank at:
Summit Bank
750 Walnut Avenue
Cranford, New Jersey 07016
Attn: Frederick Scogno, Vice President
Fax No. (609) 486-4129
Telephone No. (609) 486-4123
With a copy (which shall not constitute notice) to:
Riker, Danzig, Scherer, Hyland & Perretti LLP
Headquarters Plaza
Morristown, New Jersey 0960
Attn: Dennis O' Grady, Esq.
Fax No. (973) 538-1984
Telephone No. (973) 538-0800
B. If to Purchaser at:
Ben Rickert Corp.
509 Madison Avenue, Suite 804
New York, New York 10022
Fax No. (212) 317-0713
Telephone No. (212) 317-0712
With a copy (which shall not constitute notice) to:
Gersten, Savage, Kaplowitz, Fredericks & Curtin, LLP
101 East 52nd Street
New York, New York 10022
Attn: Jay M. Kaplowitz, Esq.
Fax No. (212) 752-9713
Telephone No. (212) 752-9700
16
<PAGE>
A. If to the Company at:Ben Rickert, Inc.
359 Newark Pompton Turnpike
Wayne, New Jersey 07470
Fax No. (973) 628-7938
Telephone No. (973) 628-0200
If to the Guarantor:
Estate of Ben Rickert
c/o Ben Rickert, Inc.
359 Newark Pompton Turnpike
Wayne, New Jersey 07470
Fax No. (973) 628-7938
Telephone No. (973) 628-0200
With a copy (which shall not constitute notice) to:
Marc P. Press, Esq.
Ravin, Sarasohn, Cook, Baumgarten, Fisch & Rosen
103 Eisenhower Parkway
Roseland, NJ 07068
Fax No. (973) 228-9250
Telephone No. (973) 228-9600
If to Guarantors:
W. E. (Cal) and Kit E. Calligaro
48 Hoot Owl Terrace
Kinnelon, New Jersey 07405
17
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With a copy to:
Steven Z. Jurista, Esq.
Wasserman, Jurista & Stolz
225 Millburn Avenue
Millburn, New Jersey 07041
Fax No. (973) 467-8126
Telephone No. (973) 467-2700
If to Guarantor:
Douglas Rickert
565 Covington Place
Wyckoff, New Jersey 07481
With a copy to:
Ben H. Becker, Esq.
Schwartz, Tobia, Stanziale, Becker,
Rosensweig & Sedita, PA
22 Crestmont Road
Montclair, NJ 07042
Fax No. (973) 746-5849
Telephone No. (973) 746-6000
If to the Stockholder:
Azurel, Ltd.
509 Madison Avenue, Suite 804
New York, New York 10022
Fax No. (212) 317-0713
Telephone No. (212) 317-0712
18
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With a copy to:
Jay M. Kaplowitz, Esq.
Gersten, Savage, Kaplowitz, Fredericks
and Curtin, LLP
101 East 52nd Street
New York, New York 10022
Fax No. (212) 752-9713
Telephone No. (212) 752-9700
The giving of any notice required hereunder may be waived in writing by
the party entitled to receive such notice. The failure or delay in delivering
copies of any notice, demand, request, consent, approval, declaration or other
communication within any corporation or firm to the persons designated to
receive copies shall in no way adversely affect the effectiveness of such
notice, demand, request, consent, approval, declaration or other communication.
NOTICE OF CLAIM. Bank shall, promptly after Bank's receipt of any
notice, communication or other document in respect of any Claim, threatened
Claim or litigation against it or relating to the Collateral or this Agreement,
deliver such document to the Purchaser and Stockholder.
ARTICLE XI
RELEASE OF BANK
1. RELEASE OF BANK. To the extent that any Obligor may have any offsets,
defenses or claims, each Obligor and each of its, his or her successors,
assigns, parents, subsidiaries, affiliates, predecessors, employees, agents,
heirs, executors, as applicable, both present and former (collectively, "Obligor
Parties"), jointly and severally, releases, acquits and forever discharges Bank,
Bank's subsidiaries, affiliates, parents, officers, directors, employees,
agents, attorneys, predecessors, successors and assigns, both present and former
(collectively, with Bank, "Bank Affiliates") of and from any and all manner of
action and actions, cause and causes of action, suits, debts, controversies,
damages, judgments, executions, claims and demands whatsoever, asserted or
unasserted, in contract, tort, law or in equity against Bank and/or Bank
Affiliates which the Obligor Parties (or any of them) ever had, now has or which
Obligor Parties ever had or now has upon or by reason of any matter, cause,
causes or thing whatsoever, including, without limitation, any presently
existing claim or defense whether or not presently suspected, contemplated or
anticipated and including but not limited to any claim that relates to, in whole
or in part, directly or indirectly (i) the making or administration of the
credit facilities described in the Loan Document or the transactions described
in this Agreement, including, without limitation, such claims and defenses based
on fraud, mistake, duress, usury, misrepresentation, or any other claim based on
so-called "lender liability theories"; (ii) any covenants, agreements, duties,
or obligations set forth in the Loan Documents; (iii) the actions or omissions
of any of Bank and/or Bank Affiliate in connection with the initiation or
continuing exercise of any right or remedy contained in the Loan Documents or at
law or in equity; (iv) lost profits; (v) loss of business opportunity; (vi)
increased financing costs; (vi) increased legal or other administrative fees; or
(viii) damages to business reputation.
19
ARTICLE XII
CONSENT OF THE COMPANY, THE GUARANTORS AND
REAFFIRMATION OF GUARANTIES AND OTHER LOAN DOCUMENTS
2. Each of the Obligors acknowledge its, his or her consent to the terms
of this Agreement and confirm that as of the date hereof, they have no defenses,
offsets, counterclaims or rights of recoupment against the Bank in connection
with the Revolving Note and the other Obligations under the Loan Agreement and
the other Loan Documents, the Revised Real Estate Note or any other Real Estate
Loan Documents, the Revised Company Guaranty and all amounts outstanding under
the Revolving Note or any other Loan Document and the Revised Real Estate Note
are owing to the Bank without defense, offset or counterclaim. By executing this
Agreement each of the Obligors: agrees that all of their respective obligations
to the Bank under all notes, loan agreements, guaranties, mortgages and all
other documents continues in full force and effect and are hereby ratified and
affirmed; agrees that no Default is waived or relinquished by the Bank; agrees
that all notices and rights afforded to each of them by the Code have been
adequately provided and agrees that none of the transactions contemplated by
this Agreement shall be raised as a defense to any Claims by the Bank against
any Obligor; ratifies and affirms all liens and security interests on all of
their respective assets which currently are subject to a lien or security
interest in favor of the Bank; agrees that the Bank may apply as of the date
hereof the $300,000 pledged to the Bank by the Cal Guarantor to the amounts
owing by the Company to the Bank in such order as the Bank deems appropriate;
agrees that all commitments of the Bank to extend credit to the Company are
hereby terminated; and acknowledges that it, he or she has been represented by
counsel and has had full opportunity to discuss with such counsel and has
entered into this Agreement will full understanding of the terms and conditions
and consequences hereof.
Simultaneously with the execution of this Agreement, the Obligors and
the Bank have entered into the Sixth Forbearance Agreement which, among other
things, extends the Forbearance Period as provided therein.
ARTICLE XIII
MISCELLANEOUS PROVISIONS
3.3.1.SEVERABILITY. Each part of this Agreement is intended to be severable. If
any term, covenant, condition or provision hereof is unlawful, invalid, or
unenforceable for any reason whatsoever, and such illegality, invalidity, or
unenforceability does not affect the remaining parts of this Agreement, then
all such remaining parts hereof shall be valid and enforceable and shall
have full force and effect as if the invalid or unenforceable part had not
been included.
20
<PAGE>
3.2. AMENDMENT. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
3.3. WAIVER. Any term, condition or provision of this Agreement may be waived in
writing at any time by the party which is entitled to the benefits thereof.
3.4. HEADINGS. The headings contained in this Agreement are inserted for
convenience only and shall not affect the meaning or interpretation of this
Agreement or any provision hereof.
3.5. CONSTRUCTION. Unless the context otherwise requires, singular nouns and
pronouns, when used herein, shall be deemed to include the plural of such
noun or pronoun, pronouns of one gender shall be deemed to include the
equivalent pronoun of the other gender and references to a particular
section, addendum, schedule, or exhibit, shall be deemed to mean the
particular section of this Agreement, addendum, schedule or exhibit attached
hereto, respectively.
3.6. ASSIGNABILITY. This Agreement and the terms, covenants, conditions,
provisions, obligations, undertakings, rights and benefits hereof, including
schedules hereto, shall be binding upon and shall inure to the benefit of
the undersigned parties and their respective heirs, executors,
administrators, representatives and assigns. Neither Bank, Purchaser or
Stockholder shall assign this Agreement, its offer or any of its rights,
powers, duties or obligations thereunder without the prior written consent
of the other.
3.7. PRIOR UNDERSTANDINGS; INTEGRATED AGREEMENT. This Agreement supersedes any
and all prior discussions and agreements (written or oral) among Bank,
Stockholder and Purchaser with respect to the purchase of the Collateral and
other matters contained herein, and this Agreement contains the sole, final
and complete expression and understanding among Bank, Stockholder and
Purchaser with respect to the transactions contemplated herein.
3.8. COUNTERPARTS. This Agreement may be executed in any number of counterparts
each of which will constitute one and the same instrument, and either party
hereto may execute this Agreement by signing any such counterpart.
3.9. SURVIVAL. Each and every representation and warranty and covenant
hereinabove made by Purchaser, Stockholder and Bank shall survive the
Closing and shall not merge into any document executed as part of the
Closing but instead shall be independently enforceable except to the extent
expressly limited herein.
3.10. GOVERNING LAW; JURISDICTION AND VENUE.
(a) THIS AGREEMENT SHALL BE CONSTRUED, AND THE RIGHTS AND
OBLIGATIONS OF BANK, PURCHASER AND OBLIGORS HEREUNDER
DETERMINED, IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE
STATE OF NEW JERSEY, WITHOUT REGARD TO CONFLICT OF LAW
PRINCIPLES.
21
<PAGE>
(b) For purposes of any suit, action, or proceeding involving
this Agreement, Bank, Purchaser, Stockholder and the
Obligors hereby expressly submit to the jurisdiction of all
federal and state courts sitting in the State of New Jersey.
(c) The parties hereto each hereby irrevocably waive any
objection that each may now or hereafter have to the laying
of venue of any suit, action or proceeding arising out or
relating to this Agreement brought in any federal or state
court sitting in the State of New Jersey and hereby
irrevocably waive any claim that any such suit, action or
proceeding brought in any such court has been brought in an
inconvenient form.
0.1.NO THIRD PARTY BENEFICIARIES. No person, firm or other entity other than the
parties hereto which for purposes of this section shall be Bank, Purchaser,
Stockholder and the Obligors, shall have any rights or claims under this
Agreement. Notwithstanding the foregoing, the Obligors shall have no right
to assert as a defense to any of their obligations to the Bank, any failure
by the Bank or the Purchaser to perform hereunder.
0.2.TIME OF THE ESSENCE. Time is of the essence of all provisions of this
Agreement.
0.3.WAIVER OF JURY TRIAL. THE PARTIES HERETO EACH HEREBY KNOWINGLY, VOLUNTARILY
AND INTENTIONALLY WAIVE THE RIGHT EACH MAY HAVE TO A TRIAL BY JURY OF ANY
DISPUTE ARISING UNDER OR RELATING TO THIS AGREEMENT AND AGREES THAT ANY SUCH
DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY.
22
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first written above. THIS AGREEMENT IS AN INSTRUMENT EXECUTED UNDER SEAL.
ATTEST: AZUREL LTD
By: /s/ Frank DeSimone By /s/ Gerard Semhon
------------------ ------------------
Name: Frank DeSimone Name: Gerard Semhon
Title Secretary Title: CEO
SUMMIT BANK
By /s/ F.C. Scogno
------------------
Name: F.C. Scogno
Title: Vice President
ATTEST: BEN RICKERT, INC.
By: /s/ Kit E. Calligaro By: /s/ W. E. Calligaro
-------------------- -------------------
Name: Kit E. Calligaro Name: W. E. Calligaro
Title: Secretary Title: President
ATTEST: BEN RICKERT CORP.
By: /s/ Frank DeSimone By: /s/ Gerard Semhon
--------------------- --------------------
Name: Frank DeSimone Name: Gerard Semhon
Title: Secretary Title: CEO
GUARANTORS:
WITNESS:
/s/ Kit E. Calligaro
- ----------------------- ----------------------------
Kit E. Calligaro, Individually
23
<PAGE>
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
WITNESS
/s/ Douglas Rickert
- ----------------------- ----------------------------
Douglas Rickert, Individually
/s/ W. E. Calligaro
- ----------------------- ----------------------------
W. E. Calligaro, Individually
WITNESS: ESTATE OF BEN RICKERT
/s/ Kit E. Calligaro
- ----------------------- -------------------------------
Kit E. Calligaro
<PAGE>
ATTACHMENT 1
BILL OF SALE
Summit Bank (the "Bank), for value received and pursuant to the terms
and conditions of that certain Agreement of Sale dated July 31, 1998 (the
"Agreement") between the Bank, Ben Rickert Corp. (the "Purchaser") and others,
does hereby sell, assign, transfer and convey to Purchaser, its heirs,
administrators, representatives, successors and assigns, all rights, title and
interests of the Bank, as of the date hereof, in, to and under the Collateral
described in the Agreement. Terms defined in the Agreement and not otherwise
defined herein are used herein with the meanings so defined.
THIS BILL OF SALE IS EXECUTED WITHOUT RECOURSE AND WITHOUT
REPRESENTATIONS OR WARRANTIES OF ANY KIND OR NATURE, EXPRESSED, IMPLIED OR
IMPOSED BY LAW, ALL AS DESCRIBED IN MORE DETAIL IN THE AGREEMENT.
EXECUTED this 31st day of July, 1998.
SUMMIT BANK:
/s/ F. C. Scogno
-----------------------------
By: F. C. Scogno
-------------------------
Title: Vice President
EXHIBIT 99.2
PROMISSORY NOTE
$1,350,000.00 Dated: As of July 31, 1998
FOR VALUE RECEIVED, BEN RICKERT CORP., a Delaware corporation having
its principal place of business at 509 Madison Avenue, Suite 804, New York, New
York 10022 and AZUREL LTD., a Delaware corporation having its principal place of
business at 509 Madison Avenue, Suite 804, New York, New York 10022,
(collectively, the "Borrower"), hereby jointly and severally promise to pay to
the order of SUMMIT BANK, a New Jersey banking corporation (the "Bank") having
an office at 750 Walnut Avenue, Cranford, New Jersey 07016, in lawful money of
the United States of America, the principal sum of ONE MILLION THREE HUNDRED AND
FIFTY THOUSAND AND 00/100 DOLLARS ($1,350,000.00), together with interest on the
unpaid balance thereof, at a floating per annum rate of interest equal to that
rate of interest announced from time to time by the Bank as its "Base Rate",
changing when and as the Base Rate changes, plus one (1%) percent. The Base Rate
is not necessarily the lowest rate of interest charged to any particular class
or category of customers of the Bank.
This Note is issued pursuant to and is entitled to all the benefits of
the terms and conditions of that certain Agreement of Sale dated the date hereof
(the "Agreement"), by and between, among others, the Borrower and the Bank and
the other Settlement Documents. Defined terms used and not defined herein shall
have the meanings specified therefor in the Agreement.
<PAGE>
Unpaid principal together with accrued, but unpaid interest, if any,
shall be due and payable in full on October 30, 1998 (the "Maturity Date").
Interest hereunder shall be computed on the basis of a year of 360 days and
shall accrue on the outstanding principal amount hereof from the date hereof.
Interest shall be payable, in arrears, on the first day of each month commencing
August 1, 1998, and continuing on the first day of each month thereafter until
the principal amount hereof has been paid in full.
This Note may be prepaid at any time without penalty; provided,
however, that each partial prepayment hereunder shall be in an amount of not
less than $100,000 or multiples thereof.
Upon the occurrence of a default under the Agreement or any other
Settlement Document, all amounts outstanding hereunder shall thereafter bear
interest at the Base Rate plus two and one-half (2.5%) percent. The Borrower
shall pay a late charge of five (5%) percent of any payment of principal or
interest required to be made hereunder, which amount shall be not less than
$25.00 or more than $2,500.00 for each month or portion thereof such payment
remains unpaid.
The Borrower for itself and its legal representatives, successors and
assigns, expressly (i) waives presentment, demand, protest, notice of dishonor,
notice of non-payment, notice of maturity, notice of protest, presentment for
the purpose of accelerating maturity, diligence in collection, and the benefit
of any exemption under the homestead exemption laws, if any, or any other
exemption or insolvency law to which the Borrower or any such legal
representative, successor or assign may be entitled and (ii) consents that the
Holder (as hereinafter
2
<PAGE>
defined) may release or surrender, exchange or substitute any real estate and/or
personal property or other collateral security now held or which may hereafter
be held as security for the payment of this Note, and may extend the time for
payment or otherwise modify the terms of the payment of any part or the whole of
the debt evidenced hereby.
Repayment of this Note is secured under the Agreement and the
Settlement Documents, and all of the terms, covenants, and conditions of the
Agreement and the Settlement Documents and all other instruments evidencing
and/or securing the indebtedness hereunder are hereby made a part of this Note
and are deemed incorporated herein in full. Any default in any condition,
covenant, obligation, or agreement contained in the Agreement, the Settlement
Documents or any other instrument securing and/or evidencing this indebtedness
or the occurrence of any "Event of Default" (as that term is defined in any
Settlement Document) shall constitute a default under this Note and shall
entitled the Holder (as hereinafter defined) to accelerate the entire
indebtedness hereunder and take such other action as provided in the Agreement
and the Settlement Documents. So long as any amounts remain outstanding
hereunder Borrower shall not (i) enter into any merger or consolidation or
liquidate, windup or dissolve itself or sell, transfer or lease or otherwise
dispose of all or any substantial part of its assets (other than sales of
inventory and obsolete equipment in the ordinary course of business) or acquire
by purchase or otherwise the business or assets of, or stock of, another
business entity; or (ii) materially alter the nature of its business. The term
"Holder" shall mean the Bank or any other Person who is then Holder or owner of
this Note.
3
<PAGE>
IN WITNESS WHEREOF, the Borrower has caused this Note to be duly
executed as of the day and year first above written.
ATTEST: BEN RICKERT CORP.
By:_______________________ By:________________________________
Name: Name:
Title: Title:
[SIGNATURES CONTINUED ON NEXT PAGE]
4
<PAGE>
EXHIBIT 99.2
ATTEST: AZUREL LTD.
By:_______________________ By:________________________________
Name: Name:
Title: Title:
5
EXHIBIT 99.3
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (this "AGREEMENT") is made this 31st
day of July 1998, by and between BEN RICKERT CORP. (the "GRANTOR"), with an
address at 509 Madison Avenue, New York, New York 10022 and SUMMIT BANK (the
"BANK"), with an address at 750 Walnut Avenue, Cranford, New Jersey 07016.
Under the terms hereof, the Bank desires to obtain and the
Grantor desires to grant the Bank security for all of the Obligations (as
hereinafter defined).
NOW, THEREFORE, the Grantor and the Bank, intending to be
legally bound, hereby agree as follows:
1. DEFINITIONS.
(a) "Collateral" shall include all personal property of the
Grantor, including without limitation the following, all whether now owned or
hereafter acquired or arising: (i) accounts, accounts receivable, contract
rights, chattel paper, notes receivable, instruments and documents (including
warehouse receipts); (ii) goods of every nature, including without limitation,
inventory, stock-in-trade, raw materials, work in process, items held for sale
or lease or furnished or to be furnished under contracts of sale or lease, goods
that are returned, reclaimed or repossessed, together with materials used or
consumed in the Grantor's business; (iii) equipment, including, without
limitation, machinery, vehicles, furniture and fixtures; (iv) general
intangibles, of every kind and description, including, but not limited, to all
existing and future customer lists, choses in action, claims (including without
limitation claims for indemnification or breach of warranty), books, records,
patents and patent applications, copyrights, trademarks, tradenames,
tradestyles, trademark applications, goodwill, goodwill symbolized by any
trademarks, blueprints, drawings, designs and plans, trade secrets, contracts,
licenses, license agreements, formulae, tax and any other types of refunds,
returned and unearned insurance premiums, rights and claims under insurance
policies, and computer information, software, source codes, object codes,
records and data; (v) all property of the Grantor now or hereafter in the Bank's
possession or in transit to or from, under the custody or control of or on
deposit with, the Bank or any affiliate thereof, including deposit and other
accounts; (vi) all cash and cash equivalents; and (vii) all cash and non-cash
proceeds (including without limitation, insurance proceeds) of all of the
foregoing property, all products thereof and all additions and accessions
thereto, substitutions therefor and replacements thereof.
(b) "LOAN DOCUMENTS" means this Agreement, the Agreement of
Sale dated the
<PAGE>
date hereof by and among Grantor, Bank and others (the "SALE AGREEMENT"), the
promissory note in the original principal amount of $1,350,000 dated the date
hereof (the "Note") and all other Settlement Documents (as that term is defined
in the Sale Agreement) together with any and all related documents, instruments
and agreements.
(c) "OBLIGATIONS" shall include all loans, advances, debts,
liabilities, obligations, covenants and duties owing to the Bank from the
Grantor of any kind or nature, present or future, evidenced by the Note and/or
described in the Sale Agreement or any other Loan Document, and any amendments,
extensions, renewals or increases and all costs and expenses of the Bank
incurred in the documentation, negotiation, modification, enforcement,
collection or otherwise in connection with any of the foregoing, including but
not limited to reasonable attorneys' fees and expenses.
2. GRANT OF SECURITY INTEREST.
To secure the Obligations, the Grantor, as debtor, hereby
assigns and grants to the Bank, as secured party, a continuing lien on and
security interest in the Collateral.
3. CHANGE IN NAME OR LOCATIONS.
The Grantor hereby agrees that if the location of the
Collateral changes from the locations listed on Exhibit "A" hereto and made part
hereof, or if the Grantor changes its name or form of organization, or
establishes a name in which it may do business that is not listed as a tradename
on Exhibit "A" hereto, the Grantor will immediately notify the Bank in writing
of the additions or changes. The Grantor's chief executive office is also shown
on Exhibit "A" hereto.
4. REPRESENTATIONS AND WARRANTIES.
The Grantor represents, warrants and covenants to the Bank
that: (a) the Grantor has not made any prior sale, pledge, encumbrance,
assignment or other disposition of any of the Collateral and the same are free
from all encumbrances and rights of setoff of any kind; (b) except as herein
provided and as contemplated by the Sale Agreement, the Grantor will not
hereafter without the prior written consent of the Bank sell, pledge, encumber,
assign or otherwise dispose of any of the Collateral or permit any right of
setoff, lien or security interest to exist thereon except to the Bank; (c) the
Grantor will defend the Collateral against all claims and demands of all persons
at any time claiming the same or any interest therein; (d) each account and
general intangible, if included in the definition of Collateral, is genuine and
enforceable in accordance with its terms and the Grantor will defend the same
against all claims, demands, setoffs and counterclaims at any time asserted; and
(e) at the time any account or general intangible becomes subject to this
Agreement, such account or general intangible will be a good and valid account
representing a bona fide sale of goods or services by the Grantor and such goods
will have been shipped to the respective account debtors or the services will
have been performed for the respective account debtors, and no such
2
<PAGE>
account or general intangible will be subject to any claim for credit, allowance
or adjustment by any account debtor or any setoff, defense or counterclaim.
5. GRANTOR'S COVENANTS.
The Grantor covenants that it shall:
(a) from time to time and at all reasonable times allow the
Bank, by or through any of its officers, agents, attorneys, or accountants, to
examine or inspect the Collateral, notify account debtors of the Bank's security
interest in accounts (if included in the definition of Collateral) and obtain
valuations and audits of the Collateral, wherever located. The Grantor shall do,
obtain, make, execute and deliver all such additional and further acts, things,
deeds, assurances and instruments as the Bank may require to vest in and assure
to the Bank its rights hereunder and in or to the Collateral, and the proceeds
thereof, including, but not limited to, waivers from landlords, warehousemen and
mortgagees;
(b) keep the Collateral in good order and repair at all times
and immediately notify the Bank of any event causing a material loss or decline
in value of the Collateral whether or not covered by insurance and the amount of
such loss or depreciation;
(c) only use or permit the Collateral to be used in accordance
with all applicable federal, state, county and municipal laws and regulations;
and
(d) have and maintain insurance at all times with respect to
all Collateral against risks of fire (including so-called extended coverage),
theft, sprinkler leakage, and other risks (including risk of flood if any
Collateral is maintained at a location in a flood hazard zone) as the Bank may
reasonably require, in such form, in such amount, for such period and written by
such companies as may be reasonably satisfactory to the Bank. The policies of
all such casualty insurance shall contain a standard Lender's Loss Payable
Clauses issued in favor of the Bank under which all losses thereunder shall be
paid to the Bank as the Bank's interest may appear. Such policies shall
expressly provide that the requisite insurance cannot be altered or canceled
without at least thirty (30) days prior written notice to the Bank and shall
insure the Bank notwithstanding the act or neglect of the Grantor. Upon demand
of the Bank, the Grantor shall furnish the Bank with duplicate original policies
of insurance or such other evidence of insurance as the Bank may require. In the
event of failure to provide insurance as herein provided, the Bank may, at its
option, obtain such insurance and the Grantor shall pay to the Bank, on demand,
the cost thereof. Proceeds of insurance may be applied by the Bank to reduce the
Obligations or to repair or replace Collateral, all in the Bank's sole
discretion.
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<PAGE>
6. NEGATIVE PLEDGE; NO TRANSFER.
The Grantor will not sell or offer to sell or otherwise
transfer or grant or suffer the imposition of a lien or security interest upon
the Collateral (except for sales of inventory and collections of accounts in the
Grantor's ordinary course of business and except as contemplated by the Sale
Agreement) or use any portion thereof in any manner inconsistent with this
Agreement or with the terms and conditions of any policy of insurance thereon.
7. COVENANTS FOR ACCOUNTS.
If accounts are included in the definition of Collateral:
(a) The Grantor will, on demand of the Bank, make notations on
its books and records showing the security interest of the Bank and make
available to the Bank shipping and delivery receipts evidencing the shipment of
the goods that gave rise to an account, completion certificates or other proof
of the satisfactory performance of services that gave rise to an account, a copy
of the invoice for each account and copies of any written contract or order from
which an account arose. The Grantor shall promptly notify the Bank if an account
becomes evidenced or secured by an instrument or chattel paper and upon request
of the Bank, will promptly deliver any such instrument or chattel paper to the
Bank, including without limitation, any letter of credit delivered to the
Grantor to support a shipment of inventory by the Grantor.
(b) The Grantor will promptly advise the Bank whenever an
account debtor refuses to retain or returns any goods from the sale of which an
account arose and will comply with any instructions that the Bank may give
regarding the sale or other disposition of such returns. The Grantor will, on at
least a weekly basis, report all credits given to account debtors on all
accounts.
(c) The Grantor will immediately notify the Bank if any
account arises out of contracts with the United States or any department, agency
or instrumentality thereof, and will execute any instruments and take any steps
required by the Bank so that all monies due and to become due under such
contract shall be assigned to the Bank and notice thereof given to and
acknowledged by the appropriate government agency or authority under the Federal
Assignment of Claims Act.
(d) At any time and without notice to the Grantor, the Bank
may notify any persons who are indebted to the Grantor on any Collateral
consisting of accounts or general intangibles of the assignment thereof to the
Bank and may direct such account debtors to make payment directly to the Bank of
the amounts due. At the request of the Bank, the Grantor will direct any persons
who are indebted to the Grantor on any Collateral consisting of accounts or
general intangibles to make payment directly to the Bank. The Bank is authorized
to give receipts to such account debtors for any such payments and the account
debtors will be protected in making
4
<PAGE>
such payments to the Bank. Upon the written request of the Bank, the Grantor
will establish with the Bank and maintain a lockbox account ("Lockbox") with the
Bank and a depository account(s) ("Cash Collateral Account") with the Bank
subject to the provisions of this subparagraph and such other agreements related
thereto as the Bank may require, whereupon all collections of accounts shall be
paid directly from account debtors into the Lockbox from which funds shall be
transferred to the Cash Collateral Account, and from which funds shall be
applied by the Bank, daily, to reduce the outstanding Obligations.
8. FURTHER ASSURANCES.
At the request of the Bank, the Grantor will join with the
Bank in executing one or more financing, continuation or amendment statements
pursuant to the Uniform Commercial Code in form satisfactory to the Bank and
will pay the cost of preparing and filing the same in all jurisdictions in which
such filing is deemed by the Bank to be necessary or desirable. A carbon,
photographic or other copy of this Agreement or of a UCC-1 financing statement
may be filed as and in lieu of a UCC-1 financing statement.
9. EVENTS OF DEFAULT.
The Grantor shall, at the option of the Bank, be in default
under this Agreement upon the happening of any of the following events or
conditions (each, an "EVENT OF DEFAULT"): (a) any Event of Default (as defined
in any of the documents or Loan Documents relating to any of the Obligations);
(b) any default under any of the documents or Loan Documents relating to any of
the Obligations that does not have a defined set of "Events of Default" and the
lapse of any notice or cure period provided in such Obligations with respect to
such default; (c) demand by the Bank under any of the Obligations that have a
demand feature; (d) the failure by the Grantor and/or Azurel Ltd. ("AZUREL") to
perform any of its obligations under this Agreement, the Sale Agreement or any
other Loan Document; (e) falsity, inaccuracy or material breach by the Grantor
of any written warranty, representation or statement made or furnished to the
Bank by or on behalf of the Grantor; (f) an uninsured material loss, theft,
damage, or destruction to any of the Collateral, or the entry of any judgment
against the Grantor or any lien against or the making of any levy, seizure or
attachment of or on the Collateral; (g) the failure of the Bank to have a
perfected first priority security interest in the Collateral; (h) any indication
or evidence received by the Bank that the Grantor may have directly or
indirectly been engaged in any type of activity which, in the Bank's discretion,
might result in the forfeiture of any property of the Grantor to any
governmental entity, federal, state or local; or (i) the filing of a petition by
Grantor or Azurel seeking reorganization, arrangement, composition,
readjustment, liquidation, dissolution, or similar relief under any law relating
to bankruptcy or insolvency.
10. REMEDIES.
Upon the occurrence of any such event of default and at any
time thereafter, The
5
<PAGE>
Bank may declare all Obligations secured hereby immediately due and payable and
shall have, in addition to any remedies provided herein or in any other Loan
Document or by any applicable law or in equity, all the remedies of a secured
party under the Uniform Commercial Code. as permitted by such Code, the Bank may
(a) peaceably by its own means or with judicial assistance enter the Grantor's
premises and take possession of the Collateral, (b) render the Collateral
unusable, (c) dispose of the Collateral on the Grantor's premises, (d) require
the Grantor to assemble the Collateral and make it available to the Bank at a
place designated by the Bank, and (e) notify the United States Postal Service to
send the Grantor's mail to the Bank. Unless the Collateral is perishable or
threatens to decline speedily in value or is of a type customarily sold on a
recognized market, the Bank will give the Grantor reasonable notice of the time
and place of any public sale thereof or of the time after which any private sale
or any other intended disposition thereof is to be made. The requirements of
commercially reasonable notice shall be met if such notice is sent to the
Grantor at least five (5) days before the time of the intended sale or
disposition. Expenses of retaking, holding, preparing for sale, selling or the
like shall include the Bank's reasonable attorney's fees and legal expenses,
incurred or expended by the Bank to enforce any payment due it under this
Agreement either as against the Grantor, or in the prosecution or defense of any
action, or concerning any matter growing out of or connection with the subject
matter of this Agreement and the Collateral pledged hereunder. The Grantor
consents to all of the Bank's remedies set forth in this Paragraph.
11. POWER OF ATTORNEY.
The Grantor does hereby make, constitute and appoint any
officer or agent of the Bank as the Grantor's true and lawful attorney-in-fact,
with power to endorse the name of the Grantor or any of the Grantor's officers
or agents upon any notes, checks, drafts, money orders, or other instruments of
payment or Collateral that may come into the possession of the Bank in full or
part payment of any amounts owing to the Bank; granting to the Grantor's said
attorney full power to do any and all things necessary to be done in and about
the premises as fully and effectually as the Grantor might or could do,
including the right to sign, for the Grantor, UCC-1 financing statements and
UCC-3 Statements of Change and to sue for, compromise, settle and release all
claims and disputes with respect to, the Collateral. The Grantor hereby ratifies
all that said attorney shall lawfully do or cause to be done by virtue hereof.
This power of attorney is coupled with an interest, and is irrevocable.
12. PAYMENT OF EXPENSES.
At its option, The Bank may discharge taxes, liens, security
interests or such other encumbrances as may attach to the Collateral, may pay
for required insurance on the Collateral and may pay for the maintenance,
appraisal or reappraisal, and preservation of the Collateral, as determined by
the Bank to be necessary. The Grantor will reimburse the Bank on demand for any
payment so made or any expense incurred by the Bank pursuant to the foregoing
authorization, and the Collateral also will secure any advances or payments so
made or expenses so incurred by the Bank.
6
<PAGE>
13. NOTICES.
All notices, demands, requests, consents, approvals and other
communications required or permitted hereunder must be in writing and will be
effective upon receipt if delivered personally to such party, or if sent by
facsimile transmission with confirmation of delivery, or by nationally
recognized overnight courier service, to the address set forth above or to such
other address as any party may give to the other in writing for such purpose.
14. PRESERVATION OF RIGHTS.
No delay or omission on the part of the Bank to exercise any
right or power arising hereunder will impair any such right or power or be
considered a waiver of any such right or power or any acquiescence therein, nor
will the action or inaction of the Bank impair any right or power arising
hereunder. The Bank's rights and remedies hereunder are cumulative and not
exclusive of any other rights or remedies which the Bank may have under other
agreements, at law or in equity.
15. ILLEGALITY.
In case any one or more of the provisions contained in this
Agreement should be invalid, illegal or unenforceable in any respect, the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired thereby.
16. CHANGES IN WRITING.
No modification, amendment or waiver of any provision of this
Agreement nor consent to any departure by the Grantor therefrom, will in any
event be effective unless the same is in writing and signed by the Bank, and
then such waiver or consent shall be effective only in the specific instance and
for the purpose for which given. No notice to or demand on the Grantor in any
case will entitle the Grantor to any other or further notice or demand in the
same, similar or other circumstance.
17. ENTIRE AGREEMENT.
This Agreement (including the documents and instruments
referred to herein) constitutes the entire agreement and supersedes all other
prior agreements and understandings, both written and oral, between the parties
with respect to the subject matter hereof.
18. COUNTERPARTS.
This Agreement may be signed in any number of counterpart
copies and by the
7
<PAGE>
parties hereto on separate counterparts, but all such copies shall constitute
one and the same instrument.
19. SUCCESSORS AND ASSIGNS.
This Agreement will be binding upon and inure to the benefit
of the Grantor and the Bank and their respective heirs, executors,
administrators, successors and assigns; PROVIDED, HOWEVER, that the Grantor may
not assign this Agreement in whole or in part without the prior written consent
of the Bank and the Bank at any time may assign this Agreement in whole or in
part.
20. INTERPRETATION.
In this Agreement, unless the Bank and the Grantor otherwise
agree in writing, the singular includes the plural and the plural the singular;
words importing any gender include the other genders; references to statutes are
to be construed as including all statutory provisions consolidating, amending or
replacing the statute referred to; the word "or" shall be deemed to include
"and/or", the words "including", "includes" and "include" shall be deemed to be
followed by the words "without limitation"; references to articles, sections (or
subdivisions of sections) or exhibits are to those of this Agreement unless
otherwise indicated. Section headings in this Agreement are included for
convenience of reference only and shall not constitute a part of this Agreement
for any other purpose. If this Agreement is executed by more than one Grantor,
the obligations of such persons or entities will be joint and several.
21. INDEMNITY.
The Grantor agrees to indemnify each of the Bank, its
directors, officers and employees and each legal entity, if any, who controls
the Bank (the "INDEMNIFIED PARTIES") and to hold each Indemnified Party harmless
from and against any and all claims, damages, losses, liabilities and expenses
(including, without limitation, all fees of counsel with whom any Indemnified
Party may consult and all expenses of litigation or preparation therefor) which
any Indemnified Party may incur or which may be asserted against any Indemnified
Party as a result of the execution of or performance under this Agreement;
PROVIDED, HOWEVER, that the foregoing indemnity agreement shall not apply to
claims, damages, losses, liabilities and expenses solely attributable to an
Indemnified Party's gross negligence or willful misconduct. The indemnity
agreement contained in this Section shall survive the termination of this
Agreement. The Grantor may participate at its expense in the defense of any such
claim.
22. GOVERNING LAW AND JURISDICTION.
This Agreement has been delivered to and accepted by the BANK
and will be deemed to be made in the State where the Bank's office indicated
above is located. THIS AGREEMENT WILL BE
8
<PAGE>
INTERPRETED AND THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED IN
ACCORDANCE WITH THE LAWS OF THE STATE WHERE THE BANK'S OFFICE INDICATED ABOVE IS
LOCATED, EXCEPT THAT THE LAWS OF THE STATE WHERE ANY COLLATERAL IS LOCATED (IF
DIFFERENT FROM THE STATE WHERE SUCH OFFICE OF THE BANK IS LOCATED) SHALL GOVERN
THE CREATION, PERFECTION AND FORECLOSURE OF THE LIENS CREATED HEREUNDER ON SUCH
PROPERTY OR ANY INTEREST THEREIN. The Grantor hereby irrevocably consents to the
exclusive jurisdiction of any state or federal court for the county or judicial
district where the Bank's office indicated above is located, and consents that
all service of process be sent by nationally recognized overnight courier
service directed to the Grantor at the Grantor's address set forth herein and
service so made will be deemed to be completed on the business day after deposit
with such courier; provided that nothing contained in this Agreement will
prevent the Bank from bringing any action, enforcing any award or judgment or
exercising any rights against the Grantor individually, against any security or
against any property of the Grantor within any other county, state or other
foreign or domestic jurisdiction. The Bank and the Grantor agree that the venue
provided above is the most convenient forum for both the Bank and the Grantor.
The Grantor waives any objection to venue and any objection based on a more
convenient forum in any action instituted under this Agreement.
23. SELF HELP REMEDIES.
THE GRANTOR BEING FULLY AWARE OF THE RIGHT TO NOTICE AND A
HEARING ON THE QUESTION OF THE VALIDITY OF ANY CLAIMS THAT MAY BE ASSERTED
AGAINST THE GRANTOR BY THE BANK UNDER THIS AGREEMENT, AND RELATED AGREEMENTS AND
DOCUMENTS, BEFORE THE GRANTOR CAN BE DEPRIVED OF ANY PROPERTY IN THE GRANTOR'S
POSSESSION, HEREBY WAIVES THESE RIGHTS AND AGREES THAT THE BANK MAY EMPLOY SELF-
HELP OR ANY LEGAL OR EQUITABLE PROCESS PROVIDED BY LAW TO TAKE POSSESSION OF ANY
SUCH PROPERTY WITHOUT FIRST OBTAINING A FINAL JUDGMENT OR WITHOUT FIRST GIVING
THE GRANTOR NOTICE AND THE OPPORTUNITY TO BE HEARD ON THE VALIDITY OF THE CLAIM
UPON WHICH SUCH TAKING IS MADE. THE GRANTOR WAIVES ALL RELIEF FROM ALL
APPRAISEMENT OR EXEMPTION LAWS NOW IN FORCE OR HEREAFTER ENACTED.
24. WAIVER OF JURY TRIAL.
EACH OF THE GRANTOR AND THE BANK IRREVOCABLY WAIVES ANY AND
ALL RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF
ANY NATURE RELATING TO THIS AGREEMENT, ANY DOCUMENTS EXECUTED IN CONNECTION WITH
THIS AGREEMENT OR ANY TRANSACTION CONTEMPLATED IN ANY OF SUCH DOCUMENTS. THE
GRANTOR AND THE BANK ACKNOWLEDGE THAT THE FOREGOING WAIVER IS KNOWING AND
VOLUNTARY.
9
<PAGE>
WITNESS the due execution hereof as a document under seal, as of the
date first written above.
[CORPORATE SEAL] BEN RICKERT CORP., A
DELAWARE CORPORATION
ATTEST: /s/ Frank DeSimone BY: /s/ Gerard Semhon
------------------------- ---------------------------------
PRINT NAME: Frank DeSimone PRINT NAME: Gerard Semhon
--------------------- -------------------------
TITLE: Secretary TITLE: CEO
------------------------- -------------------------------
SUMMIT BANK
BY: /s/ F.C. Scogno
--------------------------------
PRINT NAME: F. C. Scogno
--------------------------
TITLE: Vice President
------------------------------
11
<PAGE>
EXHIBIT "A"
TO SECURITY AGREEMENT
Address of Grantor's chief executive office, including the County:
509 Madison Avenue
New York, New York 10022
Address for books and records, if different:
509 Madison Avenue
New York, New York 10022
Addresses of other Collateral locations, including Counties and name and address
of landlord or owner if location is not owned by the Grantor:
359 Newark Pompton Turnpike
Wayne, New Jersey 07470
Owner: Kit E. Calligaro
48 Hoot Owl Terrace
Kinnelon, New Jersey 07405
Other names or tradenames now or formerly used by the Grantor:
None
EXHIBIT 99.5
FORM OF SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "AGREEMENT"), dated as of August
12, 1998, between AZUREL LTD., a corporation organized under the laws of the
State of Delaware (the "COMPANY"), and each of the purchasers (the "PURCHASERS")
set forth on the execution pages hereof (the "EXECUTION PAGES").
WHEREAS:
A. The Company and each Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("REGULATION D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "SECURITIES ACT").
B. The Company desires to sell, and each Purchaser desires to
purchase severally and not jointly, upon the terms and conditions stated in this
Agreement, units (the "UNITS"), each Unit consisting of (i) one share of the
Company's Series A Convertible Preferred Stock, par value $.001 per share (the
"PREFERRED SHARES"), convertible into shares of the Company's common stock, par
value $.001 per share (the "COMMON STOCK"), and (ii) a warrant, in the form
attached hereto as EXHIBIT B (the "WARRANT"), to acquire 375 shares of Common
Stock. The rights, preferences and privileges of the Preferred Shares, including
the terms upon which such Preferred Shares are convertible into shares of Common
Stock, are set forth in the form of Certificate of Designations, Preferences and
Rights attached hereto as EXHIBIT A (the "CERTIFICATE OF DESIGNATION"). The
shares of Common Stock issuable upon conversion of the Preferred Shares or
otherwise pursuant to the Certificate of Designation are referred to herein as
the "CONVERSION SHARES" and the shares of Common Stock issuable upon exercise of
or otherwise pursuant to the Warrants are referred to herein as the "WARRANT
SHARES." The Preferred Shares, the Warrants, the Conversion Shares and the
Warrant Shares are collectively referred to herein as the "SECURITIES" and each
of them may individually be referred to herein as a "SECURITY."
C. Contemporaneous with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as EXHIBIT C (the "REGISTRATION RIGHTS AGREEMENT"),
pursuant to which the Company has agreed to provide certain registration rights
under the Securities Act and the rules and regulations promulgated thereunder,
and applicable state securities laws.
<PAGE>
NOW, THEREFORE, the Company and the Purchasers hereby agree as
follows:
1. PURCHASE AND SALE OF UNITS.
---------------------------
(a) PURCHASE OF UNITS AND CLOSING. Subject to the satisfaction (or
waiver) of the conditions set forth in Section 6 and Section 7 below, the
Purchasers, severally but not jointly, agree to purchase, that number of the
Units set forth on such Purchaser's Execution Page. The purchase price (the
"PURCHASE PRICE") per Unit shall be equal to One Thousand Dollars ($1,000.00).
The issuance and sale of the Units shall take place, subject to the satisfaction
or waiver of the conditions precedent thereto, in two closings, the first of
which is referred to herein as the "FIRST CLOSING," the second of which is
referred to herein as the "SECOND CLOSING," and the First Closing and the Second
Closing are collectively referred to herein as the "CLOSINGS." The Second
Closing shall occur, if at all, at the sole discretion of the Purchasers at any
time during the period beginning on the six (6) month anniversary of the First
Closing Date and ending on the twenty-four (24) month anniversary of the First
Closing Date. The aggregate purchase price of the Units being acquired by each
Purchaser at each of the Closings is set forth on such Purchaser's Execution
Page. The Closings of the purchase, sale and exchange of the Units to be
acquired by the Purchasers from the Company under this Agreement shall take
place at the offices of Klehr, Harrison, Harvey, Branzburg & Ellers, LLP, 1401
Walnut Street, 8th Floor, Philadelphia, PA 19102. The date and time of the
Closings (the "CLOSING DATES") shall be (i) in the case of the First Closing on
August 12, 1998 and (ii) in the case of the Second Closing, if the Purchasers
shall elect at their option to conduct a Second Closing, as soon as practicable
after the satisfaction or waiver of the conditions precedent thereto set forth
in Section 6 and Section 7, but not earlier than February 12, 1999 and not later
than August 12, 2000, or in each case at such time and date thereafter as the
Purchasers and the Company may agree. Each Purchaser's obligation to purchase
Units hereunder is distinct and separate from each other Purchaser's obligation
to purchase Units and no Purchaser shall be required to purchase hereunder more
than the number of Units set forth on such Purchaser's Execution Page hereto
notwithstanding any failure by any other Purchaser to purchase Units hereunder
nor shall any Purchaser have any liability by reason of any such failure by any
other Purchaser.
(b) FORM OF PAYMENT. On each Closing Date, each Purchaser shall pay
the aggregate Purchase Price for the Units being purchased by such Purchaser on
the such Closing Date by wire transfer to the Company, in accordance with the
Company's written wiring instructions, against delivery of duly executed
certificates representing the Preferred Shares and duly executed Warrants being
purchased by such Purchaser and the Company shall deliver such certificates and
Warrants against delivery of such aggregate Purchase Price.
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<PAGE>
2. PURCHASERS' REPRESENTATIONS AND WARRANTIES
------------------------------------------
Each Purchaser severally and not jointly represents and warrants to
the Company as follows:
(a) PURCHASE FOR OWN ACCOUNT, ETC. Purchaser is purchasing the Units
for Purchaser's own account and not with a present view towards the public sale
or distribution thereof, except pursuant to sales that are exempt from the
registration requirements of the Securities Act and/or sales registered under
the Securities Act. Purchaser understands that Purchaser must bear the economic
risk of this investment indefinitely, unless the Securities are registered
pursuant to the Securities Act and any applicable state securities or blue sky
laws or an exemption from such registration is available, and that the Company
has no present intention of registering the resale of any such Securities other
than as contemplated by the Registration Rights Agreement. Notwithstanding
anything in this Section 2(a) to the contrary, by making the representations
herein, the Purchaser does not agree to hold 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 the registration requirements under the Securities Act.
(b) ACCREDITED INVESTOR STATUS. Purchaser is an "ACCREDITED INVESTOR"
as that term is defined in Rule 501(a) of Regulation D.
(c) RELIANCE ON EXEMPTIONS. Purchaser understands that the Units are
being offered and sold to Purchaser in reliance upon specific exemptions from
the registration requirements of United States federal and state securities laws
and that the Company is relying upon the truth and accuracy of, and Purchaser's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of Purchaser set forth herein in order to determine the
availability of such exemptions and the eligibility of Purchaser to acquire the
Units.
(d) INFORMATION. Purchaser and its counsel, if any, have been
furnished all materials relating to the business, finances and operations of the
Company and materials relating to the offer and sale of the Units which have
been specifically requested by Purchaser or its counsel. Purchaser and its
counsel have been afforded the opportunity to ask questions of the Company.
Neither such inquiries nor any other investigation conducted by Purchaser or its
counsel or any of its representatives shall modify, amend or affect Purchaser's
right to rely on the Company's representations and warranties contained in
Section 3 below. Purchaser understands that Purchaser's investment in the Units
involves a high degree of risk.
(e) GOVERNMENTAL REVIEW. Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Units.
(f) TRANSFER OR RESALE. Purchaser understands that (i) except as
provided in the Registration Rights Agreement, the sale or resale of the
Securities have not been and are not being registered under the Securities Act
or any state securities laws, and the Securities may not be
-3-
<PAGE>
transferred unless (a) the resale of the Securities has been registered
thereunder; or (b) Purchaser shall have delivered to the Company an opinion of
counsel (which opinion shall be in form, substance and scope customary for
opinions of counsel in comparable transactions) to the effect that the
Securities to be sold or transferred may be sold or transferred pursuant to an
exemption from such registration; or (c) the Securities are sold under Rule 144
promulgated under the Securities Act (or a successor rule) ("RULE 144"); or (d)
the Securities are sold or transferred to an affiliate of Purchaser who agrees
to sell or otherwise transfer the Securities only in accordance with the
provisions of this Section 2(f) and who is an Accredited Investor; and (ii)
neither the Company nor any other person is under any obligation to register
such Securities under the Securities Act or any state securities laws (other
than pursuant to the Registration Rights Agreement). Notwithstanding the
foregoing or anything else contained herein to the contrary, the Securities may
be pledged as collateral in connection with a bona fide margin account or other
lending arrangement.
(g) LEGENDS. Purchaser understands that the certificates for the
Preferred Shares and the Warrants and, until such time as the Conversion Shares
and Warrant Shares have been registered under the Securities Act (including
registration pursuant to Rule 416 thereunder) as contemplated by the
Registration Rights Agreement or otherwise may be sold by Purchaser under Rule
144, the certificates for the Conversion Shares and Warrant Shares may 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 the
securities laws of any state of the United States. The securities
represented hereby may not be offered, sold or transferred in the
absence of an effective registration statement for the securities
under applicable securities laws unless offered, sold or transferred
under an available exemption from the registration requirements of
those laws.
The legend set forth above shall be removed and the Company shall
issue a certificate without such legend to the holder of any Security upon which
it is stamped if, unless otherwise required by state securities laws, (a) the
sale of such Security is registered under the Securities Act (including
registration pursuant to Rule 416 thereunder) as contemplated by the
Registration Rights Agreement; (b) such holder provides the Company with an
opinion of counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that a public sale or transfer
of such Security may be made without registration under the Securities Act; or
(c) such holder provides the Company with reasonable assurances that such
Security can be sold under Rule 144. Purchaser agrees to sell all Securities,
including those represented by a certificate(s) from which the legend has been
removed, pursuant to an effective registration statement, under an exemption
from the registration requirements of the Securities Act or in accordance with
Rule 144. In the event the above legend is removed from any Security and
thereafter the effectiveness of a registration statement covering such Security
is suspended or the Company determines that a supplement or amendment thereto is
required by applicable securities laws, then upon reasonable advance notice to
Purchaser the Company may require that the above legend be placed on any such
Security that cannot then be sold pursuant to an effective registration
statement or under Rule 144 and Purchaser shall cooperate in the replacement of
such legend. Such legend shall thereafter be removed when such Security may
again be sold pursuant to an effective registration statement or under Rule 144.
-4-
<PAGE>
(h) AUTHORIZATION; ENFORCEMENT. This Agreement and the Registration
Rights Agreement have been duly and validly authorized, executed and delivered
on behalf of Purchaser and are valid and binding agreements of Purchaser
enforceable against Purchaser in accordance with their terms.
(i) RESIDENCY. Purchaser is a resident of the jurisdiction set forth
under Purchaser's name on the Execution Page hereto executed by Purchaser.
(j) ACKNOWLEDGMENTS REGARDING PLACEMENT AGENT. Purchaser acknowledges
that The Zanett Securities Corporation is acting as placement agent (the
"PLACEMENT AGENT") for the Securities being offered hereby and will be
compensated by the Company for acting in such capacity. Purchaser further
acknowledges that the Placement Agent has acted solely as placement agent in
connection with the offering of the Securities by the Company, that the
information and data provided to Purchaser and referred to in subsection (d)
above or otherwise in connection with the transactions contemplated hereby have
not been subjected to independent verification by the Placement Agent, and that
the Placement Agent makes no representation or warranty with respect to the
accuracy or completeness of such information, data or other related disclosure
material. Purchaser further acknowledges that in making its decision to enter
into this Agreement and purchase the Securities it has relied on the Company's
representations and warranties contained in Section 3 below and on its own
examination of the Company and the terms of, and consequences of holding, the
Securities. Purchaser further acknowledges that the provisions of this Section
2(j) are for the benefit of, and may be enforced by, the Placement Agent.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
----------------------------------------------
The Company represents and warrants to each Purchaser as follows:
(a) ORGANIZATION AND QUALIFICATION. The Company and each of its
subsidiaries is a corporation duly organized and existing in good standing under
the laws of the jurisdiction in which it is incorporated, and has the requisite
corporate power to own its properties and to carry on its business as now being
conducted. Except as set forth on Schedule 3(a), the Company and each of its
subsidiaries is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which its ownership of property or the
nature of the business conducted by it makes such qualification necessary and
where the failure so to qualify would have a Material Adverse Effect. "MATERIAL
ADVERSE EFFECT" means any material adverse effect on (i) the Securities, (ii)
the ability of the Company to perform its obligations hereunder or under the
Certificate of Designation, the Warrants or the Registration Rights Agreement or
(iii) the business, operations, properties, prospects or financial condition of
the Company and its subsidiaries, taken as a whole.
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(b) AUTHORIZATION; ENFORCEMENT. (i) The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Warrants and the Registration Rights Agreement, to issue and
sell the Units in accordance with the terms hereof, to issue the Conversion
Shares upon conversion of the Preferred Shares in accordance with the terms of
the Certificate of Designation and to issue the Warrant Shares upon exercise of
the Warrants in accordance with the terms of such Warrants; (ii) the execution,
delivery and performance of this Agreement, the Warrants and the Registration
Rights Agreement by the Company and the consummation by it of the transactions
contemplated hereby and thereby (including, without limitation, the issuance of
the Preferred Shares and Warrants and the issuance and reservation for issuance
of the Conversion Shares and Warrant Shares) have been duly authorized by the
Company's Board of Directors and no further consent or authorization of the
Company, its Board of Directors, any committee of the Board of Directors or the
Company's shareholders is required, and (iii) this Agreement constitutes, and,
upon execution and delivery by the Company of the Warrants and the
Registration Rights Agreement, such agreements will constitute, valid and
binding obligations of the Company enforceable against the Company in accordance
with their terms.
(c) STOCKHOLDER AUTHORIZATION. The Company believes that neither the
execution, delivery or performance of this Agreement, the Warrants or the
Registration Rights Agreement by the Company nor the consummation by it of the
transactions contemplated hereby or thereby (including, without limitation, the
issuance of the Preferred Shares or Warrants or the issuance, reservation for
issuance or listing of the Conversion Shares or Warrant Shares) requires any
consent, approval or authorization of the Company's stockholders.
(d) CAPITALIZATION. The capitalization of the Company as of the date
hereof, including the authorized capital stock, the number of shares issued and
outstanding, the number of shares issuable and reserved for issuance pursuant to
the Company's stock option plans, the number of shares issuable and reserved for
issuance pursuant to securities (other than the Preferred Shares and Warrants)
exercisable or exchangeable for, or convertible into, any shares of capital
stock and the number of shares to be reserved for issuance upon conversion of
the Preferred Shares and exercise of the Warrants is set forth on SCHEDULE 3(D).
All of such outstanding shares of capital stock have been, or upon issuance in
accordance with the terms of any such warrants, options or preferred stock, will
be, validly issued, fully paid and non-assessable. No shares of capital stock of
the Company (including the Preferred Shares, the Conversion Shares and the
Warrant Shares) are subject to preemptive rights or any other similar rights of
the stockholders of the Company or any liens or encumbrances. Except for the
Securities and as set forth on SCHEDULE 3(D), as of the date of this Agreement,
(i) there are no outstanding options, warrants, scrip, rights to subscribe to,
calls or commitments of any character whatsoever relating to, or securities or
rights convertible into or exercisable or exchangeable for, any shares of
capital stock of the Company or any of its subsidiaries, or arrangements by
which the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries,
and (ii) there are no agreements or arrangements under which the Company or any
of its subsidiaries is obligated to register the sale of any of its or their
securities under the Securities Act (except the Registration Rights Agreement).
Except as set forth on SCHEDULE 3(D), (i) there are no securities or
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instruments containing antidilution or similar provisions that will be triggered
by the issuance of the Securities in accordance with the terms of this
Agreement, the Certificate of Designation or the Warrants, (ii) there are no
outstanding securities or instruments of the Company or any of its subsidiaries
which contain any redemption or similar provisions, and there are no contracts,
commitments, understandings or arrangements by which the Company or any of its
subsidiaries is or may become bound to redeem a security of the Company or any
of its subsidiaries, and (iii) the Company does not have any stock appreciation
rights or "phantom stock" plans or agreements or any similar plan or agreement.
The Company has furnished to the Purchasers true and correct copies of the
Company's Certificate of Incorporation as in effect on the date hereof
("CERTIFICATE OF INCORPORATION"), the Company's By-laws as in effect on the date
hereof (the "BY-LAWS"), and all other instruments and agreements governing
securities convertible into or exercisable or exchangeable for capital stock of
the Company. The Certificate of Designation, in the form attached hereto, will
be duly filed prior to Closing with the Secretary of State of the State of
Delaware and, upon the issuance of the Preferred Shares in accordance with the
terms hereof, each Purchaser shall be entitled to the rights set forth therein.
(e) ISSUANCE OF SHARES. The Preferred Shares are duly authorized and,
upon issuance in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and free from all taxes, liens, claims
and encumbrances and will not be subject to preemptive rights or other similar
rights of stockholders of the Company and will not impose personal liability on
the holders thereof. The Conversion Shares and Warrant Shares are duly
authorized and, in accordance with the Certificate of Designation, reserved for
issuance, and, upon conversion of the Preferred Shares and exercise of the
Warrants in accordance with the terms thereof, will be validly issued, fully
paid and non-assessable, and free from all taxes, liens, claims and encumbrances
and will not be subject to preemptive rights or other similar rights of
stockholders of the Company and will not impose personal liability upon the
holder thereof.
(f) NO CONFLICTS. The execution, delivery and performance of this
Agreement, the Warrants and the Registration Rights Agreement by the Company,
the performance by the Company of its obligations under the Certificate of
Designation, and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the issuance and
reservation for issuance, as applicable, of the Preferred Shares, Warrants,
Conversion Shares and Warrant Shares) will not (i) result in a violation of the
Certificate of Incorporation or By-laws or (ii) conflict with, or constitute a
default (or an event which, with notice or lapse of time or both, would become a
default) under, or give to others any rights of termination, amendment
(including, without limitation, the triggering of any anti-dilution provisions),
acceleration or cancellation of, any agreement, indenture or instrument to which
the Company or any of its subsidiaries is a party, or result in a violation of
any law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations and rules or regulations of any
self-regulatory organizations to which either the Company or its securities are
subject) applicable to the Company or any of its subsidiaries or by which any
property or asset of the Company or any of its subsidiaries is bound or affected
(except, with respect to clause (ii), for such conflicts, defaults,
terminations, amendments, accelerations, cancellations and violations that would
not, individually or in the aggregate, have a
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Material Adverse Effect). Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation, By-laws or other organizational
documents and neither the Company nor any of its subsidiaries is in default (and
no event has occurred which, with notice or lapse of time or both, would put the
Company or any of its subsidiaries in default) under, nor has there occurred any
event giving others (with notice or lapse of time or both) any rights of
termination, amendment, acceleration or cancellation of, any agreement,
indenture or instrument to which the Company or any of its subsidiaries is a
party, except for actual or possible violations, defaults or rights that would
not, individually or in the aggregate, have a Material Adverse Effect. The
businesses of the Company and its subsidiaries are not being conducted, and
shall not be conducted so long as a Purchaser owns any of the Securities, in
violation of any law, ordinance or regulation of any governmental entity, except
for possible violations the sanctions for which either singly or in the
aggregate would not have a Material Adverse Effect. Except as specifically
contemplated by this Agreement and the Registration Rights Agreement, the
Company is not required to obtain any consent, approval, authorization or order
of, or make any filing or registration with, any court or governmental agency or
any regulatory or self regulatory agency in order for it to execute, deliver or
perform any of its obligations under this Agreement, the Warrants or the
Registration Rights Agreement or to perform its obligations under the
Certificate of Designation, in each case in accordance with the terms hereof or
thereof. Except as set forth on SCHEDULE 3(F), the Company is not in violation
of the listing requirements of the NASDAQ SmallCap Market and does not
reasonably anticipate that the Common Stock will be delisted by NASDAQ for the
foreseeable future.
(g) SEC DOCUMENTS, FINANCIAL STATEMENTS. Since December 31, 1995, the
Company has timely filed (within applicable extension periods) all reports,
schedules, forms, statements and other documents required to be filed by it with
the SEC pursuant to the reporting requirements of the Securities Exchange Act of
1934, as amended (the "EXCHANGE ACT") (all of the foregoing and all exhibits
included therein and financial statements and schedules thereto and documents
incorporated by reference therein being hereinafter referred to herein as the
"SEC DOCUMENTS"). The Company has delivered to the Purchasers true and complete
copies of the SEC Documents. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act or
the Securities Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. None of the
statements made in any such SEC Documents is, or has been, required to be
amended or updated under applicable law (except for such statements as have been
amended or updated in subsequent filings made prior to the date hereof). As of
their respective dates, the financial statements of the Company included in the
SEC Documents complied as to form in all material respects with applicable
accounting requirements and the published rules and regulations of the SEC
applicable with respect thereto. Such financial statements have been prepared in
accordance with U.S. generally accepted accounting principles ("GAAP"),
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may not include
footnotes or may be condensed or
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summary statements) and fairly present in all material respects the consolidated
financial position of the Company and its consolidated subsidiaries as of the
dates thereof and the consolidated results of their operations and cash flows
for the periods then ended (subject, in the case of unaudited statements, to
immaterial year-end audit adjustments). Except as set forth in the financial
statements of the Company included in the SEC Documents filed prior to the date
hereof, the Company has no liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent to the date
of such financial statements, (ii) liabilities not required by GAAP to be
disclosed on a balance sheet prepared in accordance with GAAP, and (iii)
obligations under contracts and commitments incurred in the ordinary course of
business and not required under GAAP to be reflected in such financial
statements, which liabilities and obligations referred to in clauses (i), (ii)
and (iii), individually or in the aggregate, are not material to the financial
condition or operating results of the Company. Neither the Company nor any of
its subsidiaries or any of their officers, directors, employees or agents have
provided the Purchasers with any material, nonpublic information.
(h) ABSENCE OF CERTAIN CHANGES. Since December 31, 1997, there has
been no material adverse change and no material adverse development in the
business, properties, operations, prospects, financial condition or results of
operations of the Company and its subsidiaries, taken as a whole, except as
disclosed in SCHEDULE 3(H) or in the SEC Documents filed prior to the date
hereof.
(i) ABSENCE OF LITIGATION. Except as set forth on SCHEDULE 3(I) and
as expressly disclosed in the SEC Documents filed prior to the date hereof,
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 or any of its subsidiaries,
threatened against or affecting the Company, any of its subsidiaries, or any of
their respective directors or officers in their capacities as such. There are no
facts which, if known by a potential claimant or governmental authority, could
give rise to a claim or proceeding which, if asserted or conducted with results
unfavorable to the Company or any of its subsidiaries, could reasonably be
expected to have a Material Adverse Effect.
(j) INTELLECTUAL PROPERTY. Each of the Company and its subsidiaries
owns or is licensed to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, permits, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures) and other similar rights and proprietary knowledge (collectively,
"INTANGIBLES") necessary for the conduct of its business as now being conducted
and as described in the Company's Annual Report on Form 10-KSB for the fiscal
year ended December 31, 1997. To the best knowledge of the Company, neither the
Company nor any subsidiary of the Company infringes or is in conflict with any
right of any other person with respect to any Intangibles which, individually or
in the aggregate, if the subject of an unfavorable decision, ruling or finding,
would have a Material Adverse Effect. Neither the Company nor any of its
subsidiaries has received written notice of any pending conflict with or
infringement upon such third party Intangibles, which alleged pending conflict
or alleged infringement, if adversely determined, would result in a Material
Adverse Effect. Except as
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disclosed in the SEC Documents filed prior to the date hereof, the termination
of the Company's ownership of, or right to use, any single Intangible would not
result in a Material Adverse Effect on the Company. Neither the Company nor any
of its subsidiaries has entered into any consent agreement, indemnification
agreement, forbearance to sue or settlement agreement with respect to the
validity of the Company's or its subsidiaries' ownership or right to use its
Intangibles and, to the best knowledge of the Company, there is no reasonable
basis for any such claim to be successful. The Intangibles are valid and
enforceable and no registration relating thereto has lapsed, expired or been
abandoned or canceled or is the subject of cancellation or other adversarial
proceedings, and all applications therefor are pending and in good standing. The
Company and its subsidiaries have complied, in all material respects, with their
respective contractual obligations relating to the protection of the Intangibles
used pursuant to licenses. To the best knowledge of the Company, no person is
infringing on or violating the Intangibles owned or used by the Company or its
subsidiaries.
(k) FOREIGN CORRUPT PRACTICES. Neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political activity; made any direct or indirect unlawful payment to any foreign
or domestic government official or employee from corporate funds; violated or is
in violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977;
or made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.
(l) DISCLOSURE. All information relating to or concerning the Company
set forth in this Agreement or provided to the Purchasers pursuant to Section
2(d) hereof or otherwise in connection with the transactions contemplated hereby
is true and correct in all material respects and the Company has not omitted to
state any material fact necessary in order to make the statements made herein or
therein, in light of the circumstances under which they were made, not
misleading. No event or circumstance has occurred or exists with respect to the
Company or its subsidiaries or their respective businesses, properties,
prospects, operations or financial conditions, which has not been publicly
disclosed but, under applicable law, rule or regulation, would be required to be
disclosed by the Company in a registration statement filed on the date hereof by
the Company under the Securities Act with respect to the primary issuance of the
Company's securities.
(m) ACKNOWLEDGMENT REGARDING PURCHASERS' PURCHASE OF THE UNITS. The
Company acknowledges and agrees that none of the Purchasers or the Placement
Agent is acting as a financial advisor or fiduciary of the Company (or in any
similar capacity) with respect to this Agreement or the transactions
contemplated hereby, the relationship between the Company and the Purchasers and
the Placement Agent is "arms-length" and any statement made by any Purchaser or
the Placement Agent or any of their respective representatives or agents in
connection with this Agreement and the transactions contemplated hereby is not
advice or a recommendation and is merely incidental to such Purchaser's purchase
of Securities or such Placement Agent's role as a placement agent and has not
been relied upon by the Company, its officers or its directors in any way. The
Company further
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acknowledges that the Company's decision to enter into this Agreement has been
based solely on an independent evaluation by the Company and its
representatives.
(n) FORM S-3 ELIGIBILITY. The Company is currently eligible to
register the resale of its Common Stock on a registration statement on Form S-3
under the Securities Act. There exist no facts or circumstances that would
prohibit or delay the preparation and filing of a registration statement on Form
S-3 with respect to the Registrable Securities (as defined in the Registration
Rights Agreement).
(o) NO GENERAL SOLICITATION. Neither the Company nor any distributor
participating on the Company's behalf in the transactions contemplated hereby
(if any) nor any person acting for the Company, or any such distributor, has
conducted any "general solicitation," as such term is defined in Regulation D,
with respect to any of the Securities being offered hereby.
(p) NO INTEGRATED OFFERING. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would require registration of the
Securities being offered hereby under the Securities Act or cause this offering
of Securities to be integrated with any prior offering of securities of the
Company for purposes of the Securities Act or any applicable stockholder
approval provisions.
(q) NO BROKERS. The Company has taken no action which would give rise
to any claim by any person for brokerage commissions, finder's fees or similar
payments by any Purchaser relating to this Agreement or the transactions
contemplated hereby, except for The Zanett Securities Corporation.
(r) ACKNOWLEDGMENT OF DILUTION. The number of Conversion Shares
issuable upon conversion of the Preferred Shares may increase in certain
circumstances, including if the trading price of the Common Stock declines. The
Company's executive officers have studied and fully understand the nature of the
Securities being sold hereunder. The Company acknowledges that its obligation to
issue Conversion Shares upon conversion of the Preferred Shares in accordance
with the Certificate of Designation is absolute and unconditional, regardless of
the dilution that such issuance may have on the ownership interests of other
stockholders. Taking the foregoing into account, the Company's Board of
Directors has determined in its good faith business judgment that the issuance
of the Preferred Shares and Warrants hereunder and the consummation of the other
transactions contemplated hereby are in the best interests of the Company and
its stockholders.
(s) TITLE. The Company and its subsidiaries have good and marketable
title in fee simple to all real property and good and merchantable title to all
personal property owned by them that is material to the business of the Company
and its subsidiaries, in each case free and clear of all liens, encumbrances and
defects except such as are described in SCHEDULE 3(S) or such as do not
materially affect the value of such property and do not materially interfere
with the use made and proposed to be made of such property by the Company and
its subsidiaries. Any real property and facilities
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held under lease by the Company and its subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not materially interfere with the use made and proposed to be
made of such property and buildings by the Company and its subsidiaries.
(t) TAX STATUS. Except as set forth on SCHEDULE 3(T), the Company and
each of its subsidiaries has made or filed all foreign, federal, state and local
income and all other tax returns, reports and declarations required by any
jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and has set aside on
its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. Except as set forth on SCHEDULE 3(T), there are no unpaid taxes in any
material amount claimed to be due by the taxing authority of any jurisdiction,
and the officers of the Company know of no basis for any such claim. The Company
has not executed a waiver with respect to any statute of limitations relating to
the assessment or collection of any federal, state or local tax. Except as set
forth on SCHEDULE 3(T), none of the Company's tax returns is presently being
audited by any taxing authority.
(u) ENVIRONMENTAL LAWS. The Company and each of its subsidiaries (i)
are in compliance with any and all applicable foreign, federal, state and local
laws and regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants ("ENVIRONMENTAL LAWS"), (ii) have received all permits, licenses or
other approvals required of them under applicable Environmental Laws to conduct
their respective businesses and (iii) are in compliance with all terms and
conditions of any such permit, license or approval. No contaminant, pollutant or
toxic or hazardous waste has been generated, used, treated, stored or disposed
of at, or transported to or from, or released into the air, soil, surface or
ground waters at, on or under any real property at any time owned, leased,
operated or used by the Company. The Company is not currently involved in and no
person or entity has taken any action or threatened or proposed to involve the
Company in any environmental clean-up or remediation or sought to expose the
Company to contribution or liability for such remediation.
(v) REGULATORY PERMITS. The Company and each of its subsidiaries
possess all certificates, authorizations and permits issued by the appropriate
federal, state or foreign regulatory authorities necessary to conduct their
respective businesses, and neither the Company nor any such subsidiary has
received any notice of proceedings relating to the revocation or modification of
any such certificate, authorization or permit.
(w) NO OTHER AGREEMENTS. The Company has not, directly or indirectly,
made any agreements with any Purchasers relating to the terms or conditions of
the transactions contemplated by this Agreement, the Certificate of Designation,
the Registration Rights Agreement and the Warrants except as set forth in such
documents.
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4. COVENANTS.
(a) BEST EFFORTS. The parties shall use their best efforts timely to
satisfy each of the conditions described in Section 6 and Section 7 of this
Agreement.
(b) FORM D: BLUE SKY LAWS. The Company shall file with the SEC a Form
D with respect to the Securities as required under Regulation D and to provide a
copy thereof to each Purchaser promptly after such filing. The Company shall, on
or before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Purchasers
pursuant to this Agreement under applicable securities or "blue sky" laws of the
states of the United States or obtain exemption therefrom, and shall provide
evidence of any such action so taken to the Purchasers on or prior to the
Closing Date.
(c) REPORTING STATUS. So long as any Purchaser beneficially owns any
of the Securities, the Company shall timely file all reports required to be
filed with the SEC pursuant to the Exchange Act, and the Company shall not
terminate its status as an issuer required to file reports under the Exchange
Act even if the Exchange Act or the rules and regulations thereunder would
permit such termination. In addition, the Company shall take all actions
necessary to continue to be eligible to register the resale of its Common Stock
on a registration statement on Form S-3 under the Securities Act.
(d) USE OF PROCEEDS. The Company shall use the proceeds from the sale
of the Preferred Shares and Warrants as set forth in SCHEDULE 4(D).
(e) EXPENSES. Except as otherwise provided herein, in the Placement
Agency Agreement and in the Registration Rights Agreement, each party hereto
shall be responsible for its own expenses incurred in connection with the
negotiation, preparation, execution, delivery and performance of this Agreement
and the other agreements to be executed in connection herewith.
(f) FINANCIAL INFORMATION. The Company shall send the following
reports to each Purchaser until such Purchaser transfers, assigns or sells all
of its Securities: (i) within 10 days after the filing with the SEC, a copy of
its Annual Report on Form 10-KSB, its Quarterly Reports on Form 10-QSB, its
proxy statements and any Current Reports on Form 8-K; (ii) within one day after
release, copies of all press releases issued by the Company or any of its
subsidiaries; and (iii) copies of any notices and other information made
available or given to shareholders of the Company generally, contemporaneously
with making available or giving thereof to such shareholders.
(g) RESERVATION OF SHARES. The Company shall at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of Common Stock to provide for the full conversion of the outstanding
Preferred Shares and issuance of the Conversion Shares in connection therewith
and the full exercise of the Warrants and the issuance of the Warrant Shares in
connection therewith, subject to and as otherwise required by the Certificate of
Designation and the Warrants.
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(h) LISTING. The Company shall promptly secure the listing of the
Conversion Shares and Warrant Shares upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and shall maintain, so long as
any Purchaser (or any of their affiliates) own any Securities, such listing of
all Conversion Shares and Warrant Shares from time to time issuable upon
conversion of the Preferred Shares and exercise of the Warrants. The Company
will use its best efforts to continue the listing and trading of its Common
Stock on the NASDAQ Small Cap Market ("NSCM"), the NASDAQ National Market
("NNM"), the New York Stock Exchange ("NYSE") or the American Stock Exchange
("AMEX") and will comply in all respects with the reporting, filing and other
obligations under the bylaws or rules of the NSCM, NNM, NYSE or AMEX as
applicable. The Company shall promptly provide to each holder of Preferred
Shares or Warrants copies of any notices it receives regarding the continued
eligibility of the Common Stock for trading on the NSCM or, if applicable, any
other securities exchange or automated quotation system on which securities of
the same class or series issued by the Company are then listed or quoted, if
any.
(i) CORPORATE EXISTENCE. So long as a Purchaser beneficially owns any
Securities, the Company shall maintain its corporate existence, and in the event
of a merger, consolidation or sale of all or substantially all of the Company's
assets, the Company shall ensure that the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
Certificate of Designation, the Warrants (except as otherwise provided therein)
and the agreements and instruments entered into in connection herewith
regardless of whether or not the Company would have had a sufficient number of
shares of Common Stock authorized and available for issuance in order to effect
the conversion of all Preferred Shares and exercise in full of all Warrants
outstanding as of the date of such transaction and (ii) is a publicly traded
corporation whose common stock is listed for trading on the NSCM, NNM, NYSE or
AMEX. Notwithstanding the foregoing, the Company covenants and agrees that it
will not engage in any merger, consolidation or sale of all or substantially all
of its assets at any time prior to the effectiveness of the registration
statement required to be filed pursuant to the Registration Rights Agreement
without (A) providing each Purchaser with written notice of such transaction at
least 60 days prior to the consummation of such transaction, (B) obtaining the
written consent of the Purchasers holding a majority-in-interest of the then
outstanding Preferred Shares on or before the 10th day after the delivery of
such notice by the Company, and (C) publicly announcing such transaction.
(j) NO INTEGRATED OFFERINGS. The Company shall not make any offers or
sales of any security (other than pursuant to this Agreement and the
Registration Rights Agreement) under circumstances that would require
registration of the Securities being offered or sold hereunder under the
Securities Act or cause the offering of the Securities to be integrated with any
other offering of securities by the Company for purposes of any stockholder
approval provision applicable to the Company or its securities.
(k) LEGAL COMPLIANCE. The Company shall conduct its business and the
business of its subsidiaries in compliance with all laws, ordinances or
regulations of governmental entities
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applicable to such businesses, except where the failure to do so would not have
a Material Adverse Effect.
(l) FILING OF FORM 8-K. On or before the fifth (5th) business day
following the Closing Date, the Company shall file a Current Report on Form 8-K
with the SEC describing the terms of the transactions contemplated by this
Agreement, the Certificate of Designation, the Registration Rights Agreement and
the Warrants in the form required by the Exchange Act.
(m) CAPITAL AND SURPLUS; SPECIAL RESERVES. The amount to be
represented in the capital account for the Series A Preferred Stock at all times
for each outstanding share of Series A Preferred Stock shall be an amount equal
to the Redemption Amount therefor.
(n) NO MANIPULATION. So long as a Purchaser beneficially owns any
Preferred Shares, neither the Purchaser nor any person acting on behalf of such
Purchaser shall take any action intended to decrease the trading price of the
Company's Common Stock during any period in which the Conversion Price (as
defined in the Certificate of Designation) is being computed for purposes of any
conversion of Preferred Shares under the Certificate of Designation.
Notwithstanding the foregoing, the provisions of this subsection (n) shall not
prohibit a sale by a Purchaser of shares of Common Stock effected on the date on
which a notice of conversion of Preferred Shares is delivered to the Company
entitling such Purchaser to receive a number of shares of Common Stock at least
equal to the number of shares so sold.
(o) NO FIVE PERCENT HOLDERS. As more fully provided in the
Certificate of Designation and subject to the terms and limitations provided in
the Certificate of Designation, a holder of the Preferred Shares shall not be
entitled to receive shares of Common Stock upon conversion where receipt of such
Common Stock would result in such holder of Preferred Shares beneficially owning
more than 4.99% of the Company's outstanding Common Stock.
(p) ADDITIONAL EQUITY CAPITAL; RIGHT OF FIRST OFFER. The Company
agrees from the date of this Agreement until the earlier of (i) five (5) years
from the date of this Agreement or (ii) such time as the Purchasers no longer
own any Preferred Shares or Common Stock (the "LOCK-UP PERIOD"), the Company
will not, without the prior written consent of Purchasers (or their designated
agents) holding at least a majority-in-interest of the then outstanding
Preferred Shares, which consent shall not be unreasonably withheld, contract
with any party to obtain additional equity financing (including any debt
financing with an equity component) (as defined below) ("FUTURE OFFERINGS"). For
purposes of determining the majority-in-interest under this subsection (p), the
holders of outstanding Conversion Shares shall be deemed to hold the number of
Preferred Shares that were converted to such Conversion Shares. In addition, the
Company will not conduct any Future Offering during the Lock-Up Period, unless
it shall have first delivered to each Purchaser at least ten (10) business days
prior to the closing of such Future Offering, written notice describing the
proposed Future Offering, including the terms and conditions thereof, and
providing each Purchaser and its affiliates, an option during the ten (10)
business day period following delivery of such notice to purchase up to the
Applicable Portion (as defined below) of the securities being offered in the
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<PAGE>
Future Offering on the same terms as contemplated by such Future Offering (the
limitations referred to in this and the immediately preceding sentence are
collectively referred to as the "Capital Raising Limitations"). The Capital
Raising Limitations shall not apply to any transaction involving issuances of
securities as consideration in a merger, consolidation or acquisition of assets,
or in connection with any strategic partnership or joint venture (the primary
purpose of which is not to raise equity capital), or as consideration for the
acquisition of a business, product or license by the Company. The Capital
Raising Limitations also shall not apply to (i) the issuance of securities
pursuant to an underwritten public offering, (ii) the issuance of securities
upon exercise or conversion of the Company's options, warrants or other
convertible securities outstanding as of the date hereof, or (iii) the grant of
additional options or warrants, or the issuance of additional securities, under
any Company stock option, bonus plan or restricted stock plan for the benefit of
the Company's employees, consultants or directors pursuant to plans approved by
a majority of the Board of Directors who are not officers of the Company or a
majority of the Board's compensation committee, if any. The "APPLICABLE PORTION"
shall mean a fraction, the numerator of which is the number of Units purchased
by such Purchaser hereunder and the denominator of which is the total number of
Units purchased by all of the Purchasers hereunder.
(q) STOCKHOLDER APPROVAL. The Company shall hold an annual or special
meeting of its stockholders as soon as practicable, but in no event later than
one hundred and twenty (120) days after the date hereof and use its best effort
to obtain at such meeting such approvals of the Company's stockholders as may be
required to issue all of the shares of Common Stock issuable upon full
conversion of, or as dividends on or otherwise with respect to, the Preferred
Shares (issuable at the First Closing and the Second Closing, if any, hereunder)
and the full exercise of, or otherwise with respect to, the Warrants (issuable
at the First Closing and the Second Closing, if any, hereunder) without
violating NASD Rules 4310(c)(25)(H) or 4460(i) (or any successor rules thereto
which may then be in effect) (the "STOCKHOLDER APPROVAL"). The Company shall
comply with the filing and disclosure requirements of Section 14 promulgated
under the Exchange Act in connection with the solicitation, acquisition and
disclosure of such Stockholder Approval. The Company represents and warrants
that Gerard Semhon, the Company's Chief Executive Officer, has agreed to vote
all of the shares of Common Stock which he beneficially owns in favor of the
Stockholder Approval proposal.
5. TRANSFER AGENT INSTRUCTIONS.
(a) The Company shall instruct its transfer agent to issue
certificates, registered in the name of each Purchaser or its nominee, for the
Conversion Shares and the Warrant Shares in such amounts as specified from time
to time by such Purchaser to the Company upon conversion of the Preferred Shares
or exercise of the Warrants, as applicable.
(b) The Company warrants that no instruction other than such
instructions referred to in this Section 5, and stop transfer instructions to
give effect to Section 2(f) hereof in the case of the transfer of the Conversion
Shares or Warrant Shares prior to registration of the Conversion Shares and
Warrant Shares under the Securities Act or without an exemption therefrom, will
be given by
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<PAGE>
the Company to its transfer agent and that the Securities shall otherwise be
freely transferable on the books and records of the Company as and to the extent
provided in this Agreement and the Registration Rights Agreement. Nothing in
this Section shall affect in any way each Purchaser's obligations and agreement
set forth in Section 2(g) hereof to resell the Securities pursuant to an
effective registration statement or under an exemption from the registration
requirements of applicable securities law.
(c) If a Purchaser provides the Company and the transfer agent with
an opinion of counsel, which opinion of counsel shall be in form, substance and
scope customary for opinions of counsel in comparable transactions, to the
effect that the Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from registration, or a Purchaser provides the Company
with reasonable assurances that such Securities may be sold under Rule 144, the
Company shall permit the transfer and, in the case of the Conversion Shares and
Warrant Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by such
Purchaser.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
-----------------------------------------------
The obligation of the Company hereunder to issue and sell the Units
to a Purchaser at the Closing is subject to the satisfaction, at or before the
Closing, of each of the following conditions, provided that such conditions are
for the Company's sole benefit and may be waived by the Company at any time in
its sole discretion by providing prior written notice to each Purchaser. The
obligation of the Company to issue and sell the Units to any Purchaser hereunder
is distinct and separate from its obligation to issue and sell Units to any
other Purchaser hereunder and any failure by one or more Purchasers to fulfill
the conditions set forth herein or to consummate the purchase of Units hereunder
will not relieve the Company of its obligations with respect to any other
Purchaser.
(a) The applicable Purchaser shall have executed this Agreement and
the Registration Rights Agreement, and delivered executed copies to the Company.
(b) The applicable Purchaser shall have delivered the Purchase Price
for the Units in accordance with Section 1(b) above.
(c) The representations and warranties of the applicable Purchaser
shall be true and correct as of the date when made and as of the date and time
of such closing as though made at that time (except for representations and
warranties that relate to a different date, which shall be true and correct as
of such date), and the applicable Purchaser shall have performed, satisfied and
complied in all material respects with the covenants, agreements and conditions
required by this Agreement to be performed, satisfied or complied with by the
applicable Purchaser at or prior to the Closing Date.
(d) No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by any court or governmental authority
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<PAGE>
of competent jurisdiction or any self-regulatory organization having authority
over the matters contemplated hereby that prohibits the consummation of any of
the transactions contemplated by this Agreement.
(e) In the case of the First Closing, this Agreement shall have been
executed by Purchasers that are obligated to purchase an aggregate of at least
1,500 Units and such Purchasers shall have delivered the Purchase Price therefor
in accordance with Section 1(b) hereof. In the case of the Second Closing, the
Purchasers shall have elected, in their sole discretion, to purchase an
additional 3,000 Units and such Purchasers shall have delivered the Purchase
Price therefor in accordance with Section 1(b) hereof.
7. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE.
------------------------------------------------------
The obligation of each Purchaser hereunder to purchase the Units to
be purchased by it at the Closing is subject to the satisfaction, at or before
the Closing Date, of each of the following conditions, provided that such
conditions are for such Purchaser's sole benefit and may be waived by such
Purchaser at any time in such Purchaser's sole discretion:
(a) The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered executed copies to such Purchaser.
(b) The Certificate of Designation shall have been accepted for
filing with the Secretary of State of the State of Delaware and a copy thereof
certified by the Secretary of State of the State of Delaware shall have been
delivered to such Purchaser.
(c) The Company shall have delivered to such Purchaser duly executed
certificates and Warrant agreements (each in such denominations as such
Purchaser shall request) representing the Preferred Shares and Warrants being so
purchased by such Purchaser in accordance with Section 1(b) above.
(d) The Common Stock shall be authorized for quotation and listed on
the NSCM and trading in the Common Stock (or the NSCM generally) shall not have
been suspended by the SEC or the NSCM and a listing application for the
inclusion of the Conversion Shares and Warrant Shares on the NSCM shall have
been filed.
(e) The representations and warranties of the Company shall be true
and correct as of the date when made and as of the Closing Date as though made
at that time (except for representations and warranties that relate to a
different date, which shall be true and correct as of such date) and the Company
shall have performed, satisfied and complied with the covenants, agreements and
conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Closing Date. Such Purchaser shall have
received a certificate, executed by the Chief Executive Officer of the Company,
dated as of the Closing Date to the foregoing effect and as to such other
matters as such Purchaser may reasonably request.
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<PAGE>
(f) No litigation, statute, rule, regulation, executive order,
decree, ruling, injunction, action or proceeding shall have been enacted,
entered, promulgated or endorsed by any court or governmental authority of
competent jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby that questions the validity of, or challenges or
prohibits the consummation of, any of the transactions contemplated by this
Agreement.
(g) Such Purchaser shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Purchaser and in substantially the form of EXHIBIT D
attached hereto.
(h) The Company shall have delivered evidence reasonably satisfactory
to the Purchasers that the Company's transfer agent has agreed to act in
accordance with irrevocable instructions in the form attached hereto as EXHIBIT
E.
(i) There shall have been no material adverse changes and no material
adverse developments in the business, properties, operations, prospects,
financial condition or results of operations of the Company and its
subsidiaries, taken as a whole, since the date hereof, and no information, of
which the Purchasers are not currently aware, shall come to the attention of the
Purchasers that is materially adverse to the Company.
(j) The aggregate number of Units being purchased hereunder by all
Purchasers at the First Closing shall be 1,500 Units.
(k) The Board of Directors of the Company shall have adopted
resolutions consistent with Section 3(b)(ii) above and in a form reasonably
acceptable to such Purchaser.
(l) The Company shall have delivered to such Purchaser a certificate
evidencing the incorporation and good standing of the Company and each of its
subsidiaries in such corporation's state of incorporation issued by the
Secretary of State of such state of incorporation as of a date within ten days
of the Closing Date.
(m) The Company shall have delivered to such Purchaser a certified
copy of the Articles of Incorporation as certified by the Secretary of State of
the State of Delaware within ten days of the Closing Date.
(n) The Company shall have delivered to such Purchaser a secretary's
certificate, dated as of the Closing Date, as to (i) the resolutions described
in Section 7(k), (ii) the Certificate of Incorporation and (iii) the Bylaws,
each as in effect at the Closing.
(o) In the case of the Second Closing, the Purchasers shall have
elected, in their sole discretion, to conduct such Second Closing.
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<PAGE>
8. GOVERNING LAW; MISCELLANEOUS.
-----------------------------
(a) GOVERNING LAW; JURISDICTION. This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware without
regard to principles of choice of law or conflicts of laws that would defer to
the substantive law of another jurisdiction. The Company irrevocably consents to
the jurisdiction of the United States federal courts and the state courts
located in the State of Delaware, in any suit or proceeding based on or arising
under this Agreement and irrevocably agrees that any and all claims arising out
of this Agreement or related to the transactions contemplated by this Agreement
shall be determined exclusively in such courts. The Company irrevocably waives
the defense of an inconvenient forum to the maintenance of such suit or
proceeding. The Company further agrees that service of process mailed by first
class mail shall be deemed in every respect effective service of process in any
such suit or proceeding. Nothing herein shall affect the right of any Purchaser
to serve process in any other manner permitted by law. The Company agrees that a
final non-appealable judgment in any such suit or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on such judgment or in any
other lawful manner.
(b) COUNTERPARTS. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
(c) HEADINGS. The headings of this Agreement are for convenience of
reference and shall not form part of, or affect the interpretation of, this
Agreement.
(d) SEVERABILITY. If any provision of this Agreement shall be invalid
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement or
the validity or enforceability of this Agreement in any other jurisdiction.
(e) ENTIRE AGREEMENT; AMENDMENTS. This Agreement and the instruments
referenced herein contain the entire understanding of the Purchasers, the
Company, their affiliates and persons acting on their behalf with respect to the
matters covered herein and therein and, except as specifically set forth herein
or therein, neither the Company nor any Purchaser makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived other than by an instrument in writing signed by
the party to be charged with enforcement and no provision of this Agreement may
be amended other than by an instrument in writing signed by the Company and each
Purchaser.
(f) NOTICES. Any notices required or permitted to be given under the
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier or by confirmed
facsimile, and shall be effective upon receipt or refusal
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<PAGE>
of receipt, if delivered personally or by courier or confirmed facsimile, in
each case addressed to a party. The addresses for such communications shall be:
If to the Company:
Azurel Ltd.
509 Madison Avenue
New York, New York 10022
Facsimile: (212) 317-0713
Attn: Chief Financial Officer
With a copy to:
Gersten, Savage, Kaplowitz & Fredericks, LLP
101 East 52nd Street
New York, New York 10022
Facsimile: (212) 980-5192
Attn: Jay M. Kaplowitz
If to any Purchaser, to such address set forth under such Purchaser's
name on the Execution Page hereto executed by such Purchaser.
Each party shall provide notice to the other parties of any change in
address.
(g) SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and assigns. Except as
provided herein or therein, the Company shall not assign this Agreement, the
Registration Rights Agreement or the Warrants or any rights or obligations
hereunder or thereunder.
(h) THIRD PARTY BENEFICIARIES. This Agreement is intended for the
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person, except for the provisions of Section 2(j) and Section 3(m)
which are for the benefit of, and may be enforced by, the Placement Agent.
(i) SURVIVAL. The representations, warranties, agreements and
covenants of the Company set forth in Sections 3, 4, 5 and 8 hereof shall
survive the Closing notwithstanding any investigation conducted by or on behalf
of any Purchasers. None of the representations and warranties made by the
Company herein shall act as a waiver of any rights or remedies a Purchaser may
have under applicable federal or state securities laws. The Company shall
indemnify and hold harmless each Purchaser and each of such Purchaser's
officers, directors, employees, partners, members, agents and affiliates for all
losses or damages arising as a result of or related to any breach or alleged
breach by the Company of any of its representations or covenants set forth
herein, including advancement of reasonable expenses as they are incurred.
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<PAGE>
(j) PUBLICITY. The Company and each Purchaser shall have the right to
review before issuance any press releases, SEC or NASDAQ filings, or any other
public statements with respect to the transactions contemplated hereby;
PROVIDED, HOWEVER, that the Company shall be entitled, without the prior review
of the Purchasers, to make any press release or SEC or NASDAQ filings with
respect to such transactions as is required by applicable law and regulations
(although the Purchasers shall be consulted by the Company in connection with
any such press release and filing prior to its release and shall be provided
with a copy thereof).
(k) FURTHER ASSURANCES. Each party shall do and perform, or cause to
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
(l) TERMINATION. In the event that the Closing shall not have
occurred on or before August 19, 1998, unless the parties agree otherwise, this
Agreement shall terminate at midnight, New York City time on such date.
Notwithstanding any termination of this Agreement, any party not in breach of
this Agreement shall preserve all rights and remedies it may have against
another party hereto for a breach of this Agreement prior to or relating to the
termination hereof.
(m) JOINT PARTICIPATION IN DRAFTING. Each party to this Agreement has
participated in the negotiation and drafting of this Agreement, the Certificate
of Designation, the Warrants and the Registration Rights Agreement. As such, the
language used herein and therein shall be deemed to be the language chosen by
the parties hereto to express their mutual intent, and no rule of strict
construction will be applied against any party to this Agreement.
(n) EQUITABLE RELIEF. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to a Purchaser by
vitiating the intent and purpose of the transactions contemplated hereby.
Accordingly, the Company acknowledges that the remedy at law for a breach of its
obligations hereunder (including, but not limited to, its obligations pursuant
to Section 5 hereof) will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement (including,
but not limited to, its obligations pursuant to Section 5 hereof), that a
Purchaser shall be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate issuance and transfer
of the Securities, without the necessity of showing economic loss and without
any bond or other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have
caused this Agreement to be duly executed as of the date first above written.
AZUREL LTD.
By: ________________________________
Name: ________________________________
Title:________________________________
PURCHASER:
ZANETT LOMBARDIER, LTD.
By:
Name: ________________________________
Title: ________________________________
RESIDENCE: Cayman Islands
ADDRESS:
c/o Bank Julius Baer Trust Co.
Kirk House, P. O. Box 1100
Grand Cayman, Cayman Islands
British West Indies
Telecopy: (345) 949-0993
Attention: Peter Goulden
with copies of all notices to:
The Zanett Securities Corporation
Tower 49, 31st Floor
12 East 49th Street
New York, New York 10017
Telecopy: (212) 343-2121
Attention: Claudio Guazzoni
SUBSCRIPTION AMOUNT
First Closing Second Closing
(Optional)
Number of Units 1,000 2,000
Purchase Price ($1,000 per Unit): $1,000,000 $2,000,000
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have
caused this Agreement to be duly executed as of the date first above written.
AZUREL LTD.
By: __________________________
Name: __________________________
Title:__________________________
PURCHASER:
GOLDMAN SACHS PERFORMANCE PARTNERS, L.P.
BY: COMMODITIES CORPORATION LLC, ITS GENERAL PARTNER
By: ________________________________
Name:
Title:
RESIDENCE: Delaware
ADDRESS: c/o Commodities Corporation LLC
701 Mount Lucas Road
CN 850
Princeton, NJ 08540
SUBSCRIPTION AMOUNT
First Closing Second Closing
(Optional)
Number of Units 276 552
Purchase Price ($1,000 per Unit): $276,000 $552,000
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have
caused this Agreement to be duly executed as of the date first above written.
AZUREL LTD.
By: __________________________
Name: __________________________
Title:__________________________
PURCHASER:
GOLDMAN SACHS PERFORMANCE PARTNERS (OFFSHORE), L.P.
BY: COMMODITIES CORPORATION LLC, ITS GENERAL PARTNER
By:
Name: __________________________
Title:__________________________
RESIDENCE: Cayman Islands
ADDRESS: P.O. Box 309
South Church Street
George Town, Grand Cayman
Cayman Islands
with copies of all notices to:
c/o Commodities Corporation LLC
701 Mount Lucas Road
CN 850
Princeton, NJ 08540
SUBSCRIPTION AMOUNT
First Closing Second Closing
(Optional)
Number of Units 224 448
Purchase Price ($1,000 per Unit): $224,000 $448,000
EXHIBIT 99.6
CERTIFICATE OF DESIGNATIONS,
PREFERENCES AND RIGHTS
OF
SERIES A CONVERTIBLE PREFERRED STOCK
OF
AZUREL LTD.
Pursuant to Section 151 of the
Delaware General Corporation Law
Azurel Ltd., a corporation organized and existing under the laws of
the State of Delaware (the "CORPORATION"), hereby certifies that the following
resolutions were adopted by the Board of Directors of the Corporation pursuant
to the authority of the Board of Directors as required by Section 151 of the
Delaware General Corporation Law.
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (the "BOARD OF DIRECTORS" or the "BOARD")
in accordance with the provisions of its Certificate of Incorporation and
Bylaws, each as amended through the date hereof, the Board of Directors hereby
authorizes a series of the Corporation's previously authorized Preferred Stock,
par value $.001 per share (the "PREFERRED STOCK"), and hereby states the
designation and number of shares, and fixes the relative rights, preferences,
privileges, powers and restrictions thereof as follows:
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 4,500 shares of
Preferred Stock, is the Series A Convertible Preferred Stock (the "SERIES A
PREFERRED STOCK") and the stated value shall be One Thousand U.S. Dollars
($1,000.00) per share (the "STATED VALUE").
II. NO DIVIDENDS
The Series A Preferred Stock will bear no dividends, and the holders
of the Series A Preferred Stock shall not be entitled to receive dividends on
the Series A Preferred Stock.
<PAGE>
III. CERTAIN DEFINITIONS
For purposes of this Certificate of Designation, the following terms
shall have the following meanings:
A. "CLOSING BID PRICE" means, for any security as of any date, the
closing bid price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets or a comparable reporting service of national reputation
selected by the Corporation and reasonably acceptable to holders of a majority
of the then outstanding shares of Series A Preferred Stock. If Bloomberg
Financial Markets is not then reporting closing bid prices of such security
(collectively, "BLOOMBERG"), or if the foregoing does not apply, the last
reported bid price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
bid price is reported for such security by Bloomberg, the average of the bid
prices of any market makers for such security as reported in the "pink sheets"
by the National Quotation Bureau, Inc. If the Closing Bid Price cannot be
calculated for such security on such date on any of the foregoing bases, the
Closing Bid Price of such security on such date shall be the fair market value
as reasonably determined by an investment banking firm selected by the
Corporation and reasonably acceptable to holders of a majority of the then
outstanding shares of Series A Preferred Stock, with the costs of such appraisal
to be borne by the Corporation.
B. "CONVERSION DATE" means, for any Conversion, the date on which the
notice of conversion in the form attached hereto (the "NOTICE OF CONVERSION") is
delivered by fax, as evidenced by a mechanically or electronically generated
confirmation thereof, (or delivered by other means resulting in notice) to the
Corporation on the Conversion Date indicated in the Notice of Conversion.
Notwithstanding the foregoing, if the Series A Preferred Stock is being
converted pursuant to the Required Conversion at Maturity (as defined below),
the Conversion Date shall be the Maturity Date (as defined below).
C. "CONVERSION PRICE" means the lower of the Fixed Conversion Price
and the Variable Conversion Price, each in effect as of such date and subject to
adjustment as provided herein.
D. "FIXED CONVERSION PRICE" means (i) with respect to the shares of
Series A Preferred Stock issued at the First Closing (as defined in the
Securities Purchase Agreement) or in exchange therefor, $2.00 and (ii) with
respect to the shares of Series A Preferred Stock issued at the Second Closing
(as defined in the Securities Purchase Agreement) or in exchange therefor, the
Variable Conversion Price in effect on the date of the Second Closing. .
E. "ISSUANCE DATE" means the date of the closing under the Securities
Purchase Agreement by and among the Corporation and the purchasers named therein
(the "SECURITIES PURCHASE AGREEMENT") with respect to the initial issuance of
the Series A Preferred Stock.
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<PAGE>
F. "N" means the number of days from, but excluding, the Issuance
Date.
G. "PREMIUM" means an amount equal to (P)x(N/365)x(1,000), where P
means:
IF THE CONVERSION DATE IS: THEN P IS:
Prior to the one year anniversary of 12%
the Issuance Date
On or after the one year anniversary of 14%
the Issuance Date and prior to
the two year anniversary of the Issuance Date
On or after the two year anniversary of 16%
the Issuance Date and prior to
the three year anniversary of the Issuance Date
On or after the three year anniversary of 18%
the Issuance Date and prior to the
four year anniversary of the Issuance Date
On or after the four year anniversary of the 20%
Issuance Date
H. "VARIABLE CONVERSION PRICE" means, as of any date of
determination, the amount obtained by multiplying 0.75 by the average of the
three lowest Closing Bid Prices for the Corporation's common stock, $.001 par
value per share (the "COMMON STOCK") during the 20 consecutive trading day
period ending on the trading day immediately preceding such date of
determination (subject to equitable adjustment for any stock splits, stock
dividends, reclassifications or similar events during such 20 trading day
period), and shall be subject to adjustment as provided herein.
IV. CONVERSION
A. CONVERSION AT THE OPTION OF THE HOLDER. Subject to the limitations
on conversions contained in Paragraph C of this Article IV and to the
Corporation's right of redemption contained in Article VIII.D, each holder of
shares of Series A Preferred Stock may, at any time and from time to time on or
after the Issuance Date, convert (an "OPTIONAL CONVERSION") each of its shares
of Series A Preferred Stock into a number of fully paid and nonassessable shares
of Common Stock
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<PAGE>
determined in accordance with the following formula:
1,000 + THE PREMIUM
----------------
CONVERSION PRICE
B. MECHANICS OF CONVERSION. In order to effect an Optional
Conversion, a holder shall: (x) fax (or otherwise deliver) a copy of the fully
executed Notice of Conversion to the Corporation or the transfer agent for the
Common Stock and (y) surrender or cause to be surrendered the original
certificates representing the Series A Preferred Stock being converted (the
"PREFERRED STOCK CERTIFICATES"), duly endorsed, along with a copy of the Notice
of Conversion as soon as practicable thereafter to the Corporation or the
transfer agent. Upon receipt by the Corporation of the Notice of Conversion by
fax from a holder, the Corporation shall, within one business day, send, via
fax, a confirmation (the "NOTICE OF CONVERSION CONFIRMATION") to such holder
stating that the Notice of Conversion has been received, the date upon which the
Corporation expects to deliver the Common Stock issuable upon such conversion
and the name and telephone number of a contact person at the Corporation
regarding the conversion. The Corporation shall not be obligated to issue shares
of Common Stock upon a conversion unless either the Preferred Stock Certificates
are delivered to the Corporation or the transfer agent as provided above, or the
holder notifies the Corporation or the transfer agent that such certificates
have been lost, stolen or destroyed and delivers the documentation to the
Corporation required by Article XIV.B hereof.
(i) DELIVERY OF COMMON STOCK UPON CONVERSION. Upon the surrender of
Preferred Stock Certificates from a holder of Series A Preferred Stock
accompanied by a Notice of Conversion, the Corporation shall, subject to the
Corporation's redemption rights set forth in Article VIII.D, no later than the
later of (a) the third business day following the Conversion Date and (b) the
business day following the date of such surrender (or, in the case of lost,
stolen or destroyed certificates, after provision of documentation pursuant to
Article XIV.B) (the "DELIVERY PERIOD"), issue and deliver to the holder or its
nominee, (x) that number of shares of Common Stock issuable upon conversion of
such shares of Series A Preferred Stock being converted and (y) a certificate
representing the number of shares of Series A Preferred Stock not being
converted, if any. If the Corporation's transfer agent is participating in the
Depository Trust Company ("DTC") Fast Automated Securities Transfer program, and
so long as the certificates therefor do not bear a legend and the holder thereof
is not then required to return such certificate for the placement of a legend
thereon, the Corporation may cause its transfer agent to electronically transmit
the Common Stock issuable upon conversion to the holder by crediting the account
of the holder or its nominee with DTC through its Deposit Withdrawal Agent
Commission system ("DTC TRANSFER"). If the aforementioned conditions to a DTC
Transfer are not satisfied or a DTC Transfer is otherwise not effected, the
Corporation shall deliver to the holder physical certificates representing the
Common Stock issuable upon conversion. Further, a holder may instruct the
Corporation to deliver to the holder physical certificates representing the
Common Stock issuable upon conversion in lieu of delivering such shares by way
of DTC Transfer.
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(ii) TAXES. The Corporation shall pay any and all taxes
which may be imposed upon it with respect to the issuance and delivery of the
shares of Common Stock upon the conversion of the Series A Preferred Stock.
(iii) NO FRACTIONAL SHARES. If any conversion of Series A
Preferred Stock would result in the issuance of a fractional share of Common
Stock, such fractional share shall be disregarded and the number of shares of
Common Stock issuable upon conversion of the Series A Preferred Stock shall be
the next higher whole number of shares.
(iv) CONVERSION DISPUTES. In the case of any dispute with
respect to a conversion, the Corporation shall promptly issue such number of
shares of Common Stock as are not disputed in accordance with subparagraph (i)
above. If such dispute involves the calculation of the Conversion Price, the
Corporation shall submit the disputed calculations to an independent outside
accountant reasonably acceptable to the holder of Series A Preferred Stock being
converted via facsimile at any time prior to the expiration of the Delivery
Period. The accountant, at the Corporation's sole expense, shall audit the
calculations and notify the Corporation and the holder of the results as soon as
practicable following the date it receives the disputed calculations. The
accountant's calculation shall be deemed conclusive, absent manifest error. The
Corporation shall then issue the appropriate number of shares of Common Stock in
accordance with subparagraph (i) above.
C. LIMITATIONS ON CONVERSIONS. The conversion of shares of Series A
Preferred Stock shall be subject to the following limitations (each of which
limitations shall be applied independently):
(i) CAP AMOUNT. If, notwithstanding the representations and
warranties of the Corporation contained in the Securities Purchase Agreement,
dated as of August 12, 1998, between the Corporation and the purchasers of the
Series A Preferred Stock named therein, the Corporation is prohibited by the
rules or regulations of any securities exchange or quotation system on which the
Common Stock is then listed or traded, from listing or issuing a number of
shares of Common Stock in excess of a prescribed amount (the "CAP AMOUNT")
without the approval of the Corporation's shareholders, then the Corporation
shall not be required to list or issue, as applicable, shares in excess of the
Cap Amount unless the Corporation has obtained the required approvals. The Cap
Amount which, as of the Issuance Date, shall be 1,060,000 shares, shall be
allocated pro rata to the holders of Series A Preferred Stock as provided in
Article XIV.C. In the event a holder of Series A Preferred Stock submits a
Notice of Conversion and the Corporation is prohibited from listing or issuing
shares of Common Stock to satisfy such Notice of Conversion as a result of the
operation of this subparagraph (i), such holder shall be entitled to the rights
set forth in Article VII hereof.
(ii) NO FIVE PERCENT HOLDERS. Unless a holder of shares of
Series A Preferred Stock delivers a waiver in accordance with the last sentence
of this subparagraph (ii), except in connection with a Required Conversion at
Maturity (as defined below), in no event shall a holder of shares of Series A
Preferred Stock be entitled to receive shares of Common Stock upon a
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conversion to the extent that the sum of (x) the number of shares of Common
Stock beneficially owned by the holder and its affiliates (exclusive of shares
issuable upon conversion of the unconverted portion of the shares of Series A
Preferred Stock or the unexercised or unconverted portion of any other
securities of the Corporation (including, without limitation, the warrants (the
"WARRANTS") issued by the Corporation pursuant to the Securities Purchase
Agreement) subject to a limitation on conversion or exercise analogous to the
limitations contained herein) and (y) the number of shares of Common Stock
issuable upon the conversion of the shares of Series A Preferred Stock with
respect to which the determination of this subparagraph is being made, would
result in beneficial ownership by the holder and its affiliates of more than
4.99% of the outstanding shares of Common Stock. For purposes of this
subparagraph, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13 D-G thereunder, except as otherwise provided in clause (x) above. Except as
provided in the immediately succeeding sentence, the restriction contained in
this subparagraph (ii) shall not be altered, amended, deleted or changed in any
manner whatsoever unless the holders of a majority of the outstanding shares of
Common Stock and each holder of outstanding shares of Series A Preferred Stock
shall approve such alteration, amendment, deletion or change.
D. REQUIRED CONVERSION AT MATURITY. Subject to the limitations set
forth in Paragraph C(i) of this Article IV and the Corporation's right of
Redemption set forth in Article VIII.D, and provided all shares of Common Stock
issuable upon conversion of all outstanding shares of Series A Preferred Stock
are then (i) authorized and reserved for issuance, (ii) registered under the
Securities Act of 1933, as amended (the "SECURITIES ACT"), for resale by the
holders of such shares of Series A Preferred Stock and (iii) eligible to be
traded on either the AMEX, the New York Stock Exchange or the Nasdaq National
Market, the Nasdaq Small Cap Market or the successors of any of them, and
provided no Redemption Event has occurred, each share of Series A Preferred
Stock issued and outstanding on the fifth anniversary of the Issuance Date (the
"MATURITY DATE") automatically shall be converted into shares of Common Stock on
such date in accordance with the conversion formulas set forth in Paragraph A of
this Article IV (the "REQUIRED CONVERSION AT MATURITY"). If the Required
Conversion at Maturity occurs, the Corporation and the holders of Series A
Preferred Stock shall follow the applicable conversion procedures set forth in
Article IV.B; PROVIDED, HOWEVER, that the holders of Series A Preferred Stock
are not required to deliver a Notice of Conversion to the Corporation or its
transfer agent. Subject to the Corporation's right of redemption contained in
Article VIII hereof, if the Required Conversion at Maturity does not occur, each
holder of Series A Preferred Stock shall thereafter have the option, exercisable
in whole or in part at any time and from time to time by delivery of a
Redemption Notice (as defined in Article VIII.C) to the Corporation, to require
the Corporation to purchase for cash, at an amount per share equal to the
Redemption Amount (as defined in Article VIII.B), the holder's Series A
Preferred Stock. If the Corporation fails to redeem any of such shares within
five (5) business days after the day on which the Corporation receives such
Redemption Notice, then such holder shall be entitled to the remedies provided
in Article VIII.C and Article VIII.E.
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V. RESERVATION OF SHARES OF COMMON STOCK
A. RESERVED AMOUNT. Upon the initial issuance of the shares of Series
A Preferred Stock, the Corporation shall reserve 200% of the number of shares
which would be issuable if the outstanding shares of Series A Preferred Stock
were converted in their entirety on the Issuance Date based on the Conversion
Price in effect on the Issuance Date of the authorized but unissued shares of
Common Stock for issuance upon conversion of the Series A Preferred Stock and
thereafter the number of authorized but unissued shares of Common Stock so
reserved (the "RESERVED AMOUNT") shall not be decreased and shall at all times
be sufficient to provide for the conversion of the Series A Preferred Stock
outstanding at the then current Conversion Price thereof. The Reserved Amount
shall be allocated to the holders of Series A Preferred Stock as provided in
Article XIV.C.
B. INCREASES TO RESERVED AMOUNT. If the Reserved Amount for any three
consecutive trading days (the last of such three trading days being the
"AUTHORIZATION TRIGGER DATE") shall be less than 135% of the number of shares of
Common Stock issuable upon conversion of the then outstanding shares of Series A
Preferred Stock, the Corporation shall immediately notify the holders of Series
A Preferred Stock of such occurrence and shall take immediate action (including,
if necessary, seeking shareholder approval to authorize the issuance of
additional shares of Common Stock) to increase the Reserved Amount to 200% of
the number of shares of Common Stock then issuable upon conversion of the
outstanding Series A Preferred Stock. In the event the Corporation fails to so
increase the Reserved Amount within 90 days after an Authorization Trigger Date
(such event being the "RESERVED AMOUNT TRIGGER EVENT"), each holder of Series A
Preferred Stock shall thereafter have the option, exercisable in whole or in
part at any time and from time to time by delivery of a Redemption Notice (as
defined in Article VIII.C) to the Corporation, to require the Corporation to
purchase for cash, at an amount per share equal to the Redemption Amount (as
defined in Article VIII.B), a portion of the holder's Series A Preferred Stock
such that, after giving effect to such purchase, the holder's allocated portion
of the Reserved Amount exceeds 135% of the total number of shares of Common
Stock issuable to such holder upon conversion of its Series A Preferred Stock.
If the Corporation fails to redeem any of such shares within five (5) business
days after its receipt of such Redemption Notice, then such holder shall be
entitled to the remedies provided in Article VIII.C.
C. ADJUSTMENT TO CONVERSION PRICE. If the Corporation is prohibited,
at any time, from issuing shares of Common Stock upon conversion of Series A
Preferred Stock to any holder because the Corporation does not then have
available a sufficient number of authorized and reserved shares of Common Stock,
then the Fixed Conversion Price in respect of any shares of Series A Preferred
Stock held by any holder (including shares of Series A Preferred Stock submitted
to the Corporation for conversion, but for which shares of Common Stock have not
been issued to any such holder) shall be adjusted as provided in Article VI.A.
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VI. FAILURE TO SATISFY CONVERSIONS
A. CONVERSION DEFAULTS. The following shall constitute a "CONVERSION
DEFAULT": (i) following the submission by a holder of shares of Series A
Preferred Stock of a Notice of Conversion, the Corporation fails for any reason
(other than because of an event described in clause (iii) below) to deliver, on
or prior to the fourth business day following the expiration of the Delivery
Period for such conversion, such number of freely tradeable shares of Common
Stock to which such holder is entitled upon such conversion; PROVIDED, HOWEVER,
that prior to the Registration Statement (as described in Article VIII.A(ii)
below) being declared effective, such shares of Common Stock shall bear the
restrictive legend set forth in Section 2(g) of the Securities Purchase
Agreement, (ii) the Corporation provides notice to any holder of Series A
Preferred Stock at any time of its intention not to issue freely tradeable
shares of Common Stock upon exercise by any holder of its conversion rights in
accordance with the terms of this Certificate of Designation (other than because
of an event described in clause (iii) below), or (iii) the Corporation is
prohibited, at any time, from listing shares of Common Stock or from issuing
shares of Common Stock upon conversion of Series A Preferred Stock to any holder
because the Corporation (A) does not at the date of such conversion have
available a sufficient number of authorized and reserved shares of Common Stock
or (B) such listing or issuance would exceed the then unissued portion of such
holder's Cap Amount. In the case of a Conversion Default described in clause (i)
or (iii) above, the Fixed Conversion Price in respect of any shares of Series A
Preferred Stock held by such holder (including shares of Series A Preferred
Stock submitted to the Corporation for conversion, but for which shares of
Common Stock have not been issued to such holder) shall thereafter be the lesser
of (x) the Fixed Conversion Price on the date of the Conversion Default and (y)
the lowest Conversion Price in effect during the period beginning on, and
including, such date through and including (A) in the case of a Conversion
Default referred to in clause (i) above, the earlier of (1) the day such shares
of Common Stock are delivered to the holder and (2) the day on which the holder
regains its rights as a holder of Series A Preferred Stock with respect to such
unconverted shares of Series A Preferred Stock pursuant to the provisions of
Article XIV.F hereof, and (B) in the case of a Conversion Default referred to in
clause (iii) above, the date on which the prohibition on listing or issuance of
Common Stock terminates. In the case of a Conversion Default described in clause
(ii) above, the Fixed Conversion Price with respect to any conversion thereafter
shall be the lowest Conversion Price in effect at any time during the period
beginning on, and including, the date of the occurrence of such Conversion
Default through and including the Default Cure Date (as defined below).
Following any adjustment to the Fixed Conversion Price pursuant to this Article
VI.A, the Fixed Conversion Price shall thereafter be subject to further
adjustment for any events described in Article XI. Upon the occurrence of each
reset of the Fixed Conversion Price pursuant to this Paragraph A, the
Corporation, at its expense, shall promptly compute the new Fixed Conversion
Price and prepare and furnish to each holder of Series A Preferred Stock a
certificate setting forth such new Fixed Conversion Price and showing in detail
each Conversion Price in effect during such reset period.
"DEFAULT CURE DATE" means (i) with respect to a Conversion Default
described in clause (i) of its definition, the date the Corporation effects the
conversion of the full number of shares of Series A Preferred Stock, (ii) with
respect to a Conversion Default described in clause (ii) of its definition,
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the date the Corporation issues freely tradeable shares of Common Stock in
satisfaction of all conversions of Series A Preferred Stock in accordance with
Article IV.A, and (iii) with respect to a Conversion Default described in clause
(i) or clause (ii) of its definition, the date on which the Corporation redeems
shares of Series A Preferred Stock held by such holder pursuant to paragraph C
of this Article VI.
B. BUY-IN CURE. Unless the Corporation has notified the applicable
holder in writing prior to the delivery by such holder of a Notice of Conversion
that the Corporation is unable to honor conversions, if (i) (a) the Corporation
fails for any reason to deliver during the Delivery Period shares of Common
Stock to a holder upon a conversion of shares of Series A Preferred Stock or (b)
there shall occur a Legend Removal Failure (as defined in Article VIII.A(iii)
below) and (ii) thereafter, such holder purchases (in an open market transaction
or otherwise) shares of Common Stock to make delivery in satisfaction of a sale
by such holder of the unlegended shares of Common Stock (the "SOLD SHARES")
which such holder anticipated receiving upon such conversion (a "BUY- IN"), the
Corporation shall pay such holder (in addition to any other remedies available
to the holder) the amount by which (x) such holder's total purchase price
(including brokerage commissions, if any) for the unlegended shares of Common
Stock so purchased exceeds (y) the net proceeds received by such holder from the
sale of the Sold Shares. For example, if a holder purchases unlegended shares of
Common Stock having a total purchase price of $11,000 to cover a Buy-In with
respect to shares of Common Stock it sold for $10,000, the Corporation will be
required to pay the holder $1,000. A holder shall provide the Corporation
written notification indicating any amounts payable to such holder pursuant to
this Paragraph C. The Corporation shall make any payments required pursuant to
this Paragraph C in accordance with and subject to the provisions of Article
XIV.E.
C. REDEMPTION RIGHT. If the Corporation fails, and such failure
continues uncured for five (5) business days after the Corporation has been
notified thereof in writing by the holder, for any reason (other than because
such issuance would exceed such holder's allocated portion of the Reserved
Amount or Cap Amount, for which failures the holders shall have the remedies set
forth in Articles V and VII, respectively) to issue shares of Common Stock
within 10 business days after the expiration of the Delivery Period with respect
to any conversion of Series A Preferred Stock, then the holder may elect at any
time and from time to time prior to the Default Cure Date for such Conversion
Default, by delivery of a Redemption Notice to the Corporation, to have all of
such holder's shares of Series A Preferred Stock which were submitted for
conversion purchased by the Corporation for cash, at an amount per share equal
to the Redemption Amount (as defined in Article VIII.B). If the Corporation
fails to redeem any of such shares within five business days after its receipt
of such Redemption Notice, then such holder shall be entitled to the remedies
provided in Article VIII.C.
D. VOID NOTICE OF CONVERSION. If for any reason a holder has not
received all of the shares of Common Stock prior to the tenth (10th) business
day after the expiration of the Delivery Period with respect to a conversion of
Series A Preferred Stock and (i) such shares have not been called for redemption
pursuant to Article VIII.D, provided the Redemption Amount therefor has been or
may be paid within the time limits set forth in Article VIII.D, and (ii) such
shares are not subject
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to a redemption notice from the holder thereof, then the holder, upon written
notice to the Corporation's transfer agent, with a copy to the Corporation, may
void its Notice of Conversion with respect to, and retain or have returned, as
the case may be, any shares of Series A Preferred Stock that have not been
converted pursuant to such holder's Notice of Conversion; provided that the
voiding of a holder's Notice of Conversion shall not affect such holders rights
and remedies which have accrued prior to the date of such notice pursuant to
Article VI hereof or otherwise.
VII. INABILITY TO LIST OR CONVERT DUE TO CAP AMOUNT
A. OBLIGATION TO CURE. Because, on the Issuance Date, the then
unissued portion of each holder's Cap Amount is less than 135% of the number of
shares of Common Stock then issuable upon conversion of each holder's shares of
Series A Preferred Stock (a "TRADING MARKET TRIGGER EVENT"), the Corporation
shall take immediate action (including, if necessary, seeking the approval of
its shareholders to authorize the listing or issuance of the full number of
shares of Common Stock which would be issuable upon the conversion of the then
outstanding shares of Series A Preferred Stock but for the Cap Amount) to
eliminate all prohibitions under applicable law or the rules or regulations of
any stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Corporation or any of its securities on
the Corporation's ability to list or issue shares of Common Stock in excess of
the Cap Amount ("TRADING MARKET PROHIBITIONS"). In the event the Corporation
fails to eliminate all such Trading Market Prohibitions within 120 days after
the Issuance Date, then each holder of Series A Preferred Stock shall thereafter
have the option, exercisable in whole or in part at any time and from time to
time until such date that all such Trading Market Prohibitions are eliminated,
by delivery of a Redemption Notice (as defined in Article VIII.C) to the
Corporation, to require the Corporation to purchase for cash, at an amount per
share equal to the Redemption Amount, a number of the holder's shares of Series
A Preferred Stock such that, after giving effect to such redemption, the then
unissued portion of such holder's Cap Amount exceeds 135% of the total number of
shares of Common Stock issuable upon conversion of such holder's shares of
Series A Preferred Stock. If the Corporation fails to redeem any of such shares
within five (5) business days after its receipt of such Redemption Notice, then
such holder shall be entitled to the remedies provided in Articles VII.B and
VIII.C.
B. REMEDIES. If the Corporation fails to redeem any shares of Series
A Preferred Stock pursuant to Article VII.A within five business days after its
receipt of such Redemption Notice, and thereafter the Corporation is prohibited,
at any time, from listing shares of Common Stock or from issuing shares of
Common Stock upon conversion of Series A Preferred Stock to any holder because
such listing or issuance would exceed the then unissued portion of such holder's
Cap Amount because of applicable law or the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Corporation or its securities, any holder who is so
prohibited from converting its Series A Preferred Stock because the shares of
Common Stock underlying such Series A Preferred Stock may not be listed or
issued, may elect either or both of the following additional remedies:
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(i) to require, with the consent of holders of at least
fifty percent (50%) of the outstanding shares of Series A Preferred Stock
(including any shares of Series A Preferred Stock held by the requesting
holder), the Corporation to terminate the listing of its Common Stock on the
Nasdaq Small Cap (or any other stock exchange, interdealer quotation system or
trading market) and to cause its Common Stock to be eligible for trading on the
over-the-counter electronic bulletin board; or
(ii) to require the Corporation to issue shares of Common
Stock in accordance with such holder's Notice of Conversion at a conversion
price equal to the average of the Closing Bid Prices for the Common Stock during
the five consecutive trading days ending on the trading day immediately
preceding the date of the holder's written notice to the Corporation of its
election to receive shares of Common Stock pursuant to this subparagraph (ii)
(subject to equitable adjustment for any stock splits, stock dividends,
reclassifications or similar events during such five trading day period).
C. ADJUSTMENT TO CONVERSION PRICE. If the Corporation is prohibited,
at any time after the ninetieth day after the Issuance Date, from listing shares
of Common Stock or from issuing shares of Common Stock upon conversion of Series
A Preferred Stock to any holder because such listing or issuance would exceed
the then unissued portion of such holder's Cap Amount because of applicable law
or the rules or regulations of any stock exchange, interdealer quotation system
or other self-regulatory organization with jurisdiction over the Corporation or
its securities, then the Fixed Conversion Price in respect of any shares of
Series A Preferred Stock held by any holder (including shares of Series A
Preferred Stock submitted to the Corporation for conversion, but for which
shares of Common Stock have not been issued) shall be adjusted as provided in
Article VI.A.
VIII. REDEMPTION
A. REDEMPTION BY HOLDER. In the event (each of the events described
in clauses (i)-(vi) below after expiration of the applicable cure period (if
any) being a "REDEMPTION EVENT"):
(i) the Common Stock (including, from and after the
Issuance Date, any of the shares of Common Stock issuable upon conversion of the
Series A Preferred Stock) is suspended from trading on any of, or is not listed
(and authorized) for trading on at least one of, the NASDAQ Small Cap Market,
the NASDAQ National Market, the New York Stock Exchange or the American Stock
Exchange for an aggregate of 10 trading days in any nine month period;
(ii) the Registration Statement required to be filed by the
Corporation pursuant to that certain Registration Rights Agreement by and among
the Corporation and the other signatories thereto entered into in connection
with the Securities Purchase Agreement (the "REGISTRATION RIGHTS AGREEMENT") has
not been declared effective by the 60th day following the Registration Deadline
(as defined in the Registration Rights Agreement) or such Registration
Statement, after being declared effective, cannot be utilized by the holders of
Series A Preferred
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Stock for the resale of all of their Registrable Securities (as defined in the
Registration Rights Agreement) for an aggregate of more than 30 days;
(iii) the Corporation fails to remove any restrictive
legend on any certificate or any shares of Common Stock issued to the holders of
Series A Preferred Stock upon conversion of the Series A Preferred Stock as and
when required by this Certificate of Designation, the Securities Purchase
Agreement or the Registration Rights Agreement (a "LEGEND REMOVAL FAILURE"), and
any such failure continues uncured for five business days after the Corporation
has been notified thereof in writing by the holder;
(iv) the Corporation provides notice to any holder of
Series A Preferred Stock, including by way of public announcement, at any time,
of its intention not to issue, or otherwise refuses to issue, shares of Common
Stock to any holder of Series A Preferred Stock upon conversion in accordance
with the terms of this Certificate of Designation (other than due to the
circumstances contemplated by Articles V or VII for which the holders shall have
the remedies set forth in such Articles);
(v) the Corporation shall:
(a) sell, convey or dispose of all or
substantially all of its assets (the presentation of any such transaction for
stockholder approval being conclusive evidence that such transaction involves
the sale of all or substantially all of the assets of the Corporation);
(b) merge, consolidate or engage in any other
business combination with any other entity (other than pursuant to a migratory
merger effected solely for the purpose of changing the jurisdiction of
incorporation of the Corporation and other than pursuant to a merger in which
the Corporation is the surviving or continuing entity and the voting capital
stock of the Corporation immediately prior to such merger represents at least
50% of the voting power of the capital stock of the Corporation after the merger
and its capital stock is unchanged);
(c) have fifty percent (50%) or more of the
voting power of its capital stock owned beneficially by one person, entity or
"group" (as such term is used under Section 13(d) of the Securities Exchange Act
of 1934, as amended); or
(vi) the Corporation otherwise shall breach any material
term hereunder or under the Securities Purchase Agreement or the Registration
Rights Agreement;
then, upon the occurrence of any such Redemption Event, each holder of shares of
Series A Preferred Stock shall thereafter have the option, exercisable in whole
or in part at any time and from time to time by delivery of a Redemption Notice
(as defined in Paragraph C below) to the Corporation while such Redemption Event
continues, to require the Corporation to purchase for cash any or all of the
then outstanding shares of Series A Preferred Stock held by such holder for an
amount per share equal to the Redemption Amount (as defined in Paragraph B
below) in effect at the time of the
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redemption hereunder. For the avoidance of doubt, the occurrence of any event
described in clauses (i), (ii), (iv) or (v) above shall immediately constitute a
Redemption Event and there shall be no cure period. Upon the Corporation's
receipt of any Redemption Notice hereunder (other than during the three trading
day period following the Corporation's delivery of a Redemption Announcement (as
defined below) to all of the holders in response to the Corporation's initial
receipt of a Redemption Notice from a holder of Series A Preferred Stock), the
Corporation shall immediately (and in any event within one business day
following such receipt) deliver a written notice (a "REDEMPTION ANNOUNCEMENT")
to all holders of Series A Preferred Stock stating the date upon which the
Corporation received such Redemption Notice and the amount of Series A Preferred
Stock covered thereby. Subject to Article VIII.D, the Corporation shall not
redeem any shares of Series A Preferred Stock during the three trading day
period following the delivery of a required Redemption Announcement hereunder.
At any time and from time to time during such three trading day period, each
holder of Series A Preferred Stock may request (either orally or in writing)
information from the Corporation with respect to the instant redemption
(including, but not limited to, the aggregate number of shares of Series A
Preferred Stock covered by Redemption Notices received by the Corporation) and
the Corporation shall furnish (either orally or in writing) as soon as
practicable such requested information to such requesting holder.
B. DEFINITION OF REDEMPTION AMOUNT. The "REDEMPTION AMOUNT" with
respect to a share of Series A Preferred Stock means an amount equal to the
greater of:
(i) V X M
---
C P
and (ii) V X 1.13
where:
"V" means the Face Amount thereof, plus the accrued Premium thereon
through the date of payment of the Redemption Amount;
"CP" means the Conversion Price in effect on the date on which the
Corporation receives the Redemption Notice; and
"M" means (i) with respect to all redemptions other than redemptions
pursuant to Article VIII.A(v) hereof, the highest Closing Bid Price of the
Corporation's Common Stock during the period beginning on the date on which the
Corporation receives the Redemption Notice and ending on the date immediately
preceding the date of payment of the Redemption Amount and (ii) with respect to
redemptions pursuant to Article VIII.A(v) hereof, the greater of (a) the amount
determined pursuant to clause (i) of this definition or (b) the fair market
value, as of the date on which the Corporation receives the Redemption Notice,
of the consideration payable to the holder of a share of Common Stock pursuant
to the transaction which triggers the redemption. For purposes of this
definition, "fair market value" shall be determined by the mutual agreement of
the Corporation and
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holders of a majority-in-interest of the shares of Series A Preferred Stock then
outstanding, or if such agreement cannot be reached within five business days
prior to the date of redemption, by an investment banking firm selected by the
Corporation and reasonably acceptable to holders of a majority-in-interest of
the then outstanding shares of Series A Preferred Stock, with the costs of such
appraisal to be borne by the Corporation.
C. REDEMPTION DEFAULTS. If the Corporation fails to pay any holder
the Redemption Amount with respect to any share of Series A Preferred Stock
within five business days after its receipt of a notice requiring such
redemption (a "REDEMPTION NOTICE"), then the holder of Series A Preferred Stock
delivering such Redemption Notice (i) shall be entitled to interest on the
Redemption Amount at a per annum rate equal to the lower of twenty-four percent
(24%) and the highest interest rate permitted by applicable law from the date on
which the Corporation receives the Redemption Notice until the date of payment
of the Redemption Amount hereunder, and (ii) shall have the right, at any time
and from time to time, to require the Corporation, upon written notice, to
immediately convert (in accordance with the terms of Paragraph A of Article IV
but subject to Paragraph C of Article IV) all or any portion of the Redemption
Amount, plus interest as aforesaid, into shares of Common Stock at the lowest
Conversion Price in effect during the period beginning on the date on which the
Corporation receives the Redemption Notice and ending on the Conversion Date
with respect to the conversion of such Redemption Amount. In the event the
Corporation is not able to redeem all of the shares of Series A Preferred Stock
subject to Redemption Notices delivered prior to the date upon which such
redemption is to be effected, the Corporation shall redeem shares of Series A
Preferred Stock from each holder pro rata, based on the total number of shares
of Series A Preferred Stock outstanding at the time of redemption included by
such holder in all Redemption Notices delivered prior to the date upon which
such redemption is to be effected relative to the total number of shares of
Series A Preferred Stock outstanding at the time of redemption included in all
of the Redemption Notices delivered prior to the date upon which such redemption
is to be effected.
D. REDEMPTION BY CORPORATION.
(i) The Corporation shall have the right at any time and
from time to time to redeem any shares which are the subject of a Notice of
Conversion for an amount of cash equal to the Redemption Amount (a "REDEMPTION
IN LIEU OF CONVERSION"), in its sole discretion by delivery of an Optional
Redemption Notice in accordance with the redemption procedures set forth below.
(ii) Within ten (10) calendar days prior to the beginning
of any calendar month during which the Corporation elects to effect a Redemption
in Lieu of Conversion, the Corporation shall provide written notice to the
holders of Series A Preferred Stock by facsimile and overnight courier stating
that the Corporation will redeem any conversions of Series A Preferred Stock in
such calendar month (an "OPTIONAL REDEMPTION NOTICE"). In the event the
Corporation fails to provide an Optional Redemption Notice to the holders of
Series A Preferred Stock within such ten (10) day period, the Corporation shall
not be permitted to so redeem any conversions of Series A Preferred Stock during
such calendar month. In the event a timely Optional Redemption Notice is
provided
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as aforesaid, upon the Corporation's receipt of a Notice of Conversion the
Corporation shall be obligated to redeem on or before the fifth business day
after the receipt of the Notice of Conversion, the entire number of shares of
the Series A Preferred Stock which are the subject of the Notice of Conversion
for the Redemption Amount (as defined in Article VIII.B).
(iii) At any time and from time to time on or before the
90th day after the Issuance Date, the Corporation shall have the right, on 10
business days prior written notice, to redeem any or all of the then outstanding
shares of Series A Preferred Stock by paying to each holder an amount per share
of Series A Preferred Stock equal to 120% of the Stated Value thereof. At all
times prior to redemption pursuant to this Article VIII.D(iii) (including after
receipt of the notice required by this Article), each holder of Series A
Preferred Stock shall remain entitled to convert shares of Series A Preferred
Stock into shares of Common Stock in accordance with the terms of Article IV
hereof. Notwithstanding anything herein to the contrary the first redemption, if
any, by the Corporation pursuant to this Article VIII.D(iii) shall not be for an
amount of cash less than $500,000, with any subsequent redemptions, if any,
hereunder for an amount of cash not less than $100,000.
E. VOID REDEMPTION. In the event that the Corporation does not pay
the Redemption Amount within the time period set forth in Article IV.D, Article
VIII.A or Article VIII.D, at any time thereafter and until the Corporation pays
such unpaid applicable Redemption Amount in full, a holder of Series A Preferred
Stock shall have the option (the "VOID OPTIONAL REDEMPTION OPTION") to, in lieu
of redemption, require the Corporation to promptly return to such holder any or
all of the shares of Series A Preferred Stock that were submitted for redemption
by such holder under this Article VIII and for which the applicable Redemption
Amount (together with any interest thereon) has not been paid, by sending
written notice thereof to the Corporation via facsimile and confirmed by
overnight courier, in person (by courier or otherwise) or by telephone (to an
authorized officer of the Corporation or his or her administrative assistant)
(the "VOID OPTIONAL REDEMPTION NOTICE"). Upon the Corporation's receipt of such
Void Optional Redemption Notice and overnight courier, in- person or telephone
confirmation, (i) the Notice of Redemption shall be null and void with respect
to those shares of Series A Preferred Stock subject to the Void Optional
Redemption Notice, and (ii) the Corporation shall immediately return any shares
of Series A Preferred Stock subject to the Void Optional Redemption Notice
IX. RANK
The Series A Preferred Stock shall rank (i) prior to the
Corporation's Common Stock; (ii) prior to any class or series of capital stock
of the Corporation hereafter created that, by its terms, ranks junior to the
Series A Preferred Stock ("JUNIOR SECURITIES"); (iii) junior to any class or
series of capital stock of the Corporation hereafter created (with the consent
of the holders of Series A Preferred Stock obtained in accordance with Article
XIII hereof) specifically ranking, by its terms, senior to the Series A
Preferred Stock ("SENIOR SECURITIES"); and (iv) PARI PASSU with any class or
series of capital stock of the Corporation hereafter created (with the consent
of the holders of the Series A Preferred Stock obtained in accordance with
Article XIII hereof) specifically ranking by its terms on parity with the Series
A Preferred Stock ("PARI PASSU SECURITIES"), in each case as to
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distribution of assets upon liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary.
X. LIQUIDATION PREFERENCE
A. If the Corporation shall commence a voluntary case under the U.S.
Federal bankruptcy laws or any other applicable bankruptcy, insolvency or
similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the U.S. Federal bankruptcy laws or any other
applicable bankruptcy, insolvency or similar law resulting in the appointment of
a receiver, liquidator, assignee, custodian, trustee, sequestrator (or other
similar official) of the Corporation or of any substantial part of its property,
or ordering the winding up or liquidation of its affairs, and any such decree or
order shall be unstayed and in effect for a period of 60 consecutive days and,
on account of any such event, the Corporation shall liquidate, dissolve or wind
up, or if the Corporation shall otherwise liquidate, dissolve or wind up,
including, but not limited to, the sale or transfer of all or substantially all
of the Corporation's assets in one transaction or in a series of related
transactions (a "LIQUIDATION EVENT"), no distribution shall be made to the
holders of any shares of capital stock of the Corporation (other than Senior
Securities and Pari Passu Securities) upon liquidation, dissolution or winding
up unless prior thereto the holders of shares of Series A Preferred Stock shall
have received the Liquidation Preference with respect to each share. If, upon
the occurrence of a Liquidation Event, the assets and funds available for
distribution among the holders of the Series A Preferred Stock and holders of
PARI PASSU Securities shall be insufficient to permit the payment to such
holders of the preferential amounts payable thereon, then the entire assets and
funds of the Corporation legally available for distribution to the Series A
Preferred Stock and the PARI PASSU Securities shall be distributed ratably among
such shares in proportion to the ratio that the Liquidation Preference payable
on each such share bears to the aggregate Liquidation Preference payable on all
such shares.
B. The purchase or redemption by the Corporation of stock of any
class, in any manner permitted by law, shall not, for the purposes hereof, be
regarded as a liquidation, dissolution or winding up of the Corporation. Neither
the consolidation or merger of the Corporation with or into any other entity nor
the sale or transfer by the Corporation of less than substantially all of its
assets shall, for the purposes hereof, be deemed to be a liquidation,
dissolution or winding up of the Corporation.
C. The "LIQUIDATION PREFERENCE" with respect to a share of Series A
Preferred Stock means an amount equal to the Stated Value thereof, plus the
accrued Premium thereon through the date of final distribution. The Liquidation
Preference with respect to any PARI PASSU Securities shall be as set forth in
the Certificate of Designation filed in respect thereof.
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XI. ADJUSTMENTS TO THE CONVERSION PRICE
The Conversion Price shall be subject to adjustment from time to time
as follows:
A. STOCK SPLITS, STOCK DIVIDENDS, ETC. If, at any time on or after
the Issuance Date, the number of outstanding shares of Common Stock is increased
by a stock split, stock dividend, combination, reclassification or other similar
event, the Fixed Conversion Price shall be proportionately reduced, or if the
number of outstanding shares of Common Stock is decreased by a reverse stock
split, combination or reclassification of shares, or other similar event, the
Fixed Conversion Price shall be proportionately increased. In such event, the
Corporation shall notify the Corporation's transfer agent of such change on or
before the effective date thereof.
B. ADJUSTMENT DUE TO MERGER, CONSOLIDATION, ETC. If, at any time
after the Issuance Date, there shall be (i) any reclassification or change of
the 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 of the
Corporation with any other entity (other than a merger in which the Corporation
is the surviving or continuing entity and its capital stock is unchanged), (iii)
any sale or transfer of all or substantially all of the assets of the
Corporation or (iv) any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property (each of
(i) - (iv) above being a "CORPORATE CHANGE"), then the holders of Series A
Preferred Stock shall thereafter have the right to receive upon conversion, in
lieu of the shares of Common Stock otherwise issuable, such shares of stock,
securities and/or other property as would have been issued or payable in such
Corporate Change with respect to or in exchange for the number of shares of
Common Stock which would have been issuable upon conversion (without giving
effect to the limitations contained in Article IV.C) had such Corporate Change
not taken place, and in any such case, appropriate provisions (in form and
substance reasonably satisfactory to the holders of a majority of the Series A
Preferred Shares then outstanding) shall be made with respect to the rights and
interests of the holders of the Series A Preferred Stock to the end that the
economic value of the shares of Series A Preferred Stock are in no way
diminished by such Corporate Change and that the provisions hereof (including,
without limitation, in the case of any such consolidation, merger or sale in
which the successor entity or purchasing entity is not the Corporation, an
immediate adjustment of the Fixed Conversion Price so that the Fixed Conversion
Price immediately after the Corporate Change reflects the same relative value as
compared to the value of the surviving entity's common stock that existed
between the Fixed Conversion Price and the value of the Corporation's Common
Stock immediately prior to such Corporate Change and an immediate revision to
the Variable Conversion Price so that it is determined as provided in Article
III.H but based on the price of the common stock of the surviving entity and the
market in which such common stock is traded) shall thereafter be applicable, as
nearly as may be practicable in relation to any shares of stock or securities
thereafter deliverable upon the conversion thereof. The Corporation shall not
effect any Corporate Change unless (i) each holder of Series A Preferred Stock
has received written notice of such transaction along with the notice sent to
the holders of the Common Stock of the Corporation, but in no event later than
20 days
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prior to the record date for the determination of shareholders entitled to vote
with respect thereto, and (ii) the resulting, successor or acquiring entity (if
not the Corporation) assumes by written instrument (in form and substance
reasonably satisfactory to the holders of a majority of the Series A Preferred
Shares then outstanding) the obligations of this Certificate of Designation. The
above provisions shall apply regardless of whether or not there would have been
a sufficient number of shares of Common Stock authorized and available for
issuance upon conversion of the shares of Series A Preferred Stock outstanding
as of the date of such transaction, and shall similarly apply to successive
reclassifications, consolidations, mergers, sales, transfers or share exchanges.
C. ADJUSTMENT DUE TO MAJOR ANNOUNCEMENT. In the event the Corporation
at any time after the Issuance Date (i) makes a public announcement that it
intends to consolidate or merge with any other entity (other than a merger in
which the Corporation is the surviving or continuing entity and its capital
stock is unchanged) or to sell or transfer all or substantially all of the
assets of the Corporation or (ii) any person, group or entity (including the
Corporation) publicly announces a tender offer, exchange offer or another
transaction to purchase 50% or more of the Corporation's Common Stock or
otherwise publicly announces an intention to replace a majority of the
Corporation's Board of Directors by waging or proxy battle or otherwise (the
date of the announcement or commencement referred to in clause (i) or (ii) of
this Paragraph C is hereinafter referred to as the "ANNOUNCEMENT DATE"), then
the Conversion Price shall, effective upon the Announcement Date and continuing
through the tenth trading day following the earlier of the consummation of the
proposed transaction or tender offer, exchange offer or another transaction or
the Abandonment Date (as defined below) (the earlier of such dates being the
"ADJUSTED CONVERSION PRICE TERMINATION DATE"), be equal to the lower of (x) the
Conversion Price which would have been applicable for an Optional Conversion
occurring on the Announcement Date and (y) the Conversion Price determined in
accordance with Article III.C on the Conversion Date set forth in the Notice of
Conversion for the Optional Conversion. After the Adjusted Conversion Price
Termination Date, the Conversion Price shall be determined as set forth in
Article III.C. "ABANDONMENT DATE" means with respect to any proposed transaction
or tender offer, exchange offer or another transaction for which a public
announcement or an action contemplated by this Paragraph C has been made or
commenced, the date upon which the Corporation (in the case of clause (i) above)
or the person, group or entity (in the case of clause (ii) above) publicly
announces the termination or abandonment of the proposed transaction or tender
offer, exchange offer or another transaction which caused this Paragraph C to
become operative.
D. ADJUSTMENT DUE TO DISTRIBUTION. If, at any time after the Issuance
Date, the Corporation shall declare or make any distribution of its assets (or
rights to acquire its assets) to holders of Common Stock as a partial
liquidating dividend, by way of return of capital or otherwise (including any
dividend or distribution to the Corporation's common shareholders in shares (or
rights to acquire shares) of capital stock of a subsidiary (I.E. a spin-off)) (a
"DISTRIBUTION"), then the holders of Series A Preferred Stock shall be entitled,
upon any conversion of shares of Series A Preferred Stock after the date of
record for determining shareholders entitled to such Distribution, to receive
the amount of such assets which would have been payable to the holder with
respect to the shares of Common Stock issuable upon such conversion (without
giving effect to the limitations
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contained in Article IV.C) had such holder been the holder of such shares of
Common Stock on the record date for the determination of shareholders entitled
to such Distribution.
E. ISSUANCE OF OTHER SECURITIES WITH VARIABLE CONVERSION PRICE. If,
at any time after the Issuance Date, the Corporation shall issue any securities
which are convertible into or exchangeable for Common Stock ("CONVERTIBLE
SECURITIES") at a conversion price or exchange rate which is more favorable to
the holders of such Convertible Securities than the Conversion Price mechanism
provided for herein, then such conversion price or exchange rate shall be
applicable hereto.
F. PURCHASE RIGHTS. If, at any time after the Issuance Date, the
Corporation issues any securities which are convertible into or exchangeable for
Common Stock, or rights to purchase stock, warrants, securities or other
property (the "PURCHASE RIGHTS") pro rata to the record holders of any class of
Common Stock, then the holders of Series A Preferred Stock will be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such holder could have acquired if such holder had held
the number of shares of Common Stock acquirable upon complete conversion of the
Series A Preferred Stock (without giving effect to the limitations contained in
Article IV.C) immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such record is taken,
the date as of which the record holders of Common Stock are to be determined for
the grant, issue or sale of such Purchase Rights.
G. NOTICE OF ADJUSTMENTS. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Article XI, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment and prepare and furnish to each holder of Series A Preferred Stock
a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holder of Series
A Preferred Stock, furnish to such holder a like certificate setting forth (i)
such adjustment or readjustment, (ii) the Conversion Price at the time in effect
and (iii) the number of shares of Common Stock and the amount, if any, of other
securities or property which at the time would be received upon conversion of a
share of Series A Preferred Stock.
XII. VOTING RIGHTS
The holders of the Series A Preferred Stock have no voting power
whatsoever, except as otherwise provided by the Delaware General Corporation Law
(the "BUSINESS CORPORATION ACT") and in Article XIII below.
Notwithstanding the above, the Corporation shall provide each holder
of Series A Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders) at the same time such notice and materials are provided to the
holders of Common Stock. If the Corporation takes a record of its shareholders
for the purpose of determining shareholders entitled to (a) receive payment of
any dividend or other distribution, any
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right to subscribe for, purchase or otherwise acquire (including by way of
merger consolidation or recapitalization) any share of any class or any other
securities or property, or to receive any other right, or (b) to vote in
connection with any proposed sale, lease or conveyance of all or substantially
all of the assets of the Corporation, or any proposed merger, consolidation,
liquidation, dissolution or winding up of the Corporation, the Corporation shall
mail a notice to each holder, at least 20 days prior to the record date
specified therein (but in no event earlier than public announcement of such
proposed transaction), of the date on which any such record is to be taken for
the purpose of such dividend, distribution, right or other event, and a brief
statement regarding the amount and character of such dividend, distribution,
right or other event to the extent known at such time.
To the extent that under the Business Corporation Act the vote of the
holders of the Series A Preferred Stock, voting separately as a class or series,
as applicable, is required to authorize a given action of the Corporation, the
affirmative vote or consent of the holders of at least a majority of the then
outstanding shares of the Series A Preferred Stock represented at a duly held
meeting at which a quorum is present or by written consent of the holders of at
least a majority of the then outstanding shares of Series A Preferred Stock
(except as otherwise may be required under the Business Corporation Act) shall
constitute the approval of such action by the class. To the extent that under
the Business Corporation Act holders of the Series A Preferred Stock are
entitled to vote on a matter with holders of Common Stock, voting together as
one class, each share of Series A Preferred Stock shall be entitled to a number
of votes equal to the number of shares of Common Stock into which it is then
convertible (subject to the limitations contained in Article IV.C(ii)) using the
record date for the taking of such vote of shareholders as the date as of which
the Conversion Price is calculated.
XIII. PROTECTION PROVISIONS
So long as any shares of Series A Preferred Stock are outstanding,
the Corporation shall not without first obtaining the approval (by vote or
written consent, as provided by the Business Corporation Act) of a majority in
interest of the holders of the then outstanding shares of Series A Preferred
Stock:
(a) alter or change the rights, preferences or
privileges of the Series A Preferred Stock;
(b) alter or change the rights, preferences or
privileges of any previously issued shares of capital stock of the Corporation
so as to affect adversely the Series A Preferred Stock;
(c) create any new class or series of capital
stock having a preference over the Series A Preferred Stock as to distribution
of assets upon liquidation, dissolution or winding up of the Corporation (as
previously defined in Article IX hereof, "SENIOR SECURITIES");
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(d) create any new class or series of capital
stock ranking PARI PASSU with the Series A Preferred Stock as to distribution of
assets upon liquidation, dissolution or winding up of the Corporation (as
previously defined in Article IX hereof, "PARI PASSU SECURITIES");
(e) increase the authorized number of shares of
Series A Preferred Stock;
(f) issue any shares of Senior Securities;
(g) issue any shares of Series A Preferred Stock
other than pursuant to the Securities Purchase Agreement;
(h) redeem, or declare or pay any cash dividend
or distribution on, any Junior Securities; or
(i) increase the par value of the Common Stock.
Notwithstanding the foregoing, no change pursuant to this Article XIII shall be
effective to the extent that, by its terms, it applies to less than all of the
holders of shares of Series A Preferred Stock then outstanding.
XIV. MISCELLANEOUS
A. CANCELLATION OF SERIES A PREFERRED STOCK. If any shares of Series
A Preferred Stock are converted pursuant to Article IV, the shares so converted
shall be canceled, shall return to the status of authorized, but unissued
preferred stock of no designated series, and shall not be issuable by the
Corporation as Series A Preferred Stock.
B. LOST OR STOLEN CERTIFICATES. Upon receipt by the Corporation of
(i) evidence of the loss, theft, destruction or mutilation of any Preferred
Stock Certificate(s) and (ii) (y) in the case of loss, theft or destruction, of
indemnity (without any bond or other security) reasonably satisfactory to the
Corporation, or (z) in the case of mutilation, upon surrender and cancellation
of the Preferred Stock Certificate(s), the Corporation shall execute and deliver
new Preferred Stock Certificate(s) of like tenor and date. However, the
Corporation shall not be obligated to reissue such lost or stolen Preferred
Stock Certificate(s) if the holder contemporaneously requests the Corporation to
convert such Series A Preferred Stock.
C. ALLOCATION OF CAP AMOUNT AND RESERVED AMOUNT. The initial Cap
Amount and Reserved Amount shall be allocated pro rata among the holders of
Series A Preferred Stock based on the number of shares of Series A Preferred
Stock issued to each holder. Each increase to the Cap Amount and the Reserved
Amount shall be allocated pro rata among the holders of Series A Preferred Stock
based on the number of shares of Series A Preferred Stock held by each holder at
the time of the increase in the Cap Amount or Reserved Amount. In the event a
holder shall sell or
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otherwise transfer any of such holder's shares of Series A Preferred Stock, each
transferee shall be allocated a pro rata portion of such transferor's Cap Amount
and Reserved Amount. Any portion of the Cap Amount or Reserved Amount which
remains allocated to any person or entity which does not hold any Series A
Preferred Stock shall be allocated to the remaining holders of shares of Series
A Preferred Stock, pro rata based on the number of shares of Series A Preferred
Stock then held by such holders.
D. QUARTERLY STATEMENTS OF AVAILABLE SHARES. For each calendar
quarter beginning in the quarter in which the initial registration statement
required to be filed pursuant to the Registration Rights Agreement is declared
effective and thereafter so long as any shares of Series A Preferred Stock are
outstanding, the Corporation shall deliver (or cause its transfer agent to
deliver) to each holder a written report notifying the holders of any occurrence
which prohibits the Corporation from issuing Common Stock upon any such
conversion. The report shall also specify (i) the total number of shares of
Series A Preferred Stock outstanding as of the end of such quarter, (ii) the
total number of shares of Common Stock issued upon all conversions of Series A
Preferred Stock prior to the end of such quarter, (iii) the total number of
shares of Common Stock which are reserved for issuance upon conversion of the
Series A Preferred Stock as of the end of such quarter and (iv) the total number
of shares of Common Stock which may thereafter be listed or issued by the
Corporation upon conversion of the Series A Preferred Stock before the
Corporation would exceed the Cap Amount and the Reserved Amount. The Corporation
(or its transfer agent) shall deliver the report for each quarter to each holder
prior to the tenth day of the calendar month following the quarter to which such
report relates. In addition, the Corporation (or its transfer agent) shall
provide, within 15 days after delivery to the Corporation of a written request
by any holder, any of the information enumerated in clauses (i) - (iv) of this
Paragraph D as of the date of such request.
E. PAYMENT OF CASH; DEFAULTS. Whenever the Corporation is required to
make any cash payment to a holder under this Certificate of Designation (upon
redemption or otherwise), such cash payment shall be made to the holder within
five business days after delivery by such holder of a notice specifying that the
holder elects to receive such payment in cash and the method (E.G., by check,
wire transfer) in which such payment should be made. If such payment is not
delivered within such five business day period, such holder shall thereafter be
entitled to interest on the unpaid amount at a per annum rate equal to the lower
of twenty-four percent (24%) and the highest interest rate permitted by
applicable law until such amount is paid in full to the holder.
F. STATUS AS STOCKHOLDER. Upon submission of a Notice of Conversion
by a holder of Series A Preferred Stock, (i) the shares covered thereby (other
than the shares, if any, which cannot be issued because their listing or
issuance would exceed such holder's allocated portion of the Reserved Amount or
Cap Amount) shall be deemed converted into shares of Common Stock and (ii) the
holder's rights as a holder of such converted shares of Series A Preferred Stock
shall cease and terminate, excepting only the right to receive certificates for
such shares of Common Stock and to any remedies provided herein or otherwise
available at law or in equity to such holder because of a failure by the
Corporation to comply with the terms of this Certificate of Designation.
Notwithstanding the foregoing, if a holder has not received certificates for all
shares of Common
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Stock prior to the tenth business day after the expiration of the Delivery
Period with respect to a conversion of Series A Preferred Stock for any reason,
then (unless the holder otherwise elects to retain its status as a holder of
Common Stock by so notifying the Corporation within five business days after the
expiration of such 10 business day period) the holder shall regain the rights of
a holder of Series A Preferred Stock with respect to such unconverted shares of
Series A Preferred Stock and the Corporation shall, as soon as practicable,
return such unconverted shares to the holder. In all cases, the holder shall
retain all of its rights and remedies (including, without limitation, the right
to have the Conversion Price with respect to subsequent conversions determined
in accordance with Article VI.A) for the Corporation's failure to convert Series
A Preferred Stock.
G. REMEDIES CUMULATIVE. The remedies provided in this Certificate of
Designation shall be cumulative and in addition to all other remedies available
under this Certificate of Designation, at law or in equity (including a decree
of specific performance and/or other injunctive relief), and nothing herein
shall limit a holder's right to pursue actual damages for any failure by the
Corporation to comply with the terms of this Certificate of Designation. The
Corporation acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the holders of Series A Preferred Stock and that the
remedy at law for any such breach may be inadequate. The Corporation therefore
agrees, in the event of any such breach or threatened breach, that the holders
of Series A Preferred Stock shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation this 11th day of August, 1998.
AZUREL LTD.
By: /s/ Gerard Semhon
Name: Gerard Semhon
Title: CEO
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NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series A Preferred Stock)
The undersigned hereby irrevocably elects to convert ____________ shares of
Series A Preferred Stock (the "CONVERSION"), represented by stock certificate
Nos(s). ___________ (the "PREFERRED STOCK CERTIFICATES"), into shares of common
stock ("COMMON STOCK") of AZUREL LTD. (the "CORPORATION") according to the
conditions of the Certificate of Designations, Preferences and Rights of the
Series A Convertible Preferred Stock of the Corporation (the "CERTIFICATE OF
DESIGNATION"), as of the date written below. If securities are to be issued in
the name of a person other than the undersigned, the undersigned will pay all
transfer taxes payable with respect thereto. No fee will be charged to the
holder for any conversion, except for transfer taxes, if any. A copy of each
Preferred Stock Certificate is attached hereto (or evidence of loss, theft or
destruction thereof).
The undersigned requests that the Corporation electronically transmit the Common
Stock issuable pursuant to this Notice of Conversion to the account of the
undersigned or its nominee (which is _________________) with DTC through its
Deposit Withdrawal Agent Commission System ("DTC TRANSFER").
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
Series A Preferred Stock shall be made pursuant to registration of the Common
Stock under the Securities Act of 1933, as amended (the "ACT"), or pursuant to
an exemption from registration under the Act.
- - In lieu of receiving the shares of Common Stock issuable pursuant to
this Notice of Conversion by way of DTC Transfer, the undersigned
hereby requests that the Corporation issue and deliver to the
undersigned physical certificates representing such shares of Common
Stock.
Date of Conversion:
Applicable Conversion Price:
Number of Shares of Common
Stock to be Issued:
Signature:
Name:
Address:_______________________________________
-25-
