<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (Date of earliest event reported) March 31, 1998
YieldUP International Corporation
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in charter)
- --------------------------------------------------------------------------------
Delaware 0-27104 77-0341206
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
- --------------------------------------------------------------------------------
1117 Easy Street, Mountain View, California 94043
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (650) 964-0100
---------------------
(Former name or former address, if changed since last report)
1
<PAGE> 2
ITEM 5. OTHER EVENTS.
On March 31, 1998, the Registrant completed the initial closing (the
"Initial Closing") of a privately placed equity financing of Series A
Convertible Preferred Stock (the "Series A Shares") pursuant to a Securities
Purchase Agreement (the "Purchase Agreement") with seven (7) investors (the
"Investors"). At the Initial Closing, the Registrant raised gross proceeds of $6
million through the sale of 600 Series A Shares. After the satisfaction of
certain holding periods, each Series A Share is convertible, at the option of
its holder, into shares of Common Stock of the Registrant based upon a
conversion price equal to the lower of (i) 110% of the lowest closing market
price of the Registrant's Common Stock on the date the Series A Shares were
issued ($10.8625 for the Series A Shares issued at the Initial Closing) or (ii)
the lowest closing market price of the Registrant's Common Stock during the 20
consecutive trading days immediately preceding the date of conversion.
Subject to various additional conditions, including, but not limited to,
approval of the Registrant's stockholders, the Registrant has the option
("Company Put Option") to require the Investors to purchase additional Series A
Shares, and the Investors have the right to require that the Registrant sell to
them additional Series A Shares ("Investor Call Option"). The maximum number of
additional Series A Shares which the Registrant may require the Investors to
purchase is 600 Series A Shares, for an additional purchase price of $6 million.
Subject to certain conditions, the Investors may require that the Registrant
sell to them pursuant to the Investor Call Option a maximum of 600 additional
Series A Shares (1,200 if the Registrant exercises its right to sell the maximum
number of shares pursuant to the Company Put Option) for a purchase price of
$10,000 per share. The Series A Shares issued upon exercise of the Company Put
Option or the Investor Call Option will have the same terms and rights as the
Series A Shares issued at the Initial Closing.
Notwithstanding the above, in order to comply with the rules of the
Nasdaq Stock Market which require stockholder approval for issuances of 20% or
more of the Registrant's outstanding stock, the number of shares of the
Registrant's Common Stock issuable pursuant to this financing cannot exceed 20%
of the Registrant's outstanding Common Stock unless the Registrant obtains the
approval of the Registrant's stockholders.
TERMS OF THE SERIES A SHARES.
The following is a summary of the rights, preferences and privileges of
the Series A Shares and the rights granted pursuant to the Purchase Agreement,
attached hereto as Exhibit 10.1, the Certificate of Designation for Series A
Preferred Stock (the "Certificate of Designation"), attached hereto as Exhibit
3.1, and the Registration Rights Agreement for the Series A Preferred Stock
attached hereto as Exhibit 10.2.
DIVIDENDS. The Series A Shares do not bear dividends.
2
<PAGE> 3
VOTING RIGHTS. The holders of the Series A Shares shall have no voting
rights, except as required by law. However, the affirmative vote of the holders
of the Series A Shares at a meeting duly called for such purpose or the written
consent without a meeting, of the holders of not less than two-thirds (2/3) of
the then outstanding Series A Shares, shall be required for (a) any change to
the Certificate of Designation or the Company's Certificate of Incorporation
which would amend, alter, change or repeal any of the powers, designations,
preferences and rights of the Series A Shares, or (b) any issuance of Series A
Shares other than pursuant to the Securities Purchase Agreement.
LIQUIDATION PREFERENCE. Upon any liquidation, dissolution or winding up
of the affairs of the Registrant, the holder of each Series A Share shall be
entitled to be paid an amount per share equal to (i) $12,000 and (ii) an amount
equal to the product of (.05)(N/365)($12.00) out of the assets of the Registrant
where "N" equals the number of days since the initial issuance of such shares.
If the assets of the Registrant upon such event are insufficient to make such
payment in full, then the holders of Series A Shares shall be entitled to pro
rata distribution, along with holders of other preferred stock that are pari
passu with the holders of Series A Shares, of all the assets of the Registrant.
After payment in full of the liquidation preference to the holders of Series A
Shares, such holders are entitled to no further distributions.
CONVERSION. The Series A Shares are convertible into shares of Common
Stock at the election of the holder of such Series A Shares, at a price (the
"Conversion Rate") equal to the lower of the market price at the original date
of issuance of such share (the "Fixed Conversion Price") or the lowest market
price during the 20 consecutive days immediately preceding the date a holder of
Series A Shares delivers notice of his election to convert such shares. "Market
price" is generally determined by the closing price for the Registrant's Common
Stock on the applicable date.
Except upon the occurrence of certain events, the Investor(s) may
convert, in aggregate, only up to a maximum of a specified percentage of the
Series A Shares according to the following schedule:
<TABLE>
<CAPTION>
Days from % of Shares
Closing Convertible
--------------- -------------
<S> <C>
1 through 90 0
91 through 135 20
136 through 180 40
181 through 225 60
226 through 270 80
271 through term 100
</TABLE>
3
<PAGE> 4
Subject to certain exceptions, any Series A Shares outstanding three years after
the date such shares were initially issued will automatically convert into
shares of the Registrant's Common Stock at the then applicable Conversion Rate.
ADJUSTMENTS TO CONVERSION RATE. The Conversion Rate is subject to
proportional adjustment upon any stock split, stock dividend or other similar
change to the capital stock of the Registrant as well other adjustments upon the
issuance, or deemed issuance, of other shares of Common Stock at a price below
the then effective Fixed Conversion Price.
MANDATORY CONVERSION. Under certain circumstances after the Registrant
publicly discloses a Change of Control Transaction, as defined in the
Certificate of Designation, the Registrant shall have the right to require that
all of the outstanding Series A Shares be converted to Common Stock.
REDEMPTION. The holders of Series A Shares have a right to require the
Registrant to redeem the Series A Shares upon the occurrence of certain events,
including a Major Transaction, or a Triggering Event, as each is defined in the
Certificate of Designation.
REGISTRATION RIGHTS. The Registrant is obligated to promptly (and in any
event prior to April 30, 1998) file a registration statement (the "Registration
Statement") with the Securities and Exchange Commission (the "SEC") to cover the
resale of the Registrant's Common Stock issuable upon the conversion of the
Series A Shares. The Registrant is obligated to use its reasonable best efforts
to have the Registration Statement declared effective by the SEC and remain
effective until the Registrant's Common Stock subject to the Registration
Statement may otherwise be freely traded without registration. The Registrant is
also obligated to list such shares on the Nasdaq SmallCap Market and to take
certain actions to comply with applicable state securities laws and regulations.
CLOSING AND OPTIONS.
The Initial Closing of the sale of Series A Shares took place on March
31, 1998. At the Initial Closing, 600 Series A Shares were issued for aggregate
gross proceeds of $6 million.
COMPANY PUT OPTION. Beginning 180 days after the earlier of (x) the
effective date of the Registration Statement; or (y) 120 days after the Initial
Closing, the Registrant may require that the Investors purchase up to 600
additional Series A Shares, for a purchase price of $6 million, (pro rata per
Investor) under the same terms and conditions as the initial issuance of Series
A Shares. The Registrant's ability to exercise such option is subject to a
number of conditions, including, among others: (i) the Registrant has obtained
stockholder approval for the issuance of additional securities, (ii) the
Registration Statement has been effective for at least 60 consecutive calendar
days; (iii) the Registrant's Common Stock has not been delisted from the Nasdaq
SmallCap Market and/or suspended from trading; (iv) there has been neither a
Major Transaction nor a Triggering Event; (v) certain tests are met regarding
minimum average daily
4
<PAGE> 5
trading price in the Registrant's Common Stock; (vi) the Registrant has
performed its obligations under the Certificate of Designation; and (vii) a put
closing date has not occurred previously.
5
<PAGE> 6
INVESTOR CALL OPTION. Subject to certain conditions, at any date which
is 210 days from the Initial Closing through the Mandatory Conversion Date, as
defined in the Certificate of Designation, each Investor has a right to require
the Registrant to issue and sell to each such Investor up to two times as many
Series A Shares as the Investor had initially purchased. Any Investor may only
exercise this right twice.
LIMITATIONS ON CONVERSION AND EXERCISE.
The Purchase Agreement provides that the number of shares of the
Registrant's Common Stock issuable upon conversion of the Series A Shares cannot
exceed 20% of the outstanding shares of the Registrant's Common Stock without
the approval of the stockholders of the Registrant. Likewise, the number of
shares of the Registrant's Common Stock issuable from to time to any single
Investor cannot exceed 4.99% or more of the Registrant's outstanding Common
Stock.
EFFECT ON RIGHTS OF EXISTING SECURITY HOLDERS.
There is no change to the rights, preferences or privileges of the
holders of the Registrant's Common Stock as a result of the transactions which
are the subject of the Purchase Agreement. However, in addition to the dilutive
impact of the issuance of additional shares of capital stock, the Series A
Shares have a liquidation preference which entitles the holders thereof to
receive payment upon any dissolution or liquidation of the Registrant in
preference to the holders of Common Stock. The amount of such preference is
equal to $12,000 plus an amount equal to the product of (.05)(N/365)($12,000)
for each of the Series A Shares where "N" is the number of days since the
initial issuance of such shares.
ITEM 7. EXHIBITS.
(a) Financial statements of business acquired.
Not applicable.
(b) Pro forma financial information.
Not applicable.
(c) Exhibits.
<TABLE>
<CAPTION>
Exhibit
No. Description
--- -----------
<S> <C>
3.1 Certificate of Designation for Series A Preferred Stock
10.1 Form of Securities Purchase Agreement for Series A
Preferred Stock
10.2 Form of Registration Rights Agreement for Series A
Preferred Stock
99.1 Press Release of YieldUP International Corporation
dated March 31, 1998
</TABLE>
6
<PAGE> 7
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 hereunto duly authorized.
YIELDUP INTERNATIONAL CORPORATION
Date: April 8, 1998 By: /s/ Abhay Bhusan
------------------------------
Abhay Bhushan
Chief Executive Officer
7
<PAGE> 8
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
----------- -----------
<S> <C>
3.1 Certificate of Designation for Series A Preferred Stock
10.1 Form of Securities Purchase Agreement for Series A
Preferred Stock
10.2 Form of Registration Rights Agreement for Series A
Preferred Stock
99.1 Press Release of YieldUP International Corporation
dated March 31, 1998
</TABLE>
<PAGE> 1
EXHIBIT 3.1
CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF SERIES A CONVERTIBLE PREFERRED STOCK
OF
YIELDUP INTERNATIONAL CORPORATION
YieldUP International Corporation (the "COMPANY"), a corporation
organized and existing under the General Corporation Law of the State of
Delaware, does hereby certify that, pursuant to authority conferred upon the
Board of Directors of the Company by the Certificate of Incorporation, as
amended, of the Company, and pursuant to Section 151 of the General Corporation
Law of the State of Delaware, the Board of Directors of the Company at a meeting
duly held adopted resolutions (i) authorizing a series of the Company's
previously authorized preferred stock, par value $0.001 per share, and (ii)
providing for the designations, preferences and relative, participating,
optional or other rights, and the qualifications, limitations or restrictions
thereof, of Two Thousand Four Hundred (2,400) shares of Series A Convertible
Preferred Stock of the Company, as follows:
RESOLVED, that the Company is authorized to issue 2,400 shares of
Series A Convertible Preferred Stock (the "PREFERRED SHARES"), par value
$0.001 per share, which shall have the following powers, designations,
preferences and other special rights:
(1) Dividends. The Preferred Shares shall not bear any dividends.
<PAGE> 2
(2) Holder's Conversion of Preferred Shares. A holder of
Preferred Shares shall have the right, at such holder's option, to convert the
Preferred Shares into shares of the Company's common stock, par value $0.001 per
share (the "COMMON STOCK"), on the following terms and conditions:
(a) Conversion Right. Subject to the provisions of Section 2(j),
at any time or times on or after the Issuance Date (as defined below),
any holder of Preferred Shares shall be entitled to convert any whole
number of Preferred Shares into fully paid and nonassessable shares
(rounded to the nearest whole share in accordance with Section 2(h)) of
Common Stock, at the Conversion Rate (as defined below); provided,
however, that in no event shall any holder be entitled to convert
Preferred Shares in excess of that number of Preferred Shares which,
upon giving effect to such conversion, would cause the aggregate number
of shares of Common Stock beneficially owned by the holder and its
affiliates to exceed 4.99% of the outstanding shares of the Common Stock
following such conversion. For purposes of the foregoing proviso, the
aggregate number of shares of Common Stock beneficially owned by the
holder and its affiliates shall include the number of shares of Common
Stock issuable upon conversion of the Preferred Shares with respect to
which the determination of such proviso is being made, but shall exclude
the number of shares of Common Stock which would be issuable upon (i)
conversion of the remaining, nonconverted Preferred Shares beneficially
owned by the holder and its affiliates, and (ii) exercise or conversion
of the unexercised or unconverted portion of any other securities of the
Company (including, without limitation, any warrants) subject to a
limitation on conversion or exercise analogous to the limitation
contained herein beneficially owned by the holder and its affiliates.
Except as set forth in the preceding sentence, for purposes of this
Section 2(a), beneficial ownership shall be calculated in accordance
with Section 13(d) of the Securities Exchange Act of 1934, as amended.
The holder may waive the foregoing limitations by written notice to the
Company upon not less than 61 days prior notice (with such waiver taking
effect only upon the expiration of such 61 day notice period).
(b) Conversion Rate. The number of shares of Common Stock
issuable upon conversion of each of the Preferred Shares pursuant to
Sections (2)(a) and 2(g) shall be determined according to the following
formula (the "CONVERSION RATE"):
(.05)(N/365)(10,000) + 10,000
-----------------------------
Conversion Price
For purposes of this Certificate of Designations, the following terms
shall have the following meanings:
-2-
<PAGE> 3
(i) "CONVERSION PRICE" means, as of any Conversion Date
(as defined in Section 2(f)) or other date of determination, the lower of the
Fixed Conversion Price (as defined below) and the Floating Conversion Price (as
defined below), each in effect as of such date and subject to adjustment as
provided herein;
(ii) "FIXED CONVERSION PRICE" means 110% of the Closing
Bid Price (as defined below) on the Issuance Date of the applicable Preferred
Shares, subject to adjustment as provided herein;
(iii) "FLOATING CONVERSION PRICE" means, as of any date of
determination, the amount obtained by multiplying the Conversion Percentage (as
defined below) in effect as of such date by the Market Price of the Common Stock
as of such date;
(iv) "CONVERSION PERCENTAGE" means 100%, subject to
adjustment as provided herein;
(v) "MARKET PRICE" means, with respect to any security for
any date, the lowest Closing Bid Price for such security during the 20
consecutive trading days immediately preceding such date;
(vi) "CLOSING BID PRICE" means, for any security as of any
date, the last closing bid price for such security on The Nasdaq SmallCap Market
as reported by Bloomberg Financial Markets ("BLOOMBERG"), or, if The Nasdaq
SmallCap Market is not the principal trading market for such security, the last
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,
or if the foregoing do not apply, the last closing 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 closing bid price is reported for such
security by Bloomberg, the last closing trade price of such security as reported
by Bloomberg, or, if no last closing trade 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 mutually determined by the Company and the
holders of a majority of the outstanding Preferred Shares (including for
purposes of this determination any Preferred Shares with respect to which the
Closing Bid Price is being determined). If the Company and the holders of
Preferred Shares are unable to agree upon the fair market value of the Common
Stock, then such dispute shall be resolved pursuant to Section 2(f)(iii) with
the term "Closing Bid Price" being substituted for the term "Market Price." (All
such determinations to be appropriately adjusted for any stock dividend, stock
split or other similar transaction during such period).
-3-
<PAGE> 4
(vii) "N" means the number of days from, but excluding,
the Issuance Date through and including the Conversion Date for the Preferred
Shares for which conversion is being elected; and
(viii) "ISSUANCE DATE" means, with respect to each
Preferred Share, the date of issuance of the applicable Preferred Share.
(c) Intentionally omitted.
(d) Adjustment to Conversion Price -- Dilution and Other Events.
In order to prevent dilution of the rights granted under this
Certificate of Designations, the Conversion Price will be subject to
adjustment from time to time as provided in this Section 2(d).
-4-
<PAGE> 5
(i) Adjustment of Fixed Conversion Price upon Issuance of
Common Stock. If and whenever on or after the Issuance Date, the Company issues
or sells, or is deemed to have issued or sold, any shares of Common Stock (other
than the Preferred Shares and shares of Common Stock deemed to have been issued
by the Company in connection with an Approved Stock Plan (as defined below)) for
a consideration per share less than the Fixed Conversion Price in effect
immediately prior to such issuance or sale (the "APPLICABLE PRICE"), then
immediately after such issue or sale, the Fixed Conversion Price then in effect
shall be reduced to an amount equal to the product of (x) the Fixed Conversion
Price in effect immediately prior to such issue or sale and (y) the quotient
determined by dividing (1) the sum of (I) the product of the Applicable Price
and the number of shares of Common Stock Deemed Outstanding (as defined below)
immediately prior to such issue or sale, and (II) the consideration, if any,
received by the Company upon such issue or sale, by (2) the product of (I) the
Applicable Price and (II) the number of shares of Common Stock Deemed
Outstanding immediately after such issue or sale. For purposes of determining
the adjusted Fixed Conversion Price under this Section 2(d)(i), the following
shall be applicable:
-5-
<PAGE> 6
(A) Issuance of Options. If the Company in any manner
grants any rights or options to subscribe for or to purchase Common Stock (other
than pursuant to an Approved Stock Plan or upon conversion of the Preferred
Shares) or any stock or other securities convertible into or exchangeable for
Common Stock (such rights or options being herein called "OPTIONS" and such
convertible or exchangeable stock or securities being herein called "CONVERTIBLE
SECURITIES") and the price per share for which Common Stock is issuable upon the
exercise of such Options or upon conversion or exchange of such Convertible
Securities is less than the Applicable Price, then the total maximum number of
shares of Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For purposes of this Section 2(d)(i)(A), the "price per share for which
Common Stock is issuable upon exercise of such Options or upon conversion or
exchange of such Convertible Securities" is determined by dividing (I) the total
amount, if any, received or receivable by the Company as consideration for the
granting of such Options, plus the minimum aggregate amount of additional
consideration payable to the Company upon the exercise of all such Options, plus
in the case of such Options which relate to Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the issuance or sale of such Convertible Securities and the conversion or
exchange thereof, by (II) the total maximum number of shares of Common Stock
issuable upon exercise of such Options or upon the conversion or exchange of all
such Convertible Securities issuable upon the exercise of such Options. No
adjustment of the Fixed Conversion Price shall be made upon the actual issuance
of such Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities.
(B) Issuance of Convertible Securities. If the Company in
any manner issues or sells any Convertible Securities and the price per share
for which Common Stock is issuable upon such conversion or exchange is less than
the Applicable Price, then the maximum number of shares of Common Stock issuable
upon conversion or exchange of such Convertible Securities shall be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For the purposes of this Section 2(d)(i)(B), the "price per share for
which Common Stock is issuable upon such conversion or exchange" is determined
by dividing (I) the total amount received or receivable by the Company as
consideration for the issue or sale of such Convertible Securities, plus the
minimum aggregate amount of additional consideration, if any, payable to the
Company upon the conversion or exchange thereof, by (II) the total maximum
number of shares of Common Stock issuable upon the conversion or exchange of all
such Convertible Securities. No adjustment of the Fixed Conversion Price shall
be made upon the actual issue of such
-6-
<PAGE> 7
Common Stock upon conversion or exchange of such Convertible Securities, and if
any such issue or sale of such Convertible Securities is made upon exercise of
any Options for which adjustment of the Fixed Conversion Price had been or are
to be made pursuant to other provisions of this Section 2(d)(i), no further
adjustment of the Fixed Conversion Price shall be made by reason of such issue
or sale.
(C) Change in Option Price or Rate of Conversion. If the
purchase price provided for in any Options, the additional consideration, if
any, payable upon the issue, conversion or exchange of any Convertible
Securities, or the rate at which any Convertible Securities are convertible into
or exchangeable for Common Stock change at any time, the Fixed Conversion Price
in effect at the time of such change shall be readjusted to the Fixed Conversion
Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed purchase
price, additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold; provided that no adjustment shall
be made if such adjustment would result in an increase of the Fixed Conversion
Price then in effect.
(D) Certain Definitions. For purposes of determining the
adjusted Fixed Conversion Price under this Section 2(d)(i), the following terms
have the meanings set forth below:
(I) "APPROVED STOCK PLAN" shall mean any contract, plan or
agreement which has been approved by the Board of Directors of the Company,
pursuant to which the Company's securities may be issued to any employee,
officer, director, consultant or other service provider.
(II) "COMMON STOCK DEEMED OUTSTANDING" means, at any given
time, the number of shares of Common Stock actually outstanding at such time,
plus the number of shares of Common Stock deemed to be outstanding pursuant to
Sections 2(d)(i)(A) and 2(d)(i)(B) hereof regardless of whether the Options or
Convertible Securities are actually exercisable at such time, but excluding any
shares of Common Stock issuable upon conversion of the Preferred Shares.
(E) Effect on Fixed Conversion Price of Certain Events. For
purposes of determining the adjusted Fixed Conversion Price under this Section
2(d)(i), the following shall be applicable:
(I) Calculation of Consideration Received. If any Common
Stock, Options or Convertible Securities are issued or sold or deemed to have
been issued or sold for cash, the consideration received therefor will be deemed
to be the
-7-
<PAGE> 8
net amount received by the Company therefor. In case any Common Stock, Options
or Convertible Securities are issued or sold for a consideration other than
cash, the amount of the consideration other than cash received by the Company
will be the fair value of such consideration, except where such consideration
consists of securities, in which case the amount of consideration received by
the Company will be the average of the Closing Bid Prices of such securities for
the five consecutive trading days immediately preceding the date of receipt. In
case any Common Stock, Options or Convertible Securities are issued to the
owners of the non-surviving entity in connection with any merger in which the
Company is the surviving entity, the amount of consideration therefor will be
deemed to be the fair value of such portion of the net assets and business of
the non-surviving entity as is attributable to such Common Stock, Options or
Convertible Securities, as the case may be. The fair value of any consideration
other than cash or securities will be determined jointly by the Company and the
holders of a majority of the Preferred Shares then outstanding and shall
presumptively be the Market Value of the securities upon issuance absent
compelling evidence to the contrary. If such parties are unable to reach
agreement within ten (10) days after the occurrence of an event requiring
valuation (the "VALUATION EVENT"), the fair value of such consideration will be
determined within forty-eight (48) hours of the tenth (10th) day following the
Valuation Event by an independent, reputable appraiser selected by the Company.
The determination of such appraiser shall be binding upon all parties absent
manifest error.
(II) Integrated Transactions. In case any Option is issued
in connection with the issue or sale of other securities of the Company,
together comprising one integrated transaction in which no specific
consideration is allocated to such Options by the parties thereto, the Options
will be deemed to have been issued for a consideration of $.01.
(III) Treasury Shares. The number of shares of Common
Stock outstanding at any given time does not include shares owned or held by or
for the account of the Company, and the disposition of any shares so owned or
held will be considered an issue or sale of Common Stock.
(IV) Record Date. If the Company takes a record of the
holders of Common Stock for the purpose of entitling them (1) to receive a
dividend or other distribution payable in Common Stock, Options or in
Convertible Securities, or (2) to subscribe for or purchase Common Stock,
Options or Convertible Securities, then such record date will be deemed to be
the date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
-8-
<PAGE> 9
(ii) Adjustment of Fixed Conversion Price upon Subdivision
or Combination of Common Stock. If the Company at any time subdivides (by any
stock split, stock dividend, recapitalization or otherwise) one or more classes
of its outstanding shares of Common Stock into a greater number of shares, the
Fixed Conversion Price in effect immediately prior to such subdivision will be
proportionately reduced. If the Company at any time combines (by combination,
reverse stock split or otherwise) one or more classes of its outstanding shares
of Common Stock into a smaller number of shares, the Fixed Conversion Price in
effect immediately prior to such combination will be proportionately increased.
(iii) Adjustment of Floating Conversion Price upon
Issuance of Convertible Securities. If the Company in any manner issues or sells
Convertible Securities that are convertible into or exchangeable for Common
Stock at a price which varies with the market price of the Common Stock (the
formulation for such variable price being herein referred to as, the "VARIABLE
PRICE") and such Variable Price is not calculated using the same formula used to
calculate the Floating Conversion Price in effect immediately prior to the time
of such issue or sale, the Company shall provide written notice thereof via
facsimile and overnight courier to each holder of the Preferred Shares
("VARIABLE NOTICE") as soon as practicable, but in no event later than five (5)
days after the date of issuance of such Convertible Securities. If the holders
of Preferred Shares representing at least two-thirds (2/3) of the Preferred
Shares then outstanding provide written notice via facsimile and overnight
courier (the "VARIABLE PRICE ELECTION NOTICE") to the Company within five (5)
business days of receiving a Variable Notice that such holders desire to replace
the Floating Conversion Price then in effect with the Variable Price described
in such Variable Notice, then from and after the date of the Company's receipt
of the Variable Price Election Notice the Floating Conversion Price will
automatically be replaced with the Variable Price (together with such
modifications to this Certificate of Designations as may be required to give
full effect to the substitution of the Variable Price for the Floating
Conversion Price). A holder's delivery of a Variable Price Election Notice shall
serve as the consent required to amend this Certificate of Designations pursuant
to Section 14 below. In the event that a holder delivers a Conversion Notice at
any time after the Company's issuance of Convertible Securities with a Variable
Price but before such holder's receipt of the Company's Variable Notice, then
such holder shall have the option by written notice to the Company to rescind
such Conversion Notice or to have the Conversion Price be equal to such Variable
Price for the conversion effected by such Conversion Notice.
(iv) Reorganization, Reclassification, Consolidation,
Merger or Sale. Any recapitalization, reorganization, reclassification,
consolidation, merger, sale of all or substantially all of the Company's assets
to another Person (as defined below) or other
-9-
<PAGE> 10
transaction which is effected in such a way that holders of Common Stock are
entitled to receive (either directly or upon subsequent liquidation) stock,
securities or assets with respect to or in exchange for Common Stock is referred
to herein as "ORGANIC CHANGE." Subject to the rights of the Company to require
conversion of the Preferred Shares pursuant to Section 6 of this Certificate of
Designations, prior to the consummation of any Organic Change, the Company will
make appropriate provision (in form and substance satisfactory to the holders of
a majority of the Preferred Shares then outstanding) to insure that each of the
holders of the Preferred Shares will thereafter have the right to acquire and
receive in lieu of or in addition to (as the case may be) the shares of Common
Stock otherwise acquirable and receivable upon the conversion of such holder's
Preferred Shares, such shares of stock, securities or assets that would have
been issued or payable in such Organic Change with respect to or in exchange for
the number of shares of Common Stock which would have been acquirable and
receivable upon the conversion of such holder's Preferred Shares had such
Organic Change not taken place (without taking into account any limitations or
restrictions on the timing or amount of conversions). "PERSON" shall mean an
individual, a limited liability company, a partnership, a joint venture, a
corporation, a trust, an unincorporated organization and a government or any
department or agency thereof.
(v) Expiration of Options or Convertible Securities. Upon
the expiration of any Options or any rights of conversion, exercise or exchange
under Convertible Securities which shall not have been exercised, converted or
exchanged, the Fixed Conversion Price computed upon the original issue thereof
(or upon the occurrence of a record date with respect thereto), and any
subsequent adjustments based thereon, shall, upon such expiration, be recomputed
as if: (A) in the case of Convertible Securities or Options, the only Common
Stock with respect to such Convertible Securities or Options were shares of
Common Stock, if any, actually issued upon the exercise of such Options or
exercise, conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by the
Company for the issue of all such Options, whether or not exercised, plus the
consideration actually received by the Company upon such exercise, or for the
issue of all such Convertible Securities which were actually exercised,
converted or exchanged, plus any additional consideration, if any, actually
received by the Company upon such exercise, conversion or exchange, and (ii) in
the case of Options for Convertible Securities, only the Convertible Securities,
if any, actually issued upon the exercise thereof were issued at the time of
issue of such Options, and the consideration received by the Company for the
Common Stock deemed to have been issued was the consideration actually received
by the Company for the issue of all such Options, whether or not exercised, plus
the consideration deemed to have been received by the Company upon the issue of
the Convertible Securities with respect to which such Options were actually
exercised.
-10-
<PAGE> 11
(vi) Certain Events. If any event occurs of the type
contemplated by the provisions of this Section 2(d) but not expressly provided
for by such provisions (including, without limitation, the granting of stock
appreciation rights, phantom stock rights or other rights with equity features),
then the Company's Board of Directors will make an appropriate adjustment in the
Conversion Price so as to protect the rights of the holders of the Preferred
Shares; provided, however, that no such adjustment will increase the Conversion
Price as otherwise determined pursuant to this Section 2(d).
(vii) Notices.
(A) Promptly following any adjustment of the
Conversion Price, the Company will give written notice thereof to each holder of
the Preferred Shares, setting forth in reasonable detail and certifying the
calculation of such adjustment.
(B) The Company will give written notice to each
holder of the Preferred Shares at least twenty (20) days prior to the date on
which the Company closes its books or takes a record (I) with respect to any
dividend or distribution upon the Common Stock, (II) with respect to any pro
rata subscription offer to holders of Common Stock, or (III) for determining
rights to vote with respect to any Organic Change, dissolution or liquidation
and in no event shall such notice be provided to such holder prior to such
information being made known to the public.
(C) The Company will also give written notice to
each holder of the Preferred Shares at least twenty (20) days prior to the date
on which any Organic Change, dissolution or liquidation will take place and in
no event shall such notice be provided to such holder prior to such information
being made known to the public.
(viii) Adjustment of Conversion Price After Announcement
of Change of Control Transaction. With respect to any conversion pursuant to a
Conversion Notice delivered after the Company's delivery of Notice of Conversion
at Company's Election, the Conversion Price shall be equal to the lesser of (A)
the Conversion Price then in effect without regard to this Section 2(d)(viii)
and (B) the product of (I) 0.833 and the Closing Bid Price on the Conversion
Date.
(e) Purchase Rights. In addition to any adjustments of the
Conversion Price pursuant to Section 2(d), if at any time after the
Issuance Date the Company grants, issues or sells any Options,
Convertible Securities or rights to purchase stock, warrants, securities
or other property pro rata to the record holders of any class of Common
Stock (the "PURCHASE RIGHTS"), then the holders of the Preferred Shares
will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights
-11-
<PAGE> 12
which such holder could have acquired if such holder had held the number
of shares of Common Stock acquirable upon complete conversion of the
Preferred Shares (without taking into account any limitations or
restrictions on the timing or amount of conversions) 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 the Common Stock are to be determined for
the grant, issue or sale of such Purchase Rights.
(f) Mechanics of Conversion. Subject to the Company's inability
to fully satisfy its obligations under a Conversion Notice (as defined
below) as provided for in Section 4:
(i) Holder's Delivery Requirements. To convert Preferred
Shares into full shares of Common Stock on any date (the "CONVERSION DATE"), the
holder thereof shall (A) transmit by facsimile (or otherwise deliver), for
receipt on or prior to 11:59 p.m. Eastern Time, on such date, a copy of a fully
executed notice of conversion in the form attached hereto as Exhibit I (the
"CONVERSION NOTICE") to the Company and its designated transfer agent (the
"TRANSFER AGENT"), and (B) surrender to a common carrier, for delivery to the
Company or the Transfer Agent as soon as practicable following such date, the
original certificate(s) representing the Preferred Shares being converted (or an
indemnification undertaking with respect to such shares in the case of their
loss, theft or destruction) (the "PREFERRED STOCK CERTIFICATE(S)") and the
originally executed Conversion Notice.
(ii) Company's Response. Within 48 hours of receipt by the
Company of a facsimile copy of a Conversion Notice, the Company shall send, via
facsimile, a confirmation of receipt of such Conversion Notice to such holder.
Upon receipt by the Company or the Transfer Agent of the Preferred Stock
Certificate(s) to be converted pursuant to a Conversion Notice, together with
the originally executed Conversion Notice, the Company or the Transfer Agent (as
applicable) shall, within the later of one business day after receipt of the
Preferred Stock Certificates and two days after receipt of the Conversion
Notice, (I) issue and surrender to a common carrier for overnight delivery to
the address specified in the Conversion Notice, a certificate, registered in the
name of the holder or its designee, for the number of shares of Common Stock to
which the holder shall be entitled, or (II) credit such aggregate number of
shares of Common Stock to which the holder shall be entitled to the holder's or
its designee's balance account with The Depository Trust Company. If the number
of Preferred Shares represented by the Preferred Stock Certificate(s) submitted
for conversion is greater than the number of Preferred Shares being converted,
then the Company or Transfer Agent, as the case may be, shall, as soon as
practicable and in no event later than three business days after receipt of the
Preferred Stock
-12-
<PAGE> 13
Certificate(s) and at its own expense, issue and deliver to the holder a new
Preferred Stock Certificate representing the number of Preferred Shares not
converted.
(iii) Dispute Resolution. In the case of a dispute as to
the determination of the Market Price or the arithmetic calculation of the
Conversion Rate, the Company shall promptly issue to the holder the number of
shares of Common Stock that is not disputed and shall submit the disputed
determinations or arithmetic calculations to the holder via facsimile within two
business days of receipt of such holder's Conversion Notice. If such holder and
the Company are unable to agree upon the determination of the Market Price or
arithmetic calculation of the Conversion Rate within one business day of such
disputed determination or arithmetic calculation being submitted to the holder,
then the Company shall within one business day submit via facsimile (A) the
disputed determination of the Market Price to an independent, reputable
investment bank, or (B) the disputed arithmetic calculation of the Conversion
Rate to its independent, outside accountant. The Company shall cause the
investment bank or the accountant, as the case may be, to perform the
determinations or calculations and notify the Company and the holder of the
results no later than forty-eight (48) hours from the time it receives the
disputed determinations or calculations. Such investment bank's or accountant's
determination or calculation, as the case may be, shall be binding upon all
parties absent manifest error.
(iv) Record Holder. The person or persons entitled to
receive the shares of Common Stock issuable upon a conversion of Preferred
Shares shall be treated for all purposes as the record holder or holders of such
shares of Common Stock on the Conversion Date.
(v) Company's Failure to Timely Convert. If within five
business days after the Company's or the Transfer Agent's receipt of the
Preferred Stock Certificates to be converted and the Conversion Notice the
Company shall fail (I) to issue a certificate for the number of shares of Common
Stock to which a holder is entitled or to credit the holder's balance account
with The Depository Trust Company for such number of shares of Common Stock to
which the holder is entitled upon such holder's conversion of the Preferred
Shares, or (II) to issue a new Preferred Stock Certificate representing the
number of Preferred Shares to which such holder is entitled, pursuant to Section
2(f)(ii), in addition to all other available remedies which such holder may
pursue hereunder and under the Securities Purchase Agreement between the Company
and the initial holders of the Preferred Shares (the "SECURITIES PURCHASE
AGREEMENT") (including indemnification pursuant to Section 8 thereof), the
Company shall pay additional damages to such holder on each date after such
fifth (5th) business day that such conversion or delivery of such Preferred
Stock Certificates, as the case may be, is not timely effected in an amount
equal to 0.5% of the product of (A) the sum of the number of shares of Common
Stock not issued
-13-
<PAGE> 14
to the holder on a timely basis pursuant to Section 2(f)(ii) and to which such
holder is entitled and, in the event the Company has failed to deliver a
Preferred Stock Certificate to the holder on a timely basis pursuant to Section
2(f)(ii), the number of shares of Common Stock issuable upon conversion of the
Preferred Shares represented by such Preferred Stock Certificate as of the last
possible date which the Company could have issued such Preferred Stock
Certificate to such holder without violating Section 2(f)(ii); and (B) the
Closing Bid Price of the Common Stock on the last possible date which the
Company could have issued such Common Stock and the Preferred Stock Certificate,
as the case may be, to such holder without violating Section 2(f)(ii).
(g) Mandatory Conversion. If any Preferred Shares remain outstanding on
the Mandatory Conversion Date (as defined below), then all such Preferred Shares
shall be converted as of such date in accordance with this Section 2 as if the
holders of such Preferred Shares had given the Conversion Notice on the
Mandatory Conversion Date; provided, however, that if a Triggering Event has
occurred and is continuing on the Mandatory Conversion Date, then the Company
shall, within five business days following the Mandatory Conversion Date (unless
otherwise notified in writing by the holder of its request to have the Preferred
Shares converted into Common Stock), pay to each holder of Preferred Shares then
outstanding, in immediately available funds upon delivery of the Preferred Stock
Certificates representing such Preferred Shares, an amount equal to the
Triggering Event Redemption Price as of the Mandatory Conversion Date. All
holders of Preferred Shares shall thereupon surrender all Preferred Stock
Certificates, duly endorsed for cancellation, to the Company or the Transfer
Agent, provided that the Company has complied with its obligations under this
Section 2(g). Notwithstanding the foregoing, if the Common Stock is not
designated for quotation on the Nasdaq SmallCap Market, the Nasdaq National
Market or listed on The New York Stock Exchange, Inc. or The American Stock
Exchange, Inc. but such events do not constitute a Triggering Event, then the
Mandatory Conversion Date shall be extended until the Common Stock is so
designated or listed. "MANDATORY CONVERSION DATE" means the date which is three
years after the applicable Issuance Date, subject to extension as described in
the immediately preceding sentence or unless extended pursuant to Section 4(m)
of the Securities Purchase Agreement, which extension shall be equal to one and
one-half (1-1/2) days for each number of days in any Underwriting Lock-Up Period
(as defined in Section 4(m) of the Securities Purchase Agreement).
(h) Fractional Shares. The Company shall not issue any fraction of a
share of Common Stock upon any conversion. All shares of Common Stock (including
fractions thereof) issuable upon conversion of more than one Preferred Share by
a holder thereof shall be aggregated for purposes of determining whether the
conversion would result in the issuance of a fraction of a share of Common
Stock. If, after the aforementioned
-14-
<PAGE> 15
aggregation, the issuance would result in the issuance of a fraction of a share
of Common Stock, the Company shall round such fraction of a share of Common
Stock up or down to the nearest whole share.
(i) Taxes. The Company shall pay any and all taxes which may be imposed
upon it with respect to the issuance and delivery of shares of Common Stock upon
the conversion of the Preferred Shares.
(j) Conversion Restrictions. The right of a holder of Preferred Shares
to convert Preferred Shares pursuant to this Section 2 shall be limited as set
forth below. Without the prior consent of the Company, a holder of Preferred
Shares shall not be entitled to convert an aggregate number of Preferred Shares
from the Issuance Date of such Preferred Shares through the date of this
determination in excess of the number of Preferred Shares which when divided by
the number of Preferred Shares purchased by such holder on such Issuance Date
would exceed (i) 0.00 for the period beginning on the Issuance Date and ending
on and including the date which is 90 days after the Issuance Date, (ii) 0.20
for the period beginning on and including the date which is 91 days after the
Issuance Date and ending on and including the date which is 135 days after the
Issuance Date, (iii) 0.40 for the period beginning on and including the date
which is 136 days after the Issuance Date and ending on and including the date
which is 180 days after the Issuance Date, (iv) 0.60 for the period beginning on
and including the date which is 181 days after the Issuance Date and ending on
and including the date which is 225 days after the Issuance Date, (v) 0.80 for
the period beginning on and including the date which is 226 days after the
Issuance Date and ending on and including the date which is 270 days after the
Issuance Date, and (vi) 1.00 for the period beginning on and including the date
which is 271 days after the Issuance Date and ending on and including the
Mandatory Conversion Date. Notwithstanding the foregoing, the conversion
restrictions set forth in this Section 2(j) shall not apply (x) if there shall
have occurred a Material Adverse Change (as defined below), (y) with respect to
any conversion of Preferred Shares at a Conversion Price which is not less than
the Fixed Conversion Price then in effect, or (z) if there is an announcement of
a pending Major Transaction (as defined in Section 3(c)). For purposes of this
Section 2(j), "MATERIAL ADVERSE CHANGE" means any change, event, result or
happening involving, directly or indirectly, the Company or any of its
subsidiaries resulting in a material adverse effect on the business, prospects,
financial condition or results or operations of the Company and its
subsidiaries, taken as a whole, including, without limitation, an event
constituting a Major Transaction (as defined in Section 3(c)) or a Triggering
Event (as defined in Section 3(d)) shall have occurred or the Company shall have
been notified by the exchange or automated quotation system on which the Common
Stock trades that it is beginning or has begun proceedings or steps to delist or
suspend the Common Stock from trading on such market.
-15-
1
<PAGE> 16
(k) Adjustment of Conversion Restrictions upon Issuance of Convertible
Securities. If the Company in any manner issues or sells Convertible Securities
that are convertible into Common Stock and are subject to (i) restrictions on
the amount of shares that can be converted, or (ii) no restrictions on the
amount of shares that can be converted (the restriction on conversions or lack
thereof being herein referred to as the "CONVERSION RESTRICTION"), and such
Conversion Restriction is not formulated using the same time periods and
percentages used in Section 2(j), then the Company shall provide written notice
thereof via facsimile and overnight courier to each holder of the Preferred
Shares ("CONVERSION RESTRICTION NOTICE") as soon as practicable, but in no event
later than five (5) days after the date of issuance of such Convertible
Securities. If the holders of Preferred Shares representing at least two-thirds
(2/3) of the Preferred Shares then outstanding which remain subject to the
restrictions in Section 2(j) provide written notice via facsimile and overnight
courier (the "CONVERSION RESTRICTION ELECTION NOTICE") to the Company within
five (5) business days of receiving a Conversion Restriction Notice that such
holders desire to replace the conversion restrictions set forth in Section 2(j)
then in effect with the Conversion Restriction described in such Conversion
Restriction Notice, then from and after the date of the Company's receipt of the
Conversion Restriction Election Notice the conversion restrictions set forth in
Section 2(j) automatically will be replaced with the Conversion Restrictions
(together with such modifications to this Certificate of Designations as may be
required to give full effect to the substitution of the Conversion Restrictions
for the conversion restrictions set forth in Section 2(j)). A holder's delivery
of a Conversion Restriction Election Notice shall serve as the consent required
to amend this Certificate of Designations pursuant to Section 14 below.
(3) Redemption at Option of Holders.
(a) Redemption Option Upon Major Transaction. In addition to all other
rights of the holders of Preferred Shares contained herein, simultaneous with or
after the occurrence of a Major Transaction (as defined below), each holder of
Preferred Shares shall have the right, at such holder's option, to require the
Company to redeem all or a portion of such holder's Preferred Shares at a price
per Preferred Share equal to the greater of (i) Liquidation Value (as defined in
Section 10); and (ii) the product of (A) the Conversion Rate at such time, and
(B) the Closing Bid Price on the date of the public announcement of such Major
Transaction or the next date on which the exchange or market on which the Common
Stock is traded is open if such public announcement is made (X) after 12:00 p.m.
Eastern Time, on such date or (Y) on a date on which the exchange or market on
which the Common Stock is traded is closed (the "MAJOR TRANSACTION REDEMPTION
PRICE").
(b) Redemption Option Upon Triggering Event. In addition to all other
rights of the holders of Preferred Shares contained herein, simultaneous with or
after the
-16-
<PAGE> 17
occurrence of a Triggering Event (as defined below), each holder of Preferred
Shares shall have the right, at such holder's option, to require the Company to
redeem all or a portion of such holder's Preferred Shares at a price per
Preferred Share equal to the greater of (i) Liquidation Value; and (ii) the
product of (A) the Conversion Rate at such time, and (B) the greater of (I) the
Closing Bid Price on the trading day immediately preceding such Triggering Event
or (II) the Closing Bid Price on the date of the holder's delivery to the
Company of a Notice of Redemption at Option of Buyer Upon Triggering Event (as
defined below) or, if such date of delivery is not a trading day, the next date
on which the exchange or market on which the Common Stock is traded is open (the
"TRIGGERING EVENT REDEMPTION PRICE" and, collectively with the Major Transaction
Redemption Price, the "REDEMPTION Price").
(c) "Major Transaction". A "MAJOR TRANSACTION" shall be deemed to have
occurred at such time as any of the following events:
(i) the consolidation, merger or other business
combination of the Company with or into another Person (other than (A) a
consolidation, merger or other business combination in which holders of the
Company's voting power immediately prior to the transaction continue after the
transaction to hold, directly or indirectly, the voting power of the surviving
entity or entities necessary to elect a majority of the members of the board of
directors (or their equivalent if other than a corporation) of such entity or
entities or (B) pursuant to a migratory merger effected solely for the purpose
of changing the jurisdiction of incorporation of the Company) (a "CHANGE OF
CONTROL TRANSACTION");
(ii) the sale or transfer of all or substantially all of
the Company's assets; or
(iii) a purchase, tender or exchange offer made to and
accepted by the holders of more than 50% of the outstanding shares of Common
Stock.
(d) "Triggering Event". A "TRIGGERING EVENT" shall be deemed to have
occurred at such time as any of the following events:
(i) the failure of the registration statement (the
"REGISTRATION STATEMENT") (covering the resale of the shares of Common Stock
issuable upon conversion of the Preferred Shares and required to be filed by the
Company pursuant to the Registration Rights Agreement between the Company and
the Buyers referred to therein (the "REGISTRATION RIGHTS AGREEMENT")) to be
declared effective by the Securities and Exchange Commission on or prior to the
date that is 180 days after the Initial Issuance Date;
-17-
<PAGE> 18
(ii) while the Registration Statement is required to be
maintained effective pursuant to the terms of the Registration Rights Agreement,
the effectiveness of the Registration Statement lapses for any reason
(including, without limitation, the issuance of a stop order) or is unavailable
to the holder of the Preferred Shares for sale of the Registrable Securities (as
defined in the Registration Rights Agreement) in accordance with the terms of
the Registration Rights Agreement, and such lapse or unavailability continues
for a period of ten consecutive trading days, provided that the cause of such
lapse or unavailability is not due to factors solely within the control of such
holder of Preferred Shares;
(iii) suspension from listing or delisting of the Common
Stock from the Nasdaq SmallCap Market, The Nasdaq National Market or The New
York Stock Exchange, Inc. for a period of five consecutive days;
(iv) the Company's notice to any holder of Preferred
Shares, including by way of public announcement, at any time, of its intention
not to comply with proper requests for conversion of any Preferred Shares into
shares of Common Stock, including due to any of the reasons set forth in Section
4(a) below, or the Company's failure to deliver Conversion Shares within fifteen
days of the Conversion Date; or
(v) the Company breaches any representation, warranty or
covenant of the Securities Purchase Agreement, the Registration Rights
Agreement, this Certificate of Designations or the Irrevocable Transfer Agent
Instructions (as defined in the Securities Purchase Agreement), except to the
extent that such breach would not have a Material Adverse Effect (as defined in
Section 3(a) of the Securities Purchase Agreement) and except, in the case of a
breach of a covenant which is curable, only if such breach continues for a
period of at least ten days.
(e) Mechanics of Redemption at Option of Buyer Upon Major Transaction.
No sooner than 15 days nor later than 10 days prior to the consummation of a
Major Transaction, but not prior to the public announcement of such Major
Transaction, the Company shall deliver written notice thereof via facsimile and
overnight courier (a "NOTICE OF MAJOR TRANSACTION") to each holder of Preferred
Shares. At any time after receipt of a Notice of Major Transaction (or, in the
event a Notice of Major Transaction is not delivered at least 10 days prior to a
Major Transaction, at any time on or after the date which is 10 days prior to a
Major Transaction), any holder of the Preferred Shares then outstanding may
require the Company to redeem all or a portion of the holder's Preferred Shares,
which redemption shall be effective concurrent with the consummation of the
Major Transaction, then outstanding by delivering written notice thereof via
facsimile and overnight courier (a
-18-
<PAGE> 19
"NOTICE OF REDEMPTION AT OPTION OF BUYER UPON MAJOR TRANSACTION") to the
Company, which Notice of Redemption at Option of Buyer Upon Major Transaction
shall indicate (i) the number of Preferred Shares that such holder is submitting
for redemption, and (ii) the applicable Major Transaction Redemption Price, as
calculated pursuant to Section 3(a).
(f) Mechanics of Redemption at Option of Buyer Upon Triggering Event.
Within one business day after the later of the occurrence of a Triggering Event
or the Company becoming aware of such a Triggering Event, the Company shall
deliver written notice thereof via facsimile and overnight courier (a "NOTICE OF
TRIGGERING EVENT") to each holder of Preferred Shares. At any time after the
earlier of a holder's receipt of a Notice of Triggering Event and such holder
becoming aware of a Triggering Event, any holder of Preferred Shares then
outstanding may require the Company to redeem all or a portion of the holder's
Preferred Shares then outstanding by delivering written notice thereof via
facsimile and overnight courier (a "NOTICE OF REDEMPTION AT OPTION OF BUYER UPON
TRIGGERING EVENT") to the Company, which Notice of Redemption at Option of Buyer
Upon Triggering Event shall indicate (i) the number of Preferred Shares that
such holder is submitting for redemption, and (ii) the applicable Triggering
Event Redemption Price, as calculated pursuant to Section 3(b).
(g) Payment of Redemption Price. Upon the Company's receipt of a
Notice(s) of Redemption at Option of Buyer Upon Triggering Event or a Notice(s)
of Redemption at Option of Buyer Upon Major Transaction from any holder of
Preferred Shares, the Company shall immediately notify each holder of Preferred
Shares by facsimile of the Company's receipt of such Notice(s) of Redemption at
Option of Buyer Upon Triggering Event or Notice(s) of Redemption at Option of
Buyer Upon Major Transaction and each holder which has sent such a notice shall
promptly submit to the Company or its Transfer Agent such holder's Preferred
Stock Certificates which such holder has elected to have redeemed. The Company
shall deliver the applicable Triggering Event Redemption Price, in the case of a
redemption pursuant to Section 3(f), to such holder within five (5) business
days after the Company's receipt of a Notice of Redemption at Option of Buyer
Upon Triggering Event and, in the case of a redemption pursuant to Section 3(e),
the Company shall deliver the applicable Major Transaction Redemption Price
immediately prior to the consummation of the Major Transaction; provided that a
holder's Preferred Stock Certificates shall have been so delivered to the
Company; provided further that if the Company is unable to redeem all of the
Preferred Shares to be redeemed, the Company shall redeem an amount from each
holder of Preferred Shares being redeemed equal to such holder's pro-rata amount
(based on the number of Preferred Shares held by such holder relative to the
number of Preferred Shares outstanding) of all Preferred Shares being redeemed.
If the Company shall fail to redeem all of the Preferred Shares submitted for
redemption (other than pursuant to a dispute as to the arithmetic calculation of
the
-19-
<PAGE> 20
Redemption Price), in addition to any remedy such holder of Preferred Shares may
have under this Certificate of Designation, the Securities Purchase Agreement
and the Registration Rights Agreement, the applicable Redemption Price payable
in respect of such unredeemed Preferred Shares shall bear interest at the rate
of 2.0% per month (or the maximum rate permitted by law, whichever is lower),
prorated for partial months, until paid in full. Until the Company pays such
unpaid applicable Redemption Price in full to a holder of Preferred Shares
submitted for redemption, such holder shall have the option (the "VOID OPTIONAL
REDEMPTION OPTION") to, in lieu of redemption, require the Company to promptly
return to such holder(s) all of the Preferred Shares that were submitted for
redemption by such holder(s) under this Section 3 and for which the applicable
Redemption Price has not been paid, by sending written notice thereof to the
Company via facsimile (the "VOID OPTIONAL REDEMPTION NOTICE"). Upon the
Company's receipt of such Void Optional Redemption Notice(s) and prior to
payment of the full applicable Redemption Price to such holder, (i) the
Notice(s) of Redemption at Option of Buyer Upon Triggering Event or the
Notice(s) of Redemption at Option of Buyer Upon Major Transaction, as the case
may be, shall be null and void with respect to those Preferred Shares submitted
for redemption and for which the applicable Redemption Price has not been paid,
(ii) the Company shall immediately return any Preferred Shares submitted to the
Company by each holder for redemption under this Section 3(g) and for which the
applicable Redemption Price has not been paid, (iii) the Fixed Conversion Price
of such returned Preferred Shares shall be adjusted to the lesser of (A) the
Fixed Conversion Price as in effect on the date on which the Void Optional
Redemption Notice(s) is delivered to the Company and (B) the lowest Closing Bid
Price during the period beginning on the date on which the Notice(s) of
Redemption of Option of Buyer Upon Major Transaction or the Notice(s) of
Redemption at Option of Buyer Upon Triggering Event, as the case may be, is
delivered to the Company and ending on the date on which the Void Optional
Redemption Notice(s) is delivered to the Company; provided that no adjustment
shall be made if such adjustment would result in an increase of the Fixed
Conversion Price then in effect, and (iv) the Conversion Percentage in effect at
such time shall be reduced by a number of percentage points equal to the product
of (A) .50 and (B) the number of days in the period beginning on the date which
is the last date on which the Triggering Event Redemption Price or Major
Transaction Redemption Price, as the case may be, is required to be delivered in
accordance with the foregoing provisions of this Section 3(g) and ending on the
date on which the Void Optional Redemption Notice(s) is delivered to the
Company. Notwithstanding the foregoing, in the event of a dispute as to the
determination of the Closing Bid Price or the arithmetic calculation of the
Redemption Price, such dispute shall be resolved pursuant to Section 2(g)(iii)
above with the term "Closing Bid Price" being substituted for the term "Market
Price" and the term "Redemption Price" being substituted for the term
"Conversion Rate". A holder's delivery of a Void Optional Redemption Notice and
exercise of its rights following such notice shall not effect the Company's
obligations to make any payments
-20-
<PAGE> 21
which have accrued prior to the date of such notice. Payments provided for in
this Section 3 shall have priority to payments to other stockholders in
connection with a Major Transaction.
(4) Inability to Fully Convert.
(a) Holder's Option if Company Cannot Fully Convert. If, upon the
Company's receipt of a Conversion Notice or on the Mandatory Conversion Date,
the Company can not issue shares of Common Stock registered for resale under the
Registration Statement (or which are exempt from the registration requirements
under the 1933 Act pursuant to Rule 144(k) under the 1933 Act) for any reason,
including, without limitation, because the Company (x) does not have a
sufficient number of shares of Common Stock authorized and available, (y) is
otherwise prohibited by applicable law or by the rules or regulations of any
stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Company or its Securities, including
without limitation the Exchange Cap, from issuing all of the Common Stock which
is to be issued to a holder of Preferred Shares pursuant to a Conversion Notice
or (z) fails to have a sufficient number of shares of Common Stock registered
for resale under the Registration Statement, then the Company shall issue as
many shares of Common Stock as it is able to issue in accordance with such
holder's Conversion Notice and pursuant to Section 2(f) and, with respect to the
unconverted Preferred Shares, the holder, solely at such holder's option, can
elect to:
(i) require the Company to redeem from such holder those
Preferred Shares for which the Company is unable to issue Common Stock in
accordance with such holder's Conversion Notice ("MANDATORY REDEMPTION") at a
price per Preferred Share (the "MANDATORY REDEMPTION PRICE") equal to the
Triggering Event Redemption Price as of such Conversion Date;
(ii) if the Company's inability to fully convert Preferred
Shares is pursuant to Section 4(a)(z), require the Company to issue restricted
shares of Common Stock in accordance with such holder's Conversion Notice and
pursuant to Section 2(f);
(iii) void its Conversion Notice and retain or have
returned, as the case may be, the nonconverted Preferred Shares that were to be
converted pursuant to such holder's Conversion Notice (provided that a holder's
voiding its Conversion Notice shall not effect the Company's obligations to make
any payments (other than payment of the Redemption Price) which have accrued
prior to the date of such notice); or
-21-
<PAGE> 22
(iv) if the Company's inability to fully convert Preferred
Shares is pursuant to the Exchange Cap described in Section 4(a)(y), require the
Company to issue shares of Common Stock in accordance with such holder's
Conversion Notice and pursuant to Section 2(f) at a Conversion Price equal to
the average of Closing Bid Prices of the Common Stock for the five consecutive
trading days preceding such holder's Notice in Response to Inability to Convert
(as defined below).
(b) Mechanics of Fulfilling Holder's Election. The Company shall
promptly send via facsimile to a holder of Preferred Shares, upon receipt of a
facsimile copy of a Conversion Notice from such holder which cannot be fully
satisfied as described in Section 4(a), a notice of the Company's inability to
fully satisfy such holder's Conversion Notice (the "INABILITY TO FULLY CONVERT
NOTICE"). Such Inability to Fully Convert Notice shall indicate (i) the reason
why the Company is unable to fully satisfy such holder's Conversion Notice, (ii)
the number of Preferred Shares which cannot be converted and (iii) the
applicable Mandatory Redemption Price. Such holder shall notify the Company of
its election pursuant to Section 4(a) above by delivering written notice via
facsimile to the Company ("NOTICE IN RESPONSE TO INABILITY TO CONVERT").
(c) Payment of Redemption Price. If such holder shall elect to
have its shares redeemed pursuant to Section 4(a)(i), the Company shall pay the
Mandatory Redemption Price in cash to such holder within ten days of the
Company's receipt of the holder's Notice in Response to Inability to Convert,
but not prior to such holder's delivery to the Company of the Preferred Stock
Certificates representing the Preferred Shares being redeemed by such holder. If
the Company shall fail to pay the applicable Mandatory Redemption Price to such
holder on a timely basis as described in this Section 4(c) (other than pursuant
to a dispute as to the determination of the arithmetic calculation of the
Redemption Price), in addition to any remedy such holder of Preferred Shares may
have under this Certificate of Designations, the Securities Purchase Agreement
and the Registration Rights Agreement, such unpaid amount shall bear interest at
the rate of 2.0% per month (or the maximum rate permitted by law, whichever is
lower), prorated for partial months, until paid in full. Until the full
Mandatory Redemption Price is paid in full to such holder, such holder may void
the Mandatory Redemption with respect to those Preferred Shares for which the
full Mandatory Redemption Price has not been paid and (i) receive back such
Preferred Shares and (ii) the Fixed Conversion Price of such returned Preferred
Shares shall be adjusted to the lesser of (A) the Fixed Conversion Price in
effect on the date on which the holder voided the Mandatory Redemption and (B)
the lowest Closing Bid Price during the Period beginning on the Conversion Date
and ending on the date the holder voided the Mandatory Redemption.
Notwithstanding the foregoing, if the Company fails to pay the applicable
Mandatory Redemption Price within such ten-day period due to a dispute as to the
determination of the Mandatory Redemption Price, such dispute shall be resolved
-22-
<PAGE> 23
pursuant to Section 2(f)(iii) with the term "Mandatory Redemption Price" being
substituted for the term "Conversion Rate".
(d) Pro-rata Conversion and Redemption. In the event the Company
receives a Conversion Notice, Notice of Redemption at Option of Buyer Upon Major
Transaction or Notice of Redemption at Option of Buyer Upon Triggering Event
from more than one holder of Preferred Shares on the same day and the Company
can convert and/or redeem some, but not all, of the Preferred Shares pursuant to
this Section 4, the Company shall convert and/or redeem from each holder of
Preferred Shares electing to have Preferred Shares converted and/or redeemed at
such time an amount equal to such holder's pro-rata amount (based on the number
of Preferred Shares held by such holder relative to the number of Preferred
Shares outstanding) of all Preferred Shares being converted and redeemed at such
time.
(5) Company's Right to Redeem in Lieu of Conversion. (a) Notwithstanding Section
2 or anything herein to the contrary, but subject to Section 5(e), at any time
after the Issuance Date, the Company may elect to redeem Preferred Shares
submitted for conversion in lieu of converting such Preferred Shares, provided
that the Floating Conversion Price for such Preferred Shares on the Conversion
Date is less than 50% of the Market Price on the Issuance Date of the applicable
Preferred Shares (appropriately adjusted for any stock dividend, stock split or
other similar transaction) (a "COMPANY REDEMPTION IN LIEU OF CONVERSION"). If
the Company elects to redeem some, but not all, of the Preferred Shares
submitted for conversion, the Company shall redeem a number of Preferred Shares
from each holder of Preferred Shares submitted for conversion on the applicable
date equal to such holder's pro-rata amount (based on the number of Preferred
Shares held by such holder relative to the number of Preferred Shares
outstanding) of all Preferred Shares submitted for conversion which the Company
elects to redeem.
(b) Redemption Price of Company Redemption in Lieu of Conversion.
The "REDEMPTION PRICE OF COMPANY REDEMPTION IN LIEU OF CONVERSION" shall be an
amount per Preferred Share equal to the product of (i) the Conversion Rate of
the Preferred Shares on the Conversion Date and (ii) the last reported sale
price of the Common Stock (as reported by Bloomberg) on the Conversion Date.
(c) Mechanics of Company Redemption in Lieu of Conversion. The
Company shall exercise its right to redeem by delivering written notice by
facsimile and overnight courier ("NOTICE OF COMPANY REDEMPTION IN LIEU OF
CONVERSION") to (i) each holder of the Preferred Shares and (ii) the Transfer
Agent. Such Notice of Company Redemption in Lieu of Conversion shall indicate
(A) the maximum, if any, number of Preferred Shares which shall be subject to
Company Redemption in Lieu of Conversion
-23-
<PAGE> 24
which maximum number of Preferred Shares, if less than all of the Preferred
Shares outstanding, shall be allocated pro rata among the holders of Preferred
Shares (based on the number of Preferred Shares held by each holder on the date
of the Company's delivery of Notice of Company Redemption in Lieu of Conversion
relative to the total number of Preferred Shares outstanding on such date), (B)
confirm the time period during which the Company may effect Company Redemption
in Lieu of conversion, which period shall begin on and include the date which is
five business days after the date of receipt by all of the holders' of the
Notice of Redemption in Lieu of Conversion and shall end on and include the date
which is 30 calendar days after the fifth business day following the date of
receipt by all of the holders of the Notice of Redemption in Lieu of Conversion
(the "REDEMPTION IN LIEU OF CONVERSION PERIOD"). The Company may terminate a
Redemption in Lieu of Conversion Period at any time with respect to Preferred
Shares which have not been submitted for conversion by delivering written notice
of such termination to each holder of Preferred Shares by facsimile and
overnight courier at least five days business days prior to the date of such
termination. Any Preferred Shares submitted for conversion after the termination
of the Redemption in Lieu of Conversion Period or the number of which is in
excess of the maximum number of Preferred Shares designated in the Notice of
Company Redemption in Lieu of Conversion shall be converted in accordance with
Section 2.
(d) Payment of Redemption Price. The Company shall pay the
applicable Redemption Price of Company Redemption in Lieu of Conversion to the
holder of the Preferred Shares being redeemed in cash within five business days
after the Conversion Date, but not prior to such holder's delivery to the
Company of the Preferred Stock Certificates representing the Preferred Shares
being redeemed. If the Company shall fail to pay the applicable Redemption Price
of Company Redemption in Lieu of Conversion to such holder on a timely basis as
described in this Section 5(d), in addition to any remedy such holder of
Preferred Shares may have under this Certificate of Designations, the Securities
Purchase Agreement and the Registration Rights Agreement, such unpaid amount
shall bear interest at the rate of 2.0% per month (or the maximum rate permitted
by law, whichever is lower), pro rated for partial months, until paid in full.
Until the Company pays such unpaid applicable Redemption Price of Company
Redemption in Lieu of Conversion in full to each holder, each holder of
Preferred Shares submitted for redemption pursuant to this Section 5 and for
which the applicable Redemption Price of Company Redemption in Lieu of
Conversion has not been paid, shall have the option (the "VOID COMPANY
REDEMPTION OPTION") to, in lieu of redemption, require the Company to promptly
return to each holder all of the Preferred Shares that were submitted for
redemption by such holder under this Section 5 and for which the applicable
Redemption Price of Company Redemption in Lieu of Conversion has not been paid,
by sending written notice thereof to the Company via facsimile (the "VOID
COMPANY REDEMPTION NOTICE"). Upon the Company's receipt of such Void Company
Redemption Notice(s) prior to
-24-
<PAGE> 25
payment of the full applicable redemption price to each holder, (i) the
Company's Redemption in Lieu of Conversion shall be null and void with respect
to those Preferred Shares submitted for redemption and for which the applicable
Redemption Price has not been paid, (ii) the Company shall immediately return
any Preferred Shares submitted to the Company by each holder for redemption
under this Section 5 and for which the applicable Redemption Price of Company
Redemption in Lieu of Conversion has not been paid and (iii) the Fixed
Conversion Price of such returned Preferred Shares shall be adjusted to the
lesser of (A) the Conversion Price applicable to such conversion on the date on
which such Preferred Shares were originally presented for conversion and (B) the
Conversion Price which would have been effect if such Preferred Shares were
presented for conversion on the business day immediately following the last day
on which the Company could have effected a timely Company Redemption in Lieu of
Conversion. Notwithstanding the foregoing, if the Company fails to pay the
applicable Redemption Price of Company Redemption in Lieu of Conversion to a
holder within the time period described in this Section 5(d) due to a dispute as
to the arithmetic calculation of the Redemption Price of Company Redemption in
Lieu of Conversion, such dispute shall be resolved pursuant to Section 2(f)(iii)
above with the term "Redemption Price of Company Redemption in Lieu of
Conversion" being substituted for the term "Conversion Rate." If the Company
fails to timely effect a Company Redemption in Lieu of Conversion in accordance
with this Section 5, the Company shall not be allowed to submit another Notice
of Company Redemption in Lieu of Conversion without the prior written consent of
the holders of at least two-thirds (2/3) of the Preferred Shares then
outstanding.
(e) Company Must Have Immediately Available Funds or Credit
Facilities. The Company shall not be entitled to send any Notice of Company
Redemption in Lieu of Conversion pursuant to Section 5(b) above and begin the
redemption procedure under this Section 5, unless it has:
(i) the full amount of the Redemption Price of Company
Redemption in Lieu of Conversion in cash, available in a demand or other
immediately available account in a bank or similar financial institution;
(ii) credit facilities, with a bank or similar financial
institutions that are immediately available and unrestricted for use in
redeeming the Preferred Shares, in the full amount of the Redemption Price of
Company Redemption in Lieu of Conversion;
(iii) a written agreement with a standby underwriter or
qualified buyer ready, willing and able to purchase from the Company a
sufficient number of shares of stock to provide proceeds necessary to redeem any
stock that is not converted prior to a Company Redemption in Lieu of Conversion;
or
-25-
<PAGE> 26
(iv) a combination of the items set forth in the preceding
clauses (i), (ii) and (iii), aggregating the full amount of the
Redemption Price of Company Redemption in Lieu of Conversion.
(6) Conversion at the Company's Election Upon Change of Control. At any
time or times on or after the date the Company publicly discloses a Change of
Control Transaction (as defined in Section 3(c)(i)), the Company shall have the
right, in its sole discretion, to require that all of the outstanding Preferred
Shares be converted ("CONVERSION AT COMPANY'S ELECTION") at the Conversion Rate;
provided that the Conditions to Conversion at the Company's Election (as set
forth below) are satisfied. The Company shall exercise its right to Conversion
at Company's Election by providing each holder of Preferred Shares written
notice ("NOTICE OF CONVERSION AT COMPANY'S ELECTION") at least 20 trading days
prior to date of consummation of the Change of Control Transaction ("COMPANY'S
ELECTION CONVERSION DATE"). The Notice of Conversion at Company's Election shall
indicate the anticipated Company's Election Conversion Date. All Preferred
Shares outstanding on the Company's Election Conversion Date shall be converted
as of the Company's Election Conversion Date in accordance with Section 2 as if
the holders of such Preferred Shares selected by the Company to be converted had
given the Conversion Notice on the Company's Election Conversion Date. All
holders of Preferred Shares shall thereupon and within two business days after
the Company's Election Conversion Date surrender all outstanding Preferred Stock
Certificates, duly endorsed for cancellation, to the Company. "CONDITIONS TO
CONVERSION AT THE COMPANY'S ELECTION" means the following conditions: (i) on
each day during the period beginning on the date of the Company's Notice of
Conversion at Company's Election and ending on and including the Company's
Election Conversion Date, the Registration Statement shall be effective and
available for the sale of no less than 125% of the sum of (A) the number of
Conversion Shares then issuable upon the conversion of all outstanding Preferred
Shares (without regard to any limitations on conversion herein or elsewhere),
including the Conversion Shares to be issued pursuant to this Conversion at the
Company's Election, and (B) the number of Conversion Shares that are then held
by the holders of the Preferred Shares; (ii) on each day during the period
beginning 30 days prior to the date of the Company's Notice of Conversion at
Company's Election and ending on and including the Company's Election Conversion
Date, the Common Stock is designated for quotation on The Nasdaq National Market
or the Nasdaq SmallCap Market or listed on The New York Stock Exchange, Inc. and
is not suspended from trading; (iii) during the period beginning on the first
Issuance Date of any Preferred Shares and ending on and including the Company's
Election Conversion Date, the Company shall have delivered Conversion Shares
upon conversion of the Preferred Shares to the Buyers on a timely basis as set
forth in Section 2(e)(ii) of this Certificate of Designations; and (iv) the
Company otherwise has satisfied its obligations in all material respects and is
not in default in any material respect under this Certificate of Designations,
the Securities Purchase Agreement and the Registration Rights Agreement.
Notwithstanding the above, any holder of Preferred Shares may convert such
shares (including Preferred Shares selected
-26-
<PAGE> 27
for conversion) into Common Stock pursuant to Section 2(a) on or prior to the
date immediately preceding the Company's Election Conversion Date.
(7) Reissuance of Certificates. In the event of a conversion or
redemption pursuant to this Certificate of Designations of less than all of the
Preferred Shares represented by a particular Preferred Stock Certificate, the
Company shall promptly cause to be issued and delivered to the holder of such
Preferred Shares a preferred stock certificate representing the remaining
Preferred Shares which have not been so converted or redeemed.
(8) Reservation of Shares. The Company shall, so long as any of the
Preferred Shares are outstanding, reserve and keep available out of its
authorized and unissued Common Stock, solely for the purpose of effecting the
conversion of the Preferred Shares, such number of shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all of the
Preferred Shares then outstanding (without regard to any limitations on
conversions); provided that the number of shares of Common Stock so reserved
shall at no time be less than 150% of the number of shares of Common Stock for
which the Preferred Shares are at any time convertible. The initial number of
shares of Common Stock reserved for conversions of the Preferred Shares and each
increase in the number of shares so reserved shall be allocated pro rata among
the holders of the Preferred Shares based on the number of Preferred Shares held
by each holder at the time of issuance of the Preferred Shares or increase in
the number of reserved shares, as the case may be. In the event a holder shall
sell or otherwise transfer any of such holder's Preferred Shares, each
transferee shall be allocated a pro rata portion of the number of reserved
shares of Common Stock reserved for such transferor. Any shares of Common Stock
reserved and which remain allocated to any person or entity which does not hold
any Preferred Shares shall be allocated to the remaining holders of Preferred
Shares, pro rata based on the number of Preferred Shares then held by such
holder.
(9) Voting Rights. Holders of Preferred Shares shall have no voting
rights, except as required by law, including but not limited to the General
Corporation Law of the State of Delaware, and as expressly provided in this
Certificate of Designations.
(10) Liquidation, Dissolution, Winding-Up. In the event of any voluntary
or involuntary liquidation, dissolution or winding up of the Company, the
holders of the Preferred Shares shall be entitled to receive in cash out of the
assets of the Company, whether from capital or from earnings available for
distribution to its stockholders (the "PREFERRED FUNDS"), before any amount
shall be paid to the holders of any of the capital stock of the Company of any
class junior in rank to the Preferred Shares in respect of the preferences as to
the distributions and payments on the liquidation, dissolution and winding up of
the Company, an amount per Preferred Share equal to the sum of (i) $12,000 and
(ii) an amount equal to the product of (.05) (N/365) ($12,000) (such sum being
referred to as the "LIQUIDATION VALUE"); provided that, if the Preferred Funds
are
-27-
<PAGE> 28
insufficient to pay the full amount due to the holders of Preferred Shares and
holders of shares of other classes or series of preferred stock of the Company
that are of equal rank with the Preferred Shares as to payments of Preferred
Funds (the "PARI PASSU SHARES"), then each holder of Preferred Shares and Pari
Passu Shares shall receive a percentage of the Preferred Funds equal to the full
amount of Preferred Funds payable to such holder as a liquidation preference, in
accordance with their respective Certificate of Designations, Preferences and
Rights, as a percentage of the full amount of Preferred Funds payable to all
holders of Preferred Shares and Pari Passu Shares. The purchase or redemption by
the Company 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 Company. Neither the consolidation or merger of the Company with or into
any other Person, nor the sale or transfer by the Company 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 Company. No holder of Preferred
Shares shall be entitled to receive any amounts with respect thereto upon any
liquidation, dissolution or winding up of the Company other than the amounts
provided for herein; provided that a holder of Preferred Shares shall be
entitled to all amounts previously accrued with respect to amounts owed
hereunder.
(11) Preferred Rank; Participation. (i) All shares of Common
Stock shall be of junior rank to all Preferred Shares in respect to the
preferences as to distributions and payments upon the liquidation, dissolution
and winding up of the Company. The rights of the shares of Common Stock shall be
subject to the preferences and relative rights of the Preferred Shares. Without
the prior express written consent of the holders of not less than two-thirds
(2/3) of the then outstanding Preferred Shares, the Company shall not hereafter
authorize or issue additional or other capital stock that is of senior rank to
the Preferred Shares in respect of the preferences as to distributions and
payments upon the liquidation, dissolution and winding up of the Company.
Without the prior express written consent of the holders of not less than
two-thirds (2/3) of the then outstanding Preferred Shares, the Company shall not
hereafter authorize or make any amendment to the Company's Certificate of
Incorporation or bylaws, or file any resolution of the board of directors of the
Company with the Secretary of State of the State of Delaware containing any
provisions, which would adversely affect or otherwise impair the rights or
relative priority of the holders of the Preferred Shares relative to the holders
of the Common Stock or the holders of any other class of capital stock. In the
event of the merger or consolidation of the Company with or into another
corporation, the Preferred Shares shall maintain their relative powers,
designations and preferences provided for herein and no merger shall result
inconsistent therewith.
(ii) Subject to the rights of the holders, if any, of the Pari Passu
Shares, the holders of the Preferred Shares shall, as holders of Preferred
Stock, be entitled to such dividends paid and distributions made to the holders
of Common Stock to the same extent as if such holders of Preferred Shares had
converted the Preferred Shares into Common Stock (without regard to any
limitations on conversion herein or elsewhere) and had held such shares of
Common Stock on the
-28-
<PAGE> 29
record date for such dividends and distributions. Payments under the preceding
sentence shall be made concurrently with the dividend or distribution to the
holders of Common Stock.
(12) Restriction on Redemption and Cash Dividends with respect to Other
Capital Stock. Until all of the Preferred Shares have been converted or redeemed
as provided herein, the Company shall not, directly or indirectly, redeem, or
declare or pay any cash dividend or distribution on, its Common Stock without
the prior express written consent of the holders of not less than two-thirds
(2/3) of the then outstanding Preferred Shares.
(13) Limitation on Number of Conversion Shares. Notwithstanding any
other provision herein, the Company shall not be obligated to issue any shares
of Common Stock upon conversion of the Preferred Shares if the issuance of such
shares of Common Stock would exceed that number of shares of Common Stock which
the Company may issue upon Conversion of the Preferred Shares (the "EXCHANGE
CAP") without breaching the Company's obligations under the rules or regulations
of The Nasdaq Stock Market, Inc., except that such limitation shall not apply in
the event that the Company (a) obtains the approval of its stockholders as
required by applicable rules and regulations of The Nasdaq Stock Market for
issuances of Common Stock in excess of such amount or (ii) obtains a written
opinion from outside counsel to the Company that such approval is not required,
which opinion shall be reasonably satisfactory to the holders of a majority of
the Preferred Shares then outstanding. Until such approval or written opinion is
obtained, no purchaser of Preferred Shares pursuant to the Securities Purchase
Agreement (the "PURCHASERS") shall be issued, upon conversion of Preferred
Shares, shares of Common Stock in an amount greater than the product of (i) the
Exchange Cap amount multiplied by (ii) a fraction, the numerator of which is the
number of Preferred Shares issued to such Purchaser pursuant to the Securities
Purchase Agreement and the denominator of which is the aggregate amount of all
the Preferred Shares issued to the Purchasers pursuant to the Securities
Purchase Agreement (the "CAP ALLOCATION AMOUNT"). In the event that any
Purchaser shall sell or otherwise transfer any of such Purchaser's Preferred
Shares, the transferee shall be allocated a pro rata portion of such Purchaser's
Cap Allocation Amount. In the event that any holder of Preferred Shares shall
convert all of such holder's Preferred Shares into a number of shares of Common
Stock which, in the aggregate, is less than such holder's Cap Allocation Amount,
then the difference between such holder's Cap Allocation Amount and the number
of shares of Common Stock actually issued to such holder shall be allocated to
the respective Cap Allocation Amounts of the remaining holders of Preferred
Shares on a pro rata basis in proportion to the number of Preferred Shares then
held by each such holder.
(14) Vote to Change the Terms of or Issue Preferred Shares. The
affirmative vote at a meeting duly called for such purpose or the written
consent without a meeting, of the holders of not less than two-thirds (2/3) of
the then outstanding Preferred Shares, shall be required for (a) any change to
this Certificate of Designations or the Company's Certificate of Incorporation
which would amend, alter, change or repeal any of the powers, designations,
preferences and rights
-29-
<PAGE> 30
of the Preferred Shares, or (b) any issuance of Preferred Shares other than
pursuant to the Securities Purchase Agreement.
(15) Lost or Stolen Certificates. Upon receipt by the Company of
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of any Preferred Stock Certificates representing the Preferred
Shares, and, in the case of loss, theft or destruction, of any indemnification
undertaking by the holder to the Company and, in the case of mutilation, upon
surrender and cancellation of the Preferred Stock Certificate(s), the Company
shall execute and deliver new preferred stock certificate(s) of like tenor and
date; provided, however, the Company shall not be obligated to re-issue
preferred stock certificates if the holder contemporaneously requests the
Company to convert such Preferred Shares into Common Stock.
(16) Remedies, Characterizations, Other Obligations, Breaches and
Injunctive Relief. The remedies provided in this Certificate of Designations
shall be cumulative and in addition to all other remedies available under this
Certificate of Designations, at law or in equity (including a decree of specific
performance and/or other injunctive relief), no remedy contained herein shall be
deemed a waiver of compliance with the provisions giving rise to such remedy and
nothing herein shall limit a holder's right to pursue actual damages for any
failure by the Company to comply with the terms of this Certificate of
Designations. The Company covenants to each holder of Preferred Shares that
there shall be no characterization concerning this instrument other than as
expressly provided herein. Amounts set forth or provided for herein with respect
to payments, conversion and the like (and the computation thereof) shall be the
amounts to be received by the holder thereof and shall not, except as expressly
provided herein, be subject to any other obligation of the Company (or the
performance thereof). The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the holders of the
Preferred Shares and that the remedy at law for any such breach may be
inadequate. The Company therefore agrees that, in the event of any such breach
or threatened breach, the holders of the Preferred Shares 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.
(17) Specific Shall Not Limit General; Construction. No specific
provision contained in this Certificate of Designations shall limit or modify
any more general provision contained herein. This Certificate of Designations
shall be deemed to be jointly drafted by the Company and all Buyers and shall
not be construed against any person as the drafter hereof.
(18) Failure or Indulgence Not Waiver. No failure or delay on the part
of a holder of Preferred Shares in the exercise of any power, right or privilege
hereunder shall operate as a waiver thereof, nor shall any single or partial
exercise of any such power, right or privilege preclude other or further
exercise thereof or of any other right, power or privilege.
-30-
<PAGE> 31
(19) Notices. Any notice required to be delivered pursuant to the terms
of this Certificate of Designations shall be delivered, unless otherwise
provided in this Certificate of Designations, in accordance with the terms, and
subject to the notice provisions of, the Securities Purchase Agreement.
* * * * * *
- -31-
<PAGE> 32
IN WITNESS WHEREOF, the Company has caused this Certificate of
Designations to be signed by Abhay Bhushan, its Chief Financial Officer, as of
March ___, 1998.
YIELDUP INTERNATIONAL CORPORATION
By:_________________________________
Name: Abhay Bhushan
Its: Chief Financial Officer
<PAGE> 33
EXHIBIT I
YIELDUP INTERNATIONAL CORPORATION
CONVERSION NOTICE
Reference is made to the Certificate of Designations, Preferences and Rights of
Series A Convertible Preferred Stock (the "CERTIFICATE OF DESIGNATIONS"). In
accordance with and pursuant to the Certificate of Designations, the undersigned
hereby elects to convert the number of shares of Series A Convertible Preferred
Stock, par value $0.001 per share (the "PREFERRED SHARES"), of YieldUP
International Corporation, a Delaware corporation (the "COMPANY"), indicated
below into shares of Common Stock, par value $0.001 per share (the "COMMON
STOCK"), of the Company, by tendering the stock certificate(s) representing the
share(s) of Preferred Shares specified below as of the date specified below.
Date of Conversion: _____________________________________________
Number of Preferred Shares to be converted: _________________________
Stock certificate no(s). of Preferred Shares to be converted:___________
Please confirm the following information:
Conversion Price: _____________________________________________
Number of shares of Common Stock
to be issued: _____________________________________________
Please issue the Common Stock into which the Preferred Shares are being
converted and, if applicable, any check drawn on an account of the Company in
the following name and to the following address:
Issue to: _____________________________________________
_____________________________________________
_____________________________________________
_____________________________________________
Facsimile Number: _____________________________________________
Authorization: _____________________________________________
By:__________________________________________
Title:_______________________________________
Dated: _____________________________________________
Account Number:
(if electronic book entry transfer):___________________________________
<PAGE> 34
Transaction Code Number
(if electronic book entry transfer):___________________________________
THIS NOTICE MUST BE DELIVERED TO COMPANY AND TRANSFER AGENT
<PAGE> 1
EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (the "AGREEMENT"), dated as of March 30,
1998, by and among YieldUP International Corporation, a Delaware corporation,
with headquarters located at 117 Easy Street, Mountain View, California 94043
(the "COMPANY"), and the investors listed on the Schedule of Buyers attached
hereto (individually, a "BUYER" and collectively, the "BUYERS").
WHEREAS:
A. The Company and the Buyers are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by Rule 506 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 "1933 ACT");
B. The Company has authorized the following new series of its Preferred
Stock, par value $0.001 per share (the "PREFERRED STOCK"): the Company's Series
A Convertible Preferred Stock (the "PREFERRED SHARES"), which shall be
convertible into shares of the Company's Common Stock, par value $0.001 per
share (the "COMMON STOCK") (as converted, the "CONVERSION SHARES"), in
accordance with the terms of the Company's Certificate of Designations,
Preferences and Rights of the Preferred Shares, substantially in the form
attached hereto as Exhibit A (the "CERTIFICATE OF DESIGNATIONS");
C. The Buyers wish to purchase, upon the terms and conditions stated in
this Agreement, initially an aggregate of up to 600 of the Preferred Shares (the
"INITIAL PREFERRED SHARES") in the respective amounts set forth opposite each
Buyer's name on the Schedule of Buyers;
D. Subject to the terms and conditions set forth in this Agreement, each
Buyer may have the right to purchase a number of additional Preferred Shares
equal to up to the sum of (i) the number of Initial Preferred Shares held by
such Buyer on the date which is 210 days after the Initial Closing Date (as
defined in Section 1(b)), (ii) the number of Initial Preferred Shares converted
by such Buyer at a Conversion Price equal to the Fixed Conversion Price of such
Initial Preferred Shares (each as defined in the Certificate of Designations)
prior to the date which is 210 days after the Initial Closing Date, (iii) the
number of Put Preferred Shares (as defined below) held by such Buyer on the date
which is 210 days after the Put Closing Date (as defined in Section 1(d)) and
(iv) the number of Put Preferred Shares converted by such Buyer at a Conversion
Price equal to the Fixed Conversion Price of such Put Preferred Shares prior to
the date which is 210 days after the Put Closing Date (the "ADDITIONAL PREFERRED
SHARES"). In addition, the Company may have the
<PAGE> 2
right to cause the Buyers to purchase up to an aggregate of 600 Preferred Shares
(pro rata based on the number of Initial Preferred Shares each Buyer purchased
in relation to the total number of Initial Preferred Shares) (the "PUT PREFERRED
SHARES") (the Initial Preferred Shares, the Additional Preferred Shares and the
Put Preferred Shares collectively are referred to in this Agreement as the
"PREFERRED SHARES"); and
E. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement
substantially in the form attached hereto as Exhibit B (the "REGISTRATION RIGHTS
AGREEMENT") pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws.
NOW THEREFORE, the Company and the Buyers hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES.
a. Purchase of Preferred Shares. Subject to satisfaction (or
waiver) of the conditions set forth in Sections 6(a) and 7(a), the Company shall
issue and sell to the Buyers and the Buyers severally shall purchase from the
Company an aggregate of up to 600 Initial Preferred Shares, in the respective
amounts set forth opposite each Buyer's name on the Schedule of Buyers (the
"INITIAL CLOSING"). Subject to satisfaction (or waiver) of the conditions set
forth in Sections 1(c), 6(b) and 7(b), at the option of each Buyer, the Company
shall issue and sell to each such Buyer and each such Buyer shall purchase from
the Company at multiple closings, if applicable, an aggregate of up to that
number of Additional Preferred Shares, equal to the sum of (i) the number of
Initial Preferred Shares held by such Buyer on the date which is 210 days after
the Initial Closing Date, (ii) the number of Initial Preferred Shares converted
by such Buyer at a Conversion Price equal to the Fixed Conversion Price prior to
the date which is 210 days after the Initial Closing Date, (iii) the number of
Put Preferred Shares held by such Buyer on the date which is 210 days after the
Put Closing Date and (iv) the number of Put Preferred Shares converted by such
Buyer at a Conversion Price equal to the Fixed Conversion Price prior to the
date which is 210 days after the Put Closing Date (the "ADDITIONAL CLOSINGS");
provided, however, that each Buyer, including any assignees of such Buyer, may
only exercise its right to purchase Additional Preferred Shares at an aggregate
of two Additional Closings. Subject to satisfaction (or waiver) of the
conditions set forth in Sections 1(d), 1(e), 6(c) and 7(c), the Company may
require that each Buyer purchase that number of additional Preferred Shares
equal to such Buyer's pro rata portion of up to 600 Preferred Shares (based on
the number of Initial Preferred Shares each Buyer purchased in relation to the
total number of Initial Preferred Shares purchased by the Buyers) (the "PUT
CLOSING"). The Initial Closing, the Additional Closings and the Put Closing
collectively are referred to in this Agreement
<PAGE> 3
as the "CLOSINGS." The purchase price (the "PURCHASE PRICE") of each Preferred
Share at each of the Closings shall be $10,000.
b. The Initial Closing Date. The date and time of the Initial
Closing (the "INITIAL CLOSING DATE") shall be 10:00 a.m. Central Time, within
three (3) business days following the date hereof, subject to satisfaction (or
waiver) of the conditions to the Initial Closing set forth in Sections 6(a) and
7(a) (or such later date as is mutually agreed to by the Company and the
Buyers). The Initial Closing shall occur on the Initial Closing Date at the
offices of Katten Muchin & Zavis, 525 West Monroe Street, Suite 1600, Chicago,
Illinois 60661-3693.
c. The Additional Closing Dates. The date and time of each of the
Additional Closings (the "ADDITIONAL CLOSING DATES") shall be 10:00 a.m. Central
Time, on the date specified in an Additional Share Notice (as defined below),
subject to satisfaction (or waiver) of the conditions to the Additional Closing
set forth in Sections 6(b) and 7(b) and the conditions set forth in this
paragraph (or such later date as is mutually agreed to by the Company and the
Buyers). During the period (the "BUYER CALL RIGHT PERIOD") beginning on and
including the date which is the earlier of (i) 210 days after the Initial
Closing Date and (ii) the first date on which such Buyer converts any Initial
Preferred Shares at a Conversion Price equal to the Fixed Conversion Price for
such Initial Preferred Shares, and ending on and including the date which is the
Mandatory Conversion Date (as defined in Section 2(g) of the Certificate of
Designations) of the Initial Preferred Shares, but subject to the requirements
of Sections 6(b) and 7(b), each Buyer may purchase Additional Preferred Shares
by delivering written notice to the Company (an "ADDITIONAL SHARE NOTICE") at
least three business days but not more than 20 business days prior (an
"ADDITIONAL SHARE NOTICE DATE") to the Additional Closing Date set forth in such
Buyer's Additional Share Notice. Each Additional Share Notice shall set forth
(i) the number of Additional Preferred Shares to be purchased by such Buyer at
the Additional Closing, (ii) the aggregate Purchase Price for such Additional
Preferred Shares, and (iii) the date selected by the Buyer for the Additional
Closing Date. Notwithstanding the foregoing, no Buyer shall be entitled to
deliver an Additional Share Notice unless on the date of the delivery of the
Additional Share Notice the Closing Bid Price (as defined in the Certificate of
Designations) of the Common Stock is greater than the Closing Bid Price on the
Initial Closing Date and each Buyer, including any assignees of such Buyer, may
only exercise its right to purchase Additional Preferred Shares at an aggregate
of two Additional Closings. Each Additional Closing shall occur on the
applicable Additional Closing Date at the offices of Katten Muchin & Zavis, 525
West Monroe Street, Suite 1600, Chicago, Illinois 60661-3693.
d. The Put Closing Date. The date and time of the Put Closing
(the "PUT CLOSING DATE") shall be 10:00 a.m. Central Time, on the date specified
in the Company's Put Share Notice (as defined below), subject to satisfaction
(or waiver) of the conditions to the Put
<PAGE> 4
Closing set forth in Sections 6(c) and 7(c) and the conditions set forth in
Section 1(e), (or such later date as is mutually agreed to by the Company and
the Buyers). During the period (the "COMPANY PUT RIGHT PERIOD") beginning on and
including the date which is 180 days after the earlier of (x) the date the
Registration Statement (as defined below) is declared effective by the SEC and
(y) the date which is 120 days after the Initial Closing Date (the "ANTICIPATED
EFFECTIVE DATE") and ending on the date which is 360 days after the Anticipated
Effective Date, but subject to the requirements of Sections 6(c) and 7(c) and
satisfaction of the Put Notice Conditions (as defined in Section 1(e)), the
Company may require each Buyer to purchase Put Preferred Shares by delivering
written notice to each of the Buyers (a "PUT SHARE NOTICE") at least 15 business
days but not more than 20 business days (the "PUT SHARE NOTICE DATE") prior to
the Put Closing Date set forth in the Put Share Notice. The Put Share Notice
shall set forth (i) each Buyer's pro rata portion (based on the number of
Initial Preferred Shares each Buyer purchased in relation to the total number of
Initial Preferred Shares purchased by the Buyers) of the aggregate number of Put
Preferred Shares (which aggregate number shall not exceed 600 Preferred Shares)
which the Company is requiring each Buyer to purchase at the Put Closing, (ii)
the aggregate Purchase Price for each such Buyer's Put Preferred Shares and
(iii) the date selected by the Company for the Put Closing Date, which Put
Closing Date shall be not later than the date which is 360 days after the
Anticipated Effective Date. The Put Closing shall occur on the Put Closing Date
at the offices of Katten Muchin & Zavis, 525 West Monroe Street, Suite 1600,
Chicago, Illinois 60661-3693. The Initial Closing Date, the Additional Closing
Dates and the Put Closing Date collectively are referred to in this Agreement as
the "CLOSING DATES."
e. The Put Notice Conditions. Notwithstanding anything in this
agreement to the contrary, the Company shall not be entitled to deliver a Put
Share Notice and require the Buyers to purchase the Put Preferred Shares unless,
in addition to the satisfaction of the requirements of Sections 6(c) and 7(c),
all of the following conditions (the "PUT NOTICE CONDITIONS") are satisfied: (i)
the Company's stockholders shall have approved the issuance of the Securities
(as defined in Section 2(a)) on or prior to the Put Share Notice Date; (ii)
during the period beginning 60 business days prior to the Put Closing Date and
ending on and including the Put Closing Date, the registration statement (the
"REGISTRATION STATEMENT") covering the resale of the Conversion Shares has been
declared effective by the SEC and at all times has been effective and available
for the sale of no less than 125% of the sum of (A) the number of Conversion
Shares then issuable upon the conversion of all outstanding Preferred Shares and
the Put Preferred Shares to be issued by the Company and (B) the number of
Conversion Shares that are then held by the Buyers; (iii) during the period
beginning on the Initial Closing Date and ending on and including the Put
Closing Date, the Common Stock is listed on The Nasdaq SmallCap Market or the
Nasdaq National Market and has not been suspended from trading at any time
during such period, has not been involuntarily delisted at any time during such
period, nor is there any pending or threatened delisting or suspension; (iv) no
event constituting a Major Transaction (as defined in Section 3(c) of the
<PAGE> 5
Certificate of Designations), including an agreement to consummate a Major
Transaction, or a Triggering Event (as defined in Section 3(d) of the
Certificate of Designations) shall have occurred nor shall any still pending
event which would constitute a Major Transaction have been publicly disclosed
from the period beginning on and including the Initial Issuance Date and ending
on and including the Put Closing Date; (v) on each day during the period
beginning 20 business days prior to the Put Closing Date and ending on the Put
Closing Date, the Market Price of the Common Stock is not less than 120% of the
Fixed Conversion Price for the Initial Preferred Shares on the Initial Closing
Date; (vi) on each trading day during the period beginning on the Put Share
Notice Date and ending on and including the Put Closing Date, the Market Price
of the Common Stock is not less than 90% of the Market Price of the Common Stock
on the Put Share Notice Date; (vii) during the period beginning on the Initial
Closing Date and ending on and including the Put Closing Date, the Company shall
have delivered Conversion Shares upon conversion of the Preferred Shares to the
Buyers on a timely basis as set forth in Section 2(f)(ii) of the Certificate of
Designations; and (viii) a Put Closing Date shall not have occurred previously.
f. Form of Payment. On each of the Closing Dates, (i) each Buyer
shall pay the Purchase Price to the Company for the Preferred Shares to be
issued and sold to such Buyer at the respective Closing, by wire transfer of
immediately available funds in accordance with the Company's written wire
instructions, and (ii) the Company shall deliver to each Buyer, stock
certificates (in the denominations as such Buyer shall request) (the "STOCK
CERTIFICATES") representing such number of the Preferred Shares which such Buyer
is then purchasing (as indicated opposite such Buyer's name on the Schedule of
Buyers), duly executed on behalf of the Company and registered in the name of
such Buyer or its designee.
2. BUYER'S REPRESENTATIONS AND WARRANTIES.
Each Buyer represents and warrants with respect to only itself
that:
a. Investment Purpose. Such Buyer (i) is acquiring the Preferred
Shares and (ii) upon conversion of the Preferred Shares, will acquire the
Conversion Shares then issuable (the Preferred Shares and the Conversion Shares
collectively are referred to herein as the "SECURITIES"), for its own account
for investment only and not with a view towards, or for resale in connection
with, the public sale or distribution thereof, except pursuant to sales
registered or exempted under the 1933 Act; provided, however, that by making the
representations herein, such Buyer does not agree to hold any of the Securities
for any minimum or other specific term and reserves the right to dispose of the
Securities at any time in accordance with or pursuant to a registration
statement or an exemption under the 1933 Act.
<PAGE> 6
b. Accredited Investor Status. Such Buyer is an "accredited
investor" as that term is defined in Rule 501(a)(3) of Regulation D.
c. Reliance on Exemptions. Such Buyer understands that the
Securities are being offered and sold to it in reliance on specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying in part upon the truth and accuracy of, and
such Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of such Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of such Buyer
to acquire such securities.
d. Information. Such Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by such Buyer. Such Buyer and its advisors, if any,
have been afforded the opportunity to ask questions of the Company. Neither such
inquiries nor any other due diligence investigations conducted by such Buyer or
its advisors, if any, or its representatives shall modify, amend or affect such
Buyer's right to rely on the Company's representations and warranties contained
in Section 3 below. Such Buyer understands that its investment in the Securities
involves a high degree of risk. Such Buyer has sought such accounting, legal and
tax advice as it has considered necessary to make an informed investment
decision with respect to its acquisition of the Securities.
e. No Governmental Review. Such Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed on or made any recommendation or endorsement of the Securities or the
fairness or suitability of the investment in the Securities nor have such
authorities passed upon or endorsed the merits of the offering of the
Securities.
f. Transfer or Resale. Such Buyer understands that except as
provided in the Registration Rights Agreement: (i) the Securities have not been
and are not being registered under the 1933 Act or any state securities laws,
and may not be offered for sale, sold, assigned or transferred unless (A)
subsequently registered thereunder, (B) such Buyer shall have delivered to the
Company an opinion of counsel, in a generally acceptable form, to the effect
that such Securities to be sold, assigned or transferred may be sold, assigned
or transferred pursuant to an exemption from such registration, or (C) such
Buyer provides the Company with reasonable assurance that such Securities can be
sold, assigned or transferred pursuant to Rule 144 promulgated under the 1933
Act (or a successor rule thereto)("RULE 144"); (ii) any sale of the Securities
made in reliance on Rule 144 may be made only in accordance with the terms of
Rule 144 and further, if Rule 144 is not applicable, any resale of the
Securities under circumstances in which the seller (or the person through whom
the sale is made) may be deemed to be an
<PAGE> 7
underwriter (as that term is defined in the 1933 Act) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other person is under any
obligation to register such Securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder.
g. Legends. Such Buyer understands that the certificates or other
instruments representing the Preferred Shares and, until such time as the sale
of the Conversion Shares have been registered under the 1933 Act as contemplated
by the Registration Rights Agreement, the stock certificates representing the
Conversion Shares, except as set forth below, shall bear a restrictive legend in
substantially the following form (and a stop-transfer order may be placed
against transfer of such stock certificates):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND
MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR ASSIGNED IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE SECURITIES
LAWS, OR AN OPINION OF COUNSEL, IN A GENERALLY ACCEPTABLE FORM, THAT
REGISTRATION IS NOT REQUIRED UNDER SAID ACT OR APPLICABLE STATE
SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SAID ACT.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of the Securities upon which it is
stamped, if (i) such Securities are registered for sale under the 1933 Act, (ii)
in connection with a sale transaction, such holder provides the Company with an
opinion of counsel, in a generally acceptable form, to the effect that a public
sale, assignment or transfer of such Securities may be made without registration
under the 1933 Act, or (iii) such holder provides the Company with reasonable
assurances that such Securities can be sold without restriction pursuant to Rule
144(k). Each Buyer acknowledges, covenants and agrees to sell the Securities
represented by a certificate(s) from which the legend has been removed, only
pursuant to (i) a registration statement effective under the 1933 Act, or (ii)
advice of counsel that such sale is exempt from registration required by Section
5 of the 1933 Act. Notwithstanding anything to the contrary contained herein, if
the legend is removed from any certificate representing any of the Securities
due to the availability of an effective registration statement relating to the
resale thereof, and such registration statement is no longer effective, upon the
request of the Company, each Buyer who is a holder of such Securities agrees to
return certificates representing
<PAGE> 8
the affected Securities, provided such Securities have not been sold pursuant to
such registration statement, to the Company's transfer agent in order that the
legend set forth above may be re-imposed on such Securities.
h. Authorization; Enforcement. This Agreement has been duly and
validly authorized, executed and delivered on behalf of such Buyer and is a
valid and binding agreement of such Buyer enforceable against such Buyer in
accordance with its terms, subject as to enforceability to general principles of
equity and to applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation and other similar laws relating to, or affecting generally, the
enforcement of applicable creditors' rights and remedies.
i. Residency. Such Buyer is a resident of that country or
jurisdiction specified on the Schedule of Buyers.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Buyers that:
a. Organization and Qualification. The Company and its
"Subsidiaries" (which for purposes of this Agreement means any entity in which
the Company, directly or indirectly, owns capital stock or holds an equity or
similar interest of 20% or more) (a complete list of which is set forth in
Schedule 3(a)) are corporations duly organized and validly existing in good
standing under the laws of the jurisdiction in which they are incorporated, and
have the requisite corporate power and authorization to own their properties and
to carry on their business as now being conducted. Each of the Company and 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,
except to the extent that the failure to be so qualified or be in good standing
would not have a Material Adverse Effect. As used in this Agreement, "MATERIAL
ADVERSE EFFECT" means any material adverse effect on the business, properties,
assets, operations, results of operations, financial condition or prospects of
the Company and its Subsidiaries, if any, taken as a whole, or on the
transactions contemplated hereby or by the agreements and instruments to be
entered into in connection herewith, or on the authority or ability of the
Company to perform its obligations under the Transaction Documents (as defined
below) or the Certificate of Designations.
b. Authorization; Enforcement; Compliance with Other Instruments.
(i) The Company has the requisite corporate power and authority to enter into
and perform this Agreement, the Registration Rights Agreement, and the
Irrevocable Transfer Agent Instructions (as defined in Section 5) and each of
the other agreements entered into by the parties hereto in connection with the
<PAGE> 9
transactions contemplated by this Agreement (collectively, the "TRANSACTION
DOCUMENTS"), and to issue the Securities in accordance with the terms hereof and
thereof, (ii) the execution and delivery of the Transaction Documents and the
Certificate of Designations 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 the reservation for issuance and the
issuance of the Conversion Shares issuable upon conversion thereof, have been
duly authorized by the Company's Board of Directors and no further consent or
authorization is required by the Company, its Board of Directors or its
stockholders (except to the extent that stockholder approval may be required
pursuant to the rules of the Nasdaq SmallCap Market or the Nasdaq National
Market, as applicable, for the issuance of a number of Conversion Shares greater
than 19.99% of the number of shares of Common Stock outstanding immediately
prior to the Initial Issuance Date), (iii) the Transaction Documents have been
duly executed and delivered by the Company, (iv) the Transaction Documents
constitute the valid and binding obligations of the Company enforceable against
the Company in accordance with their terms, except as such enforceability may be
limited by general principles of equity or applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally, the enforcement of creditors' rights and remedies, and (v)
prior to each of the Closing Dates, the Certificate of Designations will have
been filed with the Secretary of State of the State of Delaware and will be in
full force and effect, enforceable against the Company in accordance with its
terms.
c. Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of (i) 22,229,927 shares of Common Stock
(including 2,229,927 shares of Class A Common Stock), of which as of the date
hereof, 5,763,614 shares were issued and outstanding (including 1,413,653 shares
of Class A Common Stock), 1,066,385 shares are issuable and reserved for
issuance pursuant to the Company's stock option and purchase plans and no shares
are issuable and reserved for issuance pursuant to securities (other than the
Preferred Shares) exercisable or exchangeable for, or convertible into, shares
of Common Stock; (ii) 5,000,000 shares of Preferred Stock, of which as of the
date hereof, no shares were issued and outstanding. All of such outstanding
shares have been, or upon issuance will be, validly issued and are fully paid
and nonassessable. Except as disclosed in Schedule 3(c), (i) no shares of the
Company's capital stock are subject to preemptive rights or any other similar
rights or any liens or encumbrances suffered or permitted by the Company; (ii)
there are no outstanding debt securities; (iii) 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, any
shares of capital stock of the Company or any of its Subsidiaries, or contracts,
commitments, understandings 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 or options, warrants, scrip, rights to
subscribe to, calls or commitments of any character whatsoever relating to, or
securities or rights convertible into, any shares of capital stock of the
Company or any of its Subsidiaries; (iv) there are
<PAGE> 10
no agreements or arrangements under which the Company or any of its Subsidiaries
is obligated to register the sale of any of their securities under the 1933 Act
(except the Registration Rights Agreement); (v) there are no outstanding
securities 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; (vi) except as disclosed in Schedule 3(c), there are no securities
or instruments containing anti-dilution or similar provisions that will be
triggered by the issuance of the Securities as described in this Agreement; and
(vii) 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 Buyers true and correct copies of the Company's Certificate of
Incorporation, as amended and as in effect on the date hereof (the "CERTIFICATE
OF INCORPORATION"), and the Company's By-laws, as in effect on the date hereof
(the "BY-LAWS"), and the terms of all securities convertible into or exercisable
for Common Stock and the material rights of the holders thereof in respect
thereto.
d. Issuance of Securities. The Preferred Shares are duly
authorized and, upon issuance in accordance with the terms hereof, shall be (i)
validly issued, fully paid and non-assessable, (ii) free from all taxes, liens
and charges with respect to the issue thereof and (iii) entitled to the rights
and preferences set forth in the Certificate of Designations. 923,000 shares of
Common Stock (subject to adjustment pursuant to the Company's covenant set forth
in Section 4(f) below) have been duly authorized and reserved for issuance upon
conversion of the Preferred Shares. Upon conversion in accordance with the
Certificate of Designations, the Conversion Shares will be validly issued, duly
listed, fully paid and nonassessable and free from all taxes, liens and charges
with respect to the issue thereof, with the holders being entitled to all rights
accorded to a holder of Common Stock. Based upon the representations of the
Buyers set forth in Section 2 hereof, the issuance by the Company of the
Securities is exempt from registration under the 1933 Act.
e. No Conflicts. Except as disclosed in Schedule 3(e), the
execution, delivery and performance of the Transaction Documents by the Company,
the performance by the Company of its obligations under the Certificate of
Designations and the consummation by the Company of the transactions
contemplated hereby and thereby (including, without limitation, the reservation
for issuance and issuance of the Conversion Shares) will not (i) result in a
violation of the Certificate of Incorporation, any Certificate of Designations,
Preferences and Rights of any outstanding series of Preferred Stock of the
Company or the By-laws; (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, acceleration or
cancellation of, any material agreement, indenture or instrument to which the
Company or any of its Subsidiaries is a party; or (iii) result in a violation of
any law, rule, regulation, order, judgment or decree (including federal and
state
<PAGE> 11
securities laws and regulations and the rules and regulations of the principal
market or exchange on which the Common Stock is traded or listed) 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 as disclosed in
Schedule 3(e), neither the Company nor its Subsidiaries is in violation of any
term of or in default under (i) its Certificate of Incorporation, any
Certificate of Designation, Preferences and Rights of any outstanding series of
Preferred Stock or By-laws or their organizational charter or by-laws,
respectively, or (ii) any contract, agreement, mortgage, indebtedness,
indenture, instrument, judgment, decree or order or any statute, rule or
regulation applicable to the Company or its Subsidiaries, except to the extent
that any such violation or default would not have a Material Adverse Effect. The
business of the Company and its Subsidiaries is not being conducted, and shall
not be conducted, in violation of any law, ordinance or regulation of any
governmental entity, except to the extent that any such violation would not have
a Material Adverse Effect. Except as specifically contemplated by this Agreement
and as required under the 1933 Act, the Company is not required to obtain any
consent, 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 or
contemplated by the Transaction Documents or the Certificate of Designations in
accordance with the terms hereof or thereof. Except as disclosed in Schedule
3(e) and except to the extent that stockholder approval may be required pursuant
to the rules of the Nasdaq SmallCap Market or the Nasdaq National Market, as
applicable, for the issuance of a number of Conversion Shares greater than
19.99% of the number of shares of Common Stock outstanding immediately prior to
the Initial Issuance Date, all consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof. The
Company and its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing. The Company is not in violation of the
listing requirements of The Nasdaq SmallCap Market or the Nasdaq National
Market, as the case may be, as in effect on the date hereof and on each of the
Closing Dates and is not aware of any facts which would reasonably lead to
delisting or suspension of the Common Stock by The Nasdaq SmallCap Market or the
Nasdaq National Market, as the case may be, in the foreseeable future.
f. SEC Documents; Financial Statements. Since December 31, 1995,
the Company has filed 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 "1934 ACT")
(all of the foregoing filed prior to the date hereof, and the draft, dated March
25, 1998, of the Company's Form 10-K for the year ended December 31, 1997 which
has been provided to each of the Buyers (the "DRAFT 1997 10-K") and all exhibits
included therein and financial statements and schedules thereto and documents
incorporated by reference therein being hereinafter referred to as the "SEC
DOCUMENTS"). The Company has delivered to the Buyers or their respective
representatives true and complete copies of the SEC Documents. As of
<PAGE> 12
their respective dates, the SEC Documents complied in all material respects with
the requirements of the 1934 Act 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. 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 with
respect thereto. Such financial statements have been prepared in accordance with
generally accepted accounting principles, 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 exclude footnotes or may be condensed or
summary statements) and fairly present in all material respects the financial
position of the Company as of the dates thereof and the results of its
operations and cash flows for the periods then ended (subject, in the case of
unaudited statements, to normal year-end audit adjustments). No information
provided by the Company in the representations or warranties set forth in this
Section 3 or the schedules thereto and which is not included in the SEC
Documents, contains any untrue statement of a material fact or omits to state
any material fact necessary in order to make the statements therein, in the
light of the circumstance under which they are or were made, not misleading.
Neither the Company nor any of its Subsidiaries or any of their officers,
directors, employees or agents have provided the Buyers with any material,
nonpublic information.
g. Absence of Certain Changes. Except as disclosed in Schedule
3(g) and in the SEC Documents filed, except in the case of the Draft 1997 10-K,
at least 10 days prior to the date hereof, since December 31, 1996 there has
been no material adverse change and no material adverse development in the
business, properties, operations, financial condition, liabilities, results of
operations or prospects of the Company or its Subsidiaries. The Company has not
taken any steps, and does not currently expect to take any steps, to seek
protection pursuant to any bankruptcy law nor does the Company or any of its
Subsidiaries have any knowledge or reason to believe that its creditors intend
to initiate involuntary bankruptcy proceedings.
h. Absence of Litigation. There is no action, suit, proceeding,
inquiry or investigation before or by any court, public board, government
agency, self-regulatory organization or body pending or, to the knowledge of the
Company or any of its Subsidiaries, threatened against or affecting the Company,
the Common Stock or any of the Company's Subsidiaries or any of the Company's or
the Company's Subsidiaries' officers or directors in their capacities as such,
except as expressly set forth in Schedule 3(h).
<PAGE> 13
i. Acknowledgment Regarding Buyers' Purchase of Preferred Shares.
The Company acknowledges and agrees that each of the Buyers is acting solely in
the capacity of arm's length purchaser with respect to the Transaction Documents
and the transactions contemplated thereby. The Company further acknowledges that
each Buyer is not acting as a financial advisor or fiduciary of the Company (or
in any similar capacity) with respect to the Transaction Documents and the
Certificate of Designations and the transactions contemplated thereby and any
advice given by any of the Buyers or any of their respective representatives or
agents in connection with the Transaction Documents and the Certificate of
Designations and the transactions contemplated thereby is merely incidental to
such Buyer's purchase of the Securities. The Company further represents to each
Buyer that the Company's decision to enter into the Transaction Documents has
been based solely on the independent evaluation by the Company and its
representatives.
j. No Undisclosed Events, Liabilities, Developments or
Circumstances. No event, liability, development or circumstance has occurred or
exists, or is contemplated to occur, with respect to the Company or its
Subsidiaries or their respective business, properties, prospects, operations or
financial condition, that would be required to be disclosed by the Company under
applicable securities laws on a registration statement filed with the SEC
relating to the issuance and sale by the Company of its Common Stock and which
has not been publicly disclosed.
k. No General Solicitation. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has engaged in any
form of general solicitation or general advertising (within the meaning of
Regulation D under the 1933 Act) in connection with the offer or sale of the
Securities.
l. 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 any of
the Securities under the 1933 Act or cause this offering of Securities to be
integrated with prior offerings by the Company for purposes of the 1933 Act or
any applicable stockholder approval provisions, including, without limitation,
under the rules and regulations of The Nasdaq Stock Market, Inc., nor will the
Company or any of its Subsidiaries take any action or steps that would require
registration of the Securities under the 1933 Act or cause the offering of the
Securities to be integrated with other offerings.
m. Employee Relations. Neither the Company nor any of its
Subsidiaries is involved in any union labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened. Neither the
Company nor any of its Subsidiaries is a party to a collective bargaining
agreement, and the Company and its Subsidiaries believe that relations with
their employees are good. No executive officer (as defined in Rule 501(f) of the
<PAGE> 14
1933 Act) has notified the Company that such officer intends to leave the
Company or otherwise terminate such officer's employment with the Company.
n. Intellectual Property Rights. The Company and its Subsidiaries
own or possess adequate rights or licenses to use all trademarks, trade names,
service marks, service mark registrations, service names, patents, patent
rights, copyrights, inventions, licenses, approvals, governmental
authorizations, trade secrets and rights necessary to conduct their respective
businesses as now conducted, except to the extent that the failure to possess
such rights would not have a Material Adverse Effect. Except as set forth on
Schedule 3(n), none of the Company's trademarks, trade names, service marks,
service mark registrations, service names, patents, patent rights, copyrights,
inventions, licenses, approvals, government authorizations, trade secrets or
other intellectual property rights have expired or terminated, or are expected
to expire or terminate within two years from the date of this Agreement. The
Company and its Subsidiaries do not have any knowledge of any infringement by
the Company or its Subsidiaries of trademarks, trade name rights, patents,
patent rights, copyrights, inventions, licenses, service names, service marks,
service mark registrations, trade secret or other similar rights of others, and,
except as set forth on Schedule 3(n), there is no claim, action or proceeding
being made or brought against, or to the Company's knowledge, being threatened
against, the Company or its Subsidiaries regarding trademarks, trade name
rights, patents, patent rights, inventions, copyrights, licenses, service names,
service marks, service mark registrations, trade secrets or other infringement;
and the Company and its Subsidiaries are unaware of any facts or circumstances
which might give rise to any of the foregoing. The Company and its Subsidiaries
have taken reasonable security measures to protect the secrecy, confidentiality
and value of all of their intellectual properties.
o. Environmental Laws. The Company and 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, except to the extent that
the failure to comply with Environmental Laws or the terms of such permits,
licenses or approvals or the failure to obtain such permits, licenses or
approvals would not have a Material Adverse Effect.
p. Title. The Company and its Subsidiaries have good and
marketable title in fee simple to all real property and good and marketable
title to all personal property owned by them which 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(p) or such
as do not materially affect the value of such property and do not interfere with
the use made and proposed to
<PAGE> 15
be made of such property by the Company or any of its Subsidiaries. Any real
property and facilities held under lease by the Company or any of its
Subsidiaries are held by them under valid, subsisting and enforceable leases
with such exceptions as are not material and do not interfere with the use made
and proposed to be made of such property and buildings by the Company and its
Subsidiaries.
q. Insurance. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has been
refused any insurance coverage sought or applied for and neither the Company nor
any such Subsidiary has any reason to believe that it will not be able to renew
its existing insurance coverage as and when such coverage expires or to obtain
similar coverage from similar insurers as may be necessary to continue its
business at a cost that would not materially and adversely affect the condition,
financial or otherwise, or the earnings, business or operations of the Company
and its Subsidiaries, taken as a whole.
r. Regulatory Permits. The Company and its Subsidiaries possess
all certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses, except to the extent that the failure to possess such certificates,
authorizations or permits would not have a Material Adverse Effect, and neither
the Company nor any such Subsidiary has received any notice of proceedings
relating to the revocation or modification of any such certificate,
authorization or permit.
s. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient to
provide reasonable assurance that (i) transactions are executed in accordance
with management's general or specific authorizations, (ii) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles and to maintain asset
accountability, (iii) access to assets is permitted only in accordance with
management's general or specific authorization and (iv) the recorded
accountability for assets is compared with the existing assets at reasonable
intervals and appropriate action is taken with respect to any differences.
t. No Materially Adverse Contracts, Etc. Neither the Company nor
any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
<PAGE> 16
u. Tax Status. Except as set forth on Schedule 3(u), the Company
and each of its Subsidiaries has made or filed all federal and state 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 provision
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. 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.
v. Certain Transactions. Except as set forth on Schedule 3(v) and
in the SEC Documents filed, except in the case of the Draft 1997 10-K, at least
ten days prior to the date hereof and except for arm's length transactions
pursuant to which the Company makes payments in the ordinary course of business
upon terms no less favorable than the Company could obtain from third parties
and other than the grant of stock options disclosed on Schedule 3(c), none of
the officers, directors, or employees of the Company is presently a party to any
transaction with the Company or any of its Subsidiaries (other than for services
as employees, officers and directors), including any contract, agreement or
other arrangement providing for the furnishing of services to or by, providing
for rental of real or personal property to or from, or otherwise requiring
payments to or from any officer, director or such employee or, to the knowledge
of the Company, any corporation, partnership, trust or other entity in which any
officer, director, or any such employee has a substantial interest or is an
officer, director, trustee or partner.
w. Dilutive Effect. The Company understands and acknowledges that
the number of Conversion Shares issuable upon conversion of the Preferred Shares
will increase in certain circumstances. The Company further acknowledges that
its obligation to issue Conversion Shares upon conversion of the Preferred
Shares in accordance with this Agreement and the Certificate of Designations is
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the Company.
x. No Other Agreements. The Company has not, directly or
indirectly, made any agreements with any Buyers relating to the terms or
conditions of the transactions contemplated by the Transaction Documents except
as set forth in the Transaction Documents.
4. COVENANTS.
<PAGE> 17
a. Best Efforts. Each party shall use its best efforts timely to
satisfy each of the conditions to be satisfied by it as provided in Sections 6
and 7 of this Agreement.
b. Form D. The Company agrees to file a Form D with respect to
the Securities as required under Regulation D and to provide a copy thereof to
each Buyer promptly after such filing. The Company shall, on or before each of
the Closing Dates, take such action as the Company shall reasonably determine is
necessary to qualify the Securities for, or obtain exemption for the Securities
for, sale to the Buyers at each of the Closings pursuant to this Agreement under
applicable securities or "Blue Sky" laws of the states of the United States, and
shall provide evidence of any such action so taken to the Buyers on or prior to
the Closing Date. The Company shall make all filings and reports relating to the
offer and sale of the Securities required under applicable securities or "Blue
Sky" laws of the states of the United States following each of the Closing
Dates.
c. Reporting Status. Until the earlier of (i) the date which is
one year after the date as of which the Investors (as that term is defined in
the Registration Rights Agreement) may sell all of the Conversion Shares without
restriction pursuant to Rule 144(k) promulgated under the 1933 Act (or successor
thereto), or (ii) the date on which (A) the Investors shall have sold all the
Conversion Shares and (B) none of the Preferred Shares is outstanding (the
"REGISTRATION PERIOD"), the Company shall file all reports required to be filed
with the SEC pursuant to the 1934 Act, and the Company shall not terminate its
status as an issuer required to file reports under the 1934 Act even if the 1934
Act or the rules and regulations thereunder would otherwise permit such
termination.
d. Use of Proceeds. The Company will use the proceeds from the
sale of the Preferred Shares for general working capital purposes.
e. Financial Information. The Company agrees to use its
reasonable commercial efforts to send the following to each Investor (as that
term is defined in the Registration Rights Agreement) during the Registration
Period: (i) within five days after the filing thereof with the SEC, a copy of
its Annual Reports on Form 10-K, its Quarterly Reports on Form 10-Q, any Current
Reports on Form 8-K and any registration statements or amendments (other than on
Form S-8) filed pursuant to the 1933 Act; (ii) on the same day as the release
thereof, facsimile 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 the stockholders of the Company generally,
contemporaneously with the making available or giving thereof to the
stockholders.
f. Reservation of Shares. The Company shall take all action
necessary to at all times have authorized, and reserved for the purpose of
issuance, no less than 150% of the number
<PAGE> 18
of shares of Common Stock needed to provide for the issuance of the Conversion
Shares (without regard to any limitations on conversions).
g. Additional Issuances; Right of First Refusal. Subject to the
exceptions described below, the Company agrees that during the period beginning
on the date hereof and ending on the date that the Registration Statement is
declared effective by the SEC (the "LOCK-UP PERIOD"), neither the Company nor
its Subsidiaries will, without the prior written consent of the holders of the
Preferred Shares representing at least two-thirds (2/3) of the Preferred Shares
then outstanding, negotiate or contract with any party for any equity financing
(including any debt financing with an equity component) or issue any equity
securities of the Company or any Subsidiary or securities convertible or
exchangeable into or for equity securities of the Company or any Subsidiary
(including debt securities with an equity component) in any form. In addition,
subject to the exceptions described below, the Company and its Subsidiaries
shall not negotiate or contract with any party for any equity financing
(including any debt financing with an equity component) or issue any equity
securities of the Company or any Subsidiary or securities convertible or
exchangeable into or for equity securities of the Company or any Subsidiary
(including debt securities with an equity component) in any form ("FUTURE
OFFERINGS") during the period beginning on the last day of the Lock-Up Period
and ending on the date which is 270 days after the Initial Closing Date (or, if
there has been a Put Closing, then 270 days after the Put Closing Date), unless
it shall have first delivered to each Buyer or a designee appointed by such
Buyer written notice (the "FUTURE OFFERING NOTICE") describing the proposed
Future Offering, including the terms and conditions thereof, and providing each
Buyer an option to purchase up to its Aggregate Percentage (as defined below),
as of the date of delivery of the Future Offering Notice, in the Future Offering
(the limitations referred to in this and the preceding sentence are collectively
referred to as the "CAPITAL RAISING LIMITATION"). For purposes of this Section
4(g), "AGGREGATE PERCENTAGE" at any time with respect to any Buyer shall mean
the percentage obtained by dividing (i) the aggregate number of Preferred Shares
purchased by such Buyer at the Closings by (ii) the aggregate number of
Preferred Shares purchased by all Buyers at the Closings. A Buyer can exercise
its option to participate in a Future Offering by delivering written notice
thereof to participate to the Company within ten (10) business days of receipt
of a Future Offering Notice, which notice shall state the quantity of securities
being offered in the Future Offering that such Buyer will purchase, up to its
Aggregate Percentage, and that number of securities it is willing to purchase in
excess of its Aggregate Percentage. In the event that one or more Buyers fail to
elect to purchase up to each such Buyer's Aggregate Percentage then each Buyer
which has indicated that it is willing to purchase a number of securities in
excess of its Aggregate Percentage shall be entitled to purchase its pro rata
portion (determined in the same manner as described in the preceding sentence)
of the securities in the Future Offering which one or more Buyers have not
elected to purchase. In the event the Buyers fail to elect to fully participate
in the Future Offering within the periods described in this Section 4(g), the
Company shall have 45 days thereafter to sell the
<PAGE> 19
securities of the Future Offering respecting which such Buyer's rights were not
exercised, upon terms and conditions, no more favorable to the purchasers
thereof than specified in the Future Offering Notice. In the event the Company
has not sold such securities of the Future Offering within such 45 day period,
the Company shall not thereafter issue or sell such securities without first
offering such securities to the Buyers in the manner provided in this Section
4(g). The Capital Raising Limitation shall not apply to (i) a loan from a
commercial bank, (ii) any transaction involving the Company's issuances of
securities (A) as consideration in a merger or consolidation, (B) in connection
with any strategic partnership or joint venture (the primary purpose of which is
not to raise equity capital), or (C) as consideration for the acquisition of a
business, product or license or other assets by the Company, (iii) the issuance
of Common Stock in a firm commitment, underwritten public offering with net
proceeds of at least $10,000,000, (iv) 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 (v) the grant of additional options or
warrants, or the issuance of additional securities, under any Company stock
option plan, restricted stock plan, stock purchase plan or other plan or written
compensation contract for the benefit of the Company's employees or directors.
The Buyers shall not be required to participate or exercise their right of first
refusal with respect to a particular Future Offering in order to exercise their
right of first refusal with respect to later Future Offerings.
h. Listing. Promptly following the Initial Closing Date, but in
no event later than 20 days after the Initial Closing Date, the Company shall
secure the listing of all of the Registrable Securities (as defined in the
Registration Rights Agreement) upon each national securities exchange and
automated quotation system (including The Nasdaq SmallCap Market and the Nasdaq
National Market), if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all Registrable
Securities from time to time issuable under the terms of the Transaction
Documents and the Certificate of Designations. The Company shall maintain the
Common Stock's authorization for listing on The Nasdaq SmallCap Market, the
Nasdaq National Market, or The New York Stock Exchange, Inc. ("NYSE"). Neither
the Company nor any of its Subsidiaries shall take any action which may result
in the delisting or suspension of the Common Stock on The Nasdaq SmallCap
Market, the Nasdaq National Market or NYSE (other than to switch listings from
The Nasdaq SmallCap Market to the Nasdaq National Market or NYSE or from the
Nasdaq National Market to NYSE). The Company shall promptly provide to each
Buyer copies of any notices it receives from The Nasdaq SmallCap Market, the
Nasdaq National Market or NYSE regarding the continued eligibility of the Common
Stock for listing on such automated quotation system or securities exchange. The
Company shall pay all fees and expenses in connection with satisfying its
obligations under this Section 4(h).
<PAGE> 20
i. Expenses. Subject to Section 9(l) below, at the Initial
Closing, the Company shall pay a non accountable expense allowance of $50,000.
j. Intentionally omitted.
k. Filing of Form 8-K. On or before the fifth (5th) business day
following each of the Closing Dates, the Company shall file a Form 8-K with the
SEC describing the terms of the transaction contemplated by the Transaction
Documents and consummated at such Closing, in each case in the form required by
the 1934 Act.
l. Proxy Statement. The Company shall provide each stockholder
entitled to vote at the next meeting of stockholders of the Company, which shall
be not later than 120 days after the Initial Closing Date (the "Stockholder
Meeting Deadline"), a proxy statement, which has been previously reviewed by the
Buyers and a counsel of their choice, soliciting each such stockholder's
affirmative vote at such stockholder meeting for approval of the Company's
issuance of all of the Securities as described in this Agreement, and the
Company shall use its best efforts to solicit its stockholders' approval of such
issuance of the Securities and cause the Board of Directors of the Company to
recommend to the stockholders that they approve such proposal.
m. Underwriting Lock-Up Agreement. At any time during the period
beginning on and including the Initial Closing Date and ending on the date which
is two years after the Initial Closing Date, while at least 150 Preferred Shares
remain outstanding the Company may require that all, but not less than all, of
the holders of the Preferred Shares enter into a "lock-up" agreement with the
underwriters of a public offering of the Common Stock pursuant to which the
holders would agree not to sell any Conversion Shares issued with respect to
Preferred Shares converted on Conversion Dates (as defined in the Certificate of
Designations) during the period beginning on the date designated by the Company
(which may be specified as the date that the registration statement for such
public offering is declared effective by the SEC), which date shall be not less
than 10 business days after the holders' receipt of such notice, and ending on
the date which is 90 days after the beginning of the lock-up period as
designated by the Company (the "UNDERWRITING LOCK-UP PERIOD"). The Company shall
exercise this right by delivering written notice (the "LOCK-UP REQUEST NOTICE")
of such request to all of the holders of the Preferred Shares then outstanding
at least 10 business days prior to the date on which the Underwriting Lock-Up
Period will begin, but in no event prior to the filing of the registration
statement for such proposed offering. The Lock-up Request Notice shall state (i)
that the underwriters of such offering have requested that the holders of the
Preferred Shares enter into a "lock-up" agreement, (ii) the date on which the
Underwriting Lock-Up Period will begin, and (iii) the name of the managing
underwriters of the proposed offering. Notwithstanding the foregoing, the
Company shall not be entitled to require the holders to enter into a "lock-up"
agreement unless (A) the Underwriting
<PAGE> 21
Lock-Up Period is not more than 90 days, (B) the Underwriting Lock-Up Period
shall terminate immediately upon (I) the termination or abandonment or
indefinite delay of the underwritten offering, (II) the announcement of a
pending or consummated Major Transaction or (III) the occurrence of a Triggering
Event, (C) all officers and directors of the Company enter into substantially
similar "lock-up" agreements, (D) such underwritten public offering is completed
at a price per share to the public of not less than $10 per share (subject to
adjustment as a result of any stock split, stock dividend, recapitalization,
reverse stock split, consolidation, exchange or similar event) and generates
aggregate gross proceeds to the Company of at least $15,000,000, (E) there has
been no other Underwriting Lock-Up Period, (F) during the period beginning on
and including the date which is 20 business days prior to the filing of the
registration statement for the proposed offering and ending on and including the
first day of the Underwriting Lock-Up Period, the Registration Statement has
been effective and there has been no stop order or other regulatory prohibition
on trading of the Common Stock, (G) the offering shall be underwritten by one or
more of the underwriters included on the Schedule of Underwriters attached to
this Agreement and (H) on the date of the Company's delivery of the Lock-Up
Request Notice there are at least 150 Preferred Shares outstanding. In the event
the Company requires an Underwriting Lock-Up Period, the Mandatory Conversion
Date (as defined in the Certificate of Designations) shall be extended one and
one-half (1-1/2) days for each day in the Underwriting Lock-Up Period as
provided in Section 2(g) of the Certificate of Designations.
5. TRANSFER AGENT INSTRUCTIONS.
The Company shall issue irrevocable instructions to its transfer
agent, and any subsequent transfer agent, to issue certificates, registered in
the name of each Buyer or its respective nominee(s), for the Conversion Shares
in such amounts as specified from time to time by each Buyer to the Company upon
conversion of the Preferred Shares (the "IRREVOCABLE TRANSFER AGENT
INSTRUCTIONS"). Prior to registration of the Conversion Shares under the 1933
Act, all such certificates shall bear the restrictive legend specified in
Section 2(g) of this Agreement. The Company warrants that no instruction other
than the Irrevocable Transfer Agent Instructions referred to in this Section 5,
and stop transfer instructions to give effect to Section 2(f) hereof (in the
case of the Conversion Shares, prior to registration of the Conversion Shares
under the 1933 Act) will be given by 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 5 shall affect in any way
each Buyer's obligations and agreements set forth in Section 2(g) to comply with
all applicable prospectus delivery requirements, if any, upon resale of the
Securities. If a Buyer provides the Company with an opinion of counsel, in
generally acceptable form, that registration of a resale by such Buyer of any of
such Securities is not required under the 1933 Act, the Company shall permit the
transfer, and, in the case of the Conversion Shares, promptly instruct its
transfer agent to issue
<PAGE> 22
one or more certificates in such name and in such denominations as specified by
such Buyer and without any restrictive legends. The Company acknowledges that a
breach by it of its obligations hereunder will cause irreparable harm to the
Buyers by vitiating the intent and purpose of the transaction contemplated
hereby. Accordingly, the Company acknowledges that the remedy at law for a
breach of its obligations under this Section 5 will be inadequate and agrees, in
the event of a breach or threatened breach by the Company of the provisions of
this Section 5, that the Buyers shall be entitled, in addition to all other
available remedies, to an injunction restraining any breach and requiring
immediate issuance and transfer, without the necessity of showing economic loss
and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
a. Initial Closing Date. The obligation of the Company hereunder
to issue and sell the Initial Preferred Shares to each Buyer at the Initial
Closing is subject to the satisfaction, at or before the Initial Closing Date,
of each of the following conditions, provided that these conditions are for the
Company's sole benefit and may be waived by the Company at any time in its sole
discretion by providing each Buyer with prior written notice thereof:
(i) Such Buyer shall have executed each of this Agreement and the
Registration Rights Agreement and delivered the same to the Company.
(ii) The Certificate of Designations shall have been filed with
the Secretary of State of the State of Delaware.
(iii) Such Buyer shall have delivered to the Company the Purchase
Price for the Preferred Shares being purchased by such Buyer at the
Initial Closing by wire transfer of immediately available funds pursuant
to the wire instructions provided by the Company.
(iv) The representations and warranties of such Buyer shall be
true and correct as of the date when made and as of the Initial Closing
Date as though made at that time (except for representations and
warranties that speak as of a specific date), and such Buyer shall have
performed, satisfied and complied with the covenants, agreements and
conditions required by the Transaction Documents to be performed,
satisfied or complied with by such Buyer at or prior to the Initial
Closing Date.
b. Additional Closing Dates. The obligation of the Company
hereunder to issue and sell the Additional Preferred Shares to each Buyer at
each of the Additional Closings is subject to the satisfaction, at or before the
respective Additional Closing Date, of each of the following conditions,
provided that these conditions are for the Company's sole benefit and may be
<PAGE> 23
waived by the Company at any time in its sole discretion by providing each Buyer
with prior written notice thereof:
(i) Such Buyer shall have complied with the requirements of
Section 1(c).
(ii) Such Buyer shall have delivered to the Company the Purchase
Price for the Additional Preferred Shares being purchased by such Buyer
at the Additional Closing by wire transfer of immediately available
funds pursuant to the wire instructions provided by the Company.
(iii) The representations and warranties of such Buyer shall be
true and correct in all material respects as of the date when made and
as of the Additional Closing Date as though made at that time (except
for representations and warranties that speak as of a specific date),
and such Buyer shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required
by the Transaction Documents to be performed, satisfied or complied with
by such Buyer at or prior to the Additional Closing Date.
c. Put Closing Date. The obligation of the Company hereunder to
issue and sell the Put Preferred Shares to each Buyer at the Put Closing is
subject to the satisfaction, at or before the Put Closing Date, of each of the
following conditions, provided that these conditions are for the Company's sole
benefit and may be waived by the Company at any time in its sole discretion by
providing each Buyer with prior written notice thereof:
(i) Such Buyer shall have delivered to the Company the Purchase
Price for the Put Preferred Shares being purchased by such Buyer at the
Put Closing by wire transfer of immediately available funds pursuant to
the wire instructions provided by the Company.
(ii) The representations and warranties of such Buyer shall be
true and correct in all material respects as of the date when made and
as of the Put Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date), and
such Buyer shall have performed, satisfied and complied in all material
respects with the covenants, agreements and conditions required by this
Transaction Documents to be performed, satisfied or complied with by
such Buyer at or prior to the Put Closing Date.
<PAGE> 24
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE.
a. Initial Closing Date. The obligation of each Buyer hereunder
to purchase the Initial Preferred Shares at the Initial Closing is subject to
the satisfaction, at or before the Initial Closing Date, of each of the
following conditions, provided that these conditions are for each Buyer's sole
benefit and may be waived by such Buyer at any time in its sole discretion:
(i) The Company shall have executed each of the Transaction
Documents, and delivered the same to such Buyer.
(ii) The Certificate of Designations, shall have been filed with
the Secretary of State of the State of Delaware, and a copy thereof
certified by such Secretary of State shall have been delivered to such
Buyer.
(iii) The Common Stock shall be authorized for quotation on The
Nasdaq SmallCap Market or the Nasdaq National Market or listing on NYSE,
trading in the Common Stock issuable upon conversion of the Initial
Preferred Shares to be traded on The Nasdaq SmallCap Market, the Nasdaq
National Market or NYSE shall not have been suspended by the SEC, The
Nasdaq Stock Market, Inc. or NYSE.
(iv) The representations and warranties of the Company shall be
true and correct as of the date when made and as of the Initial Closing
Date as though made at that time (except for representations and
warranties that speak as of a specific date) and the Company shall have
performed, satisfied and complied with the covenants, agreements and
conditions required by the Transaction Documents or Certificate of
Designations to be performed, satisfied or complied with by the Company
at or prior to the Initial Closing Date. Such Buyer shall have received
a certificate, executed by the Chief Executive Officer or Chief
Financial Officer of the Company, dated as of the Initial Closing Date,
to the foregoing effect and as to such other matters as may be
reasonably requested by such Buyer including, without limitation, an
update as of the Initial Closing Date regarding the representation
contained in Section 3(c) above.
(v) Such Buyer shall have received the opinion of Gray Cary Ware
& Freidenrich dated as of the Initial Closing Date in substantially the
form of Exhibit C attached hereto.
(vi) The Company shall have executed and delivered to such Buyer
the Stock Certificates (in such denominations as such Buyer shall
request) for the Initial Preferred Shares being purchased by such Buyer
at the Initial Closing.
<PAGE> 25
(vii) 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 Buyer (the "RESOLUTIONS").
(viii) As of the Initial Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Preferred Shares, at least
923,000 shares of Common Stock.
(ix) The Irrevocable Transfer Agent Instructions, in the form of
Exhibit D attached hereto, shall have been delivered to and acknowledged
in writing by the Company's transfer agent.
(x) The Company shall have delivered to such Buyer a certificate
evidencing the incorporation and good standing of the Company and each
Subsidiary in such corporation's state of incorporation issued by the
Secretary of State of such state of incorporation as of a date within 10
days of the Initial Closing.
(xi) The Company shall have delivered to such Buyer a secretary's
certificate certifying as to (A) the Resolutions, (B) certified copies
of its Certificate of Incorporation and (C) By-laws, each as in effect
at the Initial Closing.
(xii) The Company shall have delivered to such Buyer a certified
copy of its Certificate of Incorporation as certified by the Secretary
of State of the State of Delaware within ten days of the Initial Closing
Date.
(xiii) The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by the Transaction
Documents as such Buyer or its counsel may reasonably request.
b. Additional Closing Dates. The obligation of each Buyer
hereunder to purchase the Additional Preferred Shares at each of the Additional
Closings is subject to the satisfaction, at or before the Additional Closing
Dates, of each of the following conditions, provided that these conditions are
for each Buyer's sole benefit and may be waived by such Buyer at any time in its
sole discretion:
(i) The Certificate of Designations shall be in full force and
effect and shall not have been amended since the Initial Closing Date,
and a copy thereof certified by the Secretary of State of the State of
Delaware shall have been delivered to such Buyer.
<PAGE> 26
(ii) The Common Stock shall be authorized for quotation on The
Nasdaq SmallCap Market or the Nasdaq National Market or listing on NYSE,
trading in the Common Stock issuable upon conversion of the Additional
Preferred Shares to be traded on The Nasdaq SmallCap Market, the Nasdaq
National Market or NYSE shall not have been suspended by the SEC, The
Nasdaq Stock Market, Inc. or NYSE and all of the Conversion Shares
issuable upon conversion of the Additional Preferred Shares to be sold
at the Additional Closing shall be listed upon The Nasdaq SmallCap
Market, the Nasdaq National Market or NYSE.
(iii) The representations and warranties of the Company shall be
true and correct as of the date when made and as of the respective
Additional Closing Date as though made at that time (except for
representations and warranties that speak as of a specific date) and the
Company shall have performed, satisfied and complied with the covenants,
agreements and conditions required by the Transaction Documents or the
Certificate of Designations to be performed, satisfied or complied with
by the Company at or prior to the respective Additional Closing Date.
Such Buyer shall have received a certificate, executed by the Chief
Executive Officer or Chief Financial Officer of the Company, dated as of
such Additional Closing Date, to the foregoing effect and as to such
other matters as may be reasonably requested by such Buyer including,
without limitation, an update as of such Additional Closing Date
regarding the representation contained in Section 3(c) above.
(iv) Such Buyer shall have received the opinion of Gray Cary Ware
& Freidenrich dated as of such Additional Closing Date, in substantially
the form of Exhibit C attached hereto.
(v) The Company shall have executed and delivered to such Buyer
the Stock Certificates (in such denominations as such Buyer shall
request) for the Additional Preferred Shares being purchased by such
Buyer at the Additional Closing.
(vi) The Board of Directors of the Company shall have adopted,
and shall not have amended, the Resolutions.
(vii) As of such Additional Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Preferred Shares, a number of
shares of Common Stock equal to at least 150% of the number of shares of
Common Stock which would be issuable upon conversion in full of the then
outstanding Preferred Shares, including for such purposes the Additional
Preferred Shares to be issued at such Additional Closing.
<PAGE> 27
(viii) The Irrevocable Transfer Agent Instructions, in the form
of Exhibit D attached hereto, shall have been delivered to and
acknowledged in writing by the Company's transfer agent.
(ix) The Company shall have delivered to such Buyer a certificate
evidencing the incorporation and good standing of the Company and each
Subsidiary in the state of such corporation's state of incorporation
issued by the Secretary of State of such state of incorporation as of a
date within 10 days of such Additional Closing.
(x) The Company shall have delivered to such Buyer a secretary's
certificate certifying as to (A) the Resolutions, (B) certified copies
of its Certificate of Incorporation and (C) By-laws, each as in effect
at the Additional Closing.
(xi) The Company shall have delivered to such Buyer a certified
copy of its Certificate of Incorporation as certified by the Secretary
of State of the State of Delaware within ten days of the Additional
Closing Date.
(xii) During the period beginning on the Additional Share Notice
Date and ending on and including the Additional Closing Date, the
Company shall have delivered Conversion Shares upon conversion of the
Preferred Shares to the Buyers on a timely basis as set forth in Section
2(f)(ii) of the Certificate of Designations.
(xiii) The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by this Agreement as
such Buyer or its counsel may reasonably request.
c. Put Closing Date. The obligation of each Buyer hereunder to
purchase the Put Preferred Shares at the Put Closing is subject to the
satisfaction, at or before the Put Closing Date, of each of the following
conditions, provided that these conditions are for each Buyer's sole benefit and
may be waived by such Buyer at any time in its sole discretion:
(i) The Company shall have complied with the requirements of
Section 1(d) and all of the Put Notice Conditions set forth in Section
1(e) shall have been satisfied.
(ii) The Certificate of Designations, shall be in full force and
effect and shall not have been amended since the Put Closing Date, and a
copy thereof certified by the Secretary of State of the State of
Delaware shall have been delivered to such Buyer.
<PAGE> 28
(iii) The Common Stock shall be authorized for quotation on The
Nasdaq SmallCap Market or the Nasdaq National Market or listing on NYSE,
trading in the Common Stock issuable upon conversion of the Put
Preferred Shares to be traded on The Nasdaq SmallCap Market, the Nasdaq
National Market or NYSE shall not have been suspended by the SEC, The
Nasdaq SmallCap Market, The Nasdaq Stock Market, Inc. or NYSE and all of
the Conversion Shares issuable upon conversion of the Put Preferred
Shares to be sold at the Put Closing shall be listed upon The Nasdaq
SmallCap Market, the Nasdaq National Market or NYSE.
(iv) The representations and warranties of the Company shall be
true and correct as of the date when made and as of the Put Closing Date
as though made at that time (except for representations and warranties
that speak as of a specific date) and the Company shall have performed,
satisfied and complied with the covenants, agreements and conditions
required by the Transaction Documents or the Certificate of Designations
to be performed, satisfied or complied with by the Company at or prior
to the Put Closing Date. Such Buyer shall have received a certificate,
executed by the Chief Executive Officer or Chief Financial Officer of
the Company, dated as of the Put Closing Date, to the foregoing effect
and as to such other matters as may be reasonably requested by such
Buyer including, without limitation, an update as of the Put Closing
Date regarding the representation contained in Section 3(c) above.
(v) Such Buyer shall have received the opinion of Gray Cary Ware
& Freidenrich dated as of the Put Closing Date, in substantially the
form of Exhibit C attached hereto.
(vi) The Company shall have executed and delivered to such Buyer
the Stock Certificates (in such denominations as such Buyer shall
request) for the Put Preferred Shares being purchased by such Buyer at
the Put Closing.
(vii) The Board of Directors of the Company shall have adopted,
and shall not have amended, the Resolutions.
(viii) As of the Put Closing Date, the Company shall have
reserved out of its authorized and unissued Common Stock, solely for the
purpose of effecting the conversion of the Preferred Shares, a number of
shares of Common Stock equal to at least 150% of the number of shares of
Common Stock which would be issuable upon conversion in full of the then
outstanding Preferred Shares, including for such purposes the Put
Preferred Shares to be issued at such Put Closing.
<PAGE> 29
(ix) The Irrevocable Transfer Agent Instructions, in the form of
Exhibit D attached hereto, shall have been delivered to and acknowledged
in writing by the Company's transfer agent.
(x) The Company shall have delivered to such Buyer a certificate
evidencing the incorporation and good standing of the Company and each
Subsidiary in the state of such corporation's state of incorporation
issued by the Secretary of State of such state of incorporation as of a
date within 10 days of the Put Closing Date.
(xi) The Company shall have delivered to such Buyer a certified
copy of its Certificate of Incorporation as certified by the Secretary
of State of the State of Delaware within ten days of the Put Closing
Date.
(xii) The Company shall have delivered to such Buyer a
secretary's certificate certifying as to (A) the Resolutions, (B)
certified copies of its Certificate of Incorporation and (C) By-laws,
each as in effect at the Put Closing.
(xiii) The Company shall have delivered to such Buyer such other
documents relating to the transactions contemplated by this Agreement as
such Buyer or its counsel may reasonably request.
8. INDEMNIFICATION. In consideration of each Buyer's execution and
delivery of the Transaction Documents and acquiring the Securities thereunder
and in addition to all of the Company's other obligations under the Transaction
Documents and the Certificate of Designations, the Company shall defend,
protect, indemnify and hold harmless each Buyer and each other holder of the
Securities and all of their stockholders, officers, directors, employees and
direct or indirect investors and any of the forgoing person's agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"INDEMNITEES") from and against any and all actions, causes of action, suits,
claims, losses, costs, penalties, fees, liabilities and damages, and expenses in
connection therewith (irrespective of whether any such Indemnitee is a party to
the action for which indemnification hereunder is sought), and including
reasonable attorneys' fees and disbursements (the "INDEMNIFIED LIABILITIES"),
incurred by any Indemnitee as a result of, or arising out of, or relating to (a)
any misrepresentation or breach of any representation or warranty made by the
Company in the Transaction Documents or the Certificate of Designations or any
other certificate, instrument or document contemplated hereby or thereby, (b)
any breach of any covenant, agreement or obligation of the Company contained in
the Transaction Documents or the Certificate of Designations or any other
certificate, instrument or document contemplated hereby or thereby, (c) any
cause of action, suit or claim brought or made against such Indemnitee and
arising out of or resulting from the
<PAGE> 30
execution, delivery, performance, breach or enforcement of the Transaction
Documents or the Certificate of Designations by the Company, (d) any transaction
financed or to be financed in whole or in part, directly or indirectly, with the
proceeds of the issuance of the Securities or (e) the status of such Buyer or
holder of the Securities as an investor in the Company to the extent such status
arises from actions or inaction by the Company in violation of law. To the
extent that the foregoing undertaking by the Company may be unenforceable for
any reason, the Company shall make the maximum contribution to the payment and
satisfaction of each of the Indemnified Liabilities which is permissible under
applicable law.
9. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. The corporate laws of the State of Delaware
shall govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
interpreted in accordance with the laws of the State of New York without regard
to the principles of conflict of laws. Each party hereby irrevocably submits to
the non-exclusive jurisdiction of the state and federal courts sitting in the
City of New York, borough of Manhattan, for the adjudication of any dispute
hereunder or in connection herewith or with any transaction contemplated hereby
or discussed herein, and hereby irrevocably waives, and agrees not to assert in
any suit, action or proceeding, any claim that it is not personally subject to
the jurisdiction of any such court, that such suit, action or proceeding is
brought in an inconvenient forum or that the venue of such suit, action or
proceeding is improper. Each party hereby irrevocably waives personal service of
process and consents to process being served in any such suit, action or
proceeding by mailing a copy thereof to such party at the address for such
notices to it under this Agreement and agrees that such service shall constitute
good and sufficient service of process and notice thereof. Nothing contained
herein shall be deemed to limit in any way any right to serve process in any
manner permitted by law. 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 in that
jurisdiction or the validity or enforceability of any provision of this
Agreement in any other jurisdiction.
b. Counterparts. This Agreement may be executed in two or more
identical 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; provided that a facsimile signature
shall be considered due execution and shall be binding upon the signatory
thereto with the same force and effect as if the signature were an original, not
a facsimile signature.
<PAGE> 31
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 in that jurisdiction or the validity or
enforceability of any provision of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement supersedes all
other prior oral or written agreements between the Buyers, the Company, their
affiliates and persons acting on their behalf with respect to the matters
discussed herein, and this Agreement and the instruments referenced herein
contain the entire understanding of the parties with respect to the matters
covered herein and therein and, except as specifically set forth herein or
therein, neither the Company nor any Buyer makes any representation, warranty,
covenant or undertaking with respect to such matters. No provision of this
Agreement may be amended other than by an instrument in writing signed by the
Company and the holders of at least two-thirds (2/3) of the Preferred Shares and
the Conversion Shares held by holders or former holders of the Preferred Shares
(determined on an as converted to Common Stock basis at the time of such
determination) then outstanding, and no provision hereof may be waived other
than by an instrument in writing signed by the party against whom enforcement is
sought. No such amendment shall be effective to the extent that it applies to
less than all of the holders of the Preferred Shares then outstanding. No
consideration shall be offered or paid to any person to amend or consent to a
waiver or modification of any provision of any of the Transaction Documents or
the Certificate of Designations unless the same consideration also is offered to
all of the parties to the Transaction Documents or holders of the Preferred
Shares, as the case may be.
<PAGE> 32
f. Notices. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing and will be deemed to have been delivered (i) upon
receipt, when delivered personally; (ii) upon receipt, when sent by facsimile
(provided confirmation of transmission is mechanically generated and kept on
file by the sending party); or (iii) upon receipt, when delivered by a delivery
service, in each case properly addressed to the party to receive the same. The
addresses and facsimile numbers for such communications shall be:
If to the Company:
YieldUP International Corporation
117 Easy Street
Mountain View, California 94043
Telephone: 650-964-0100
Facsimile: 650-940-4388
Attention: President
With a copy to:
Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, California 94301-1825
Telephone: 650-328-6561
Facsimile: 650-327-3699
Attention: Peter M. Astiz, Esq.
If to the Transfer Agent:
American Stock Transfer & Trust Company
40 Wall Street
New York, New York 10005
Telephone: 718-921-8209
Facsimile: 718-331-1852
Attention: Joe Wolf
If to a Buyer, to its address and facsimile number on the Schedule of
Buyers, with copies to such Buyer's representatives as set forth on the Schedule
of Buyers.
<PAGE> 33
Each party shall provide five (5) days' prior written notice to the
other party of any change in address or facsimile number.
g. Successors and Assigns. This Agreement shall be binding upon
and inure to the benefit of the parties and their respective successors and
assigns, including any purchasers of the Preferred Shares. The Company shall not
assign this Agreement or any rights or obligations hereunder without the prior
written consent of the holders of two-thirds (2/3) of the Preferred Shares then
outstanding, provided that the assignee shall agree in writing to be bound by
the terms hereof. A Buyer may assign some or all of its rights hereunder without
the consent of the Company; provided, however, that any such assignment shall
not release such Buyer from its obligations hereunder unless such obligations
are assumed by such assignee and the Company has consented to such assignment
and assumption. Notwithstanding anything to the contrary contained in the
Transaction Documents, each Buyer shall be entitled to pledge the Securities in
connection with a bona fide margin account.
h. No 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.
i. Survival. Unless this Agreement is terminated under Section
9(l), the representations and warranties of the Company and the Buyers contained
in Sections 2 and 3, the agreements and covenants set forth in Sections 4, 5 and
9, and the indemnification provisions set forth in Section 8, shall survive each
of the Closings. Each Buyer shall be responsible only for its own
representations, warranties, agreements and covenants hereunder.
j. Publicity. The Company and each Buyer shall have the right to
approve before issuance any press releases or any other public statements with
respect to the transactions contemplated hereby; provided, however, that the
Company shall be entitled, without the prior approval of any Buyer, to make any
press release or other public disclosure with respect to such transactions as is
required by applicable law and regulations (although the Company shall use its
best efforts to consult with the Buyers in connection with any such press
release or other public disclosure 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.
<PAGE> 34
l. Termination. In the event that the Initial Closing shall not
have occurred with respect to a Buyer on or before three (3) business days from
the date hereof due to the Company's or such Buyer's failure to satisfy the
conditions set forth in Sections 6 and 7 above (and the nonbreaching party's
failure to waive such unsatisfied condition(s)), the nonbreaching party shall
have the option to terminate this Agreement with respect to such breaching party
at the close of business on such date without liability of any party to any
other party; provided, however, that if this Agreement is terminated pursuant to
this Section 9(l) by the Buyers, the Company shall remain obligated to reimburse
the non-breaching Buyers for reasonable expenses actually incurred up to the
amount described in Section 4(i) above.
m. Placement Agent. The Company represents and warrants that it
has not engaged a placement agent in connection with the sale of the Preferred
Shares. Each Buyer, severally and not jointly, represents and warrants that to
its knowledge no fee is payable by the Company to any placement agent in
connection with the sale of the Preferred Shares. The Company shall be
responsible for the payment of any placement agent's fees or brokers commissions
relating to or arising out of the transactions contemplated hereby and which
relate to any obligation undertaken by the Company. The Company shall pay, and
hold each Buyer harmless against, any liability, loss or expense (including,
without limitation, attorneys' fees and out of pocket expenses) arising in
connection with any such claim.
n. No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
o. Remedies. Each Buyer and each holder of Preferred Shares or
Conversion Shares shall have all rights and remedies set forth in the
Transaction Documents and the Certificate of Designations and all rights and
remedies which such holders have been granted at any time under any other
agreement or contract and all of the rights which such holders have under any
law. Any person having any rights under any provision of this Agreement shall be
entitled to enforce such rights specifically (without posting a bond or other
security), to recover damages by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law.
p. Payment Set Aside. To the extent that the Company makes a
payment or payments to the Buyers hereunder or pursuant to the Certificate of
Designations or the Buyers enforce or exercise their rights hereunder or
thereunder, and such payment or payments or the proceeds of such enforcement or
exercise or any part thereof are subsequently invalidated, declared to be
fraudulent or preferential, set aside, recovered from, disgorged by or are
required to be refunded, repaid or otherwise restored to the Company, a trustee,
receiver or any other person under any law (including, without limitation, any
bankruptcy law, state or federal law, common
<PAGE> 35
law or equitable cause of action), then to the extent of any such restoration
the obligation or part thereof originally intended to be satisfied shall be
revived and continued in full force and effect as if such payment had not been
made or such enforcement or setoff had not occurred.
* * * * * *
<PAGE> 36
IN WITNESS WHEREOF, the Buyers and the Company have caused this
Securities Purchase Agreement to be duly executed as of the date first written
above.
COMPANY: BUYERS:
YIELDUP INTERNATIONAL CORPORATION THEMIS PARTNERS L.P.
By: Promethean Investment Group
L.L.C.
Its: General Partner
By:______________________________
Name:
Its: By:________________________________________
Name: James F. O'Brien, Jr.
Its: President
HERACLES FUND
By: Promethean Investment Group L.L.C.
Its: Investment Advisor
By:________________________________________
Name: James F. O'Brien, Jr.
Its: President
LEONARDO, L.P.
By: Angelo, Gordon & Co., L.P.
Its: General Partner
By:________________________________________
Name: Michael L. Gordon
Its: Chief Operating Officer
RAPHAEL, L.P.
<PAGE> 37
By:______________________________________
Name: Michael L. Gordon
Its: Chief Operating Officer
<PAGE> 38
[signature page to Securities Purchase Agreement - p. 2 of 2]
RAMIUS FUND, LTD.
By: AG Ramius Partners, L.L.C.
Its: Investment Advisor
By:_______________________________
Name: Michael L. Gordon
Its: Managing Officer
GAM ARBITRAGE INVESTMENTS, INC.
By: Angelo, Gordon & Co., L.P.
Its: Investment Advisor
By:__________________________________
Name: Michael L. Gordon
Its: Chief Operating Officer
AG SUPER FUND INTERNATIONAL
PARTNERS, L.P.
By: Angelo, Gordon & Co., L.P.
Its: General Partner
By:__________________________________
Name: Michael L. Gordon
Its: Chief Operating Officer
<PAGE> 39
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
NUMBER OF
INITIAL
INVESTOR ADDRESS PREFERRED INVESTOR'S REPRESENTATIVES' ADDRESS
INVESTOR NAME AND FACSIMILE NUMBER SHARES AND FACSIMILE NUMBER
- ---------------------- ----------------------------------- ---------- ------------------------------------
<S> <C> <C> <C>
Themis Partners L.P. _Promethean Investment Group, L.L.C. 125 Promethean Investment Group, L.L.C.
40 West 57th Street, Suite 1520 40 West 57th Street, Suite 1520
New York, New York 10019 New York, New York 10019
Attn: James F. O'Brien, Jr. Attn: James F. O'Brien, Jr.
Facsimile: 212-698-0505 Thomas Lumsden
Facsimile: 212-698-0505
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman, Esq.
Facsimile: 312-902-1061
Heracles Fund Bank of Bermuda (Cayman) Limited 175 Promethean Investment Group, L.L.C.
P.O. Box 513 40 West 57th Street, Suite 1520
3rd Floor British American New York, New York 10019
Center Attn: James F. O'Brien, Jr.
Dr. Roy's Drive Thomas Lumsden
Georgetown, Grand Cayman Facsimile: 212-698-0505
Cayman Island, BWI
Attn: Allen J. Bernardo
Facsimile: 809-949-7802
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman,
Esq.
Facsimile: 312-902-1061
Leonardo, L.P. _Angelo, Gordon & Co., L.P. 200 Angelo, Gordon & Co., L.P.
245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
New York, New York 10167 New York, New York 10167
Attn: Gary Wolf Attn: Gary Wolf
Facsimile: 212-867-6449 Facsimile: 212-867-6449
Raphael, L.P. _Angelo, Gordon & Co., L.P. 30 Angelo, Gordon & Co., L.P.
245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
New York, New York 10167 New York, New York 10167
Attn: Gary Wolf Attn: Gary Wolf
Facsimile: 212-867-6449 Facsimile: 212-867-6449
Ramius Fund, Ltd. _Angelo, Gordon & Co., L.P. 50 Angelo, Gordon & Co., L.P.
245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
New York, New York 10167 New York, New York 10167
Attn: Gary Wolf Attn: Gary Wolf
Facsimile: 212-867-6449 Facsimile: 212-867-6449
GAM Arbitrage _Angelo, Gordon & Co., L.P. 10 Angelo, Gordon & Co., L.P.
Investments, Inc. 245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
New York, New York 10167 New York, New York 10167
Attn: Gary Wolf Attn: Gary Wolf
Facsimile: 212-867-6449 Facsimile: 212-867-6449
AG Super Fund _Angelo, Gordon & Co., L.P. 10 Angelo, Gordon & Co., L.P.
International 245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
Partners, L.P. New York, New York 10167 New York, New York 10167
Attn: Gary Wolf Attn: Gary Wolf
Facsimile: 212-867-6449 Facsimile: 212-867-6449
</TABLE>
<PAGE> 40
<TABLE>
<CAPTION>
NUMBER OF
INITIAL
INVESTOR ADDRESS PREFERRED INVESTOR'S REPRESENTATIVES' ADDRESS
INVESTOR NAME AND FACSIMILE NUMBER SHARES AND FACSIMILE NUMBER
- ---------------------- ----------------------------------- ---------- ------------------------------------
<S> <C> <C> <C>
Themis Partners L.P. _Promethean Investment Group, L.L.C. 125 Promethean Investment Group, L.L.C.
40 West 57th Street, Suite 1520 40 West 57th Street, Suite 1520
New York, New York 10019 New York, New York 10019
Attn: James F. O'Brien, Jr. Attn: James F. O'Brien, Jr.
Facsimile: 212-698-0505 Thomas Lumsden
Facsimile: 212-698-0505
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman, Esq.
Facsimile: 312-902-1061
Facsimile: 212-867-6449 Facsimile: 212-867-6449
</TABLE>
<PAGE> 41
SCHEDULE OF UNDERWRITERS
Morgan Stanley & Co. Incorporated
Deutsche Morgan Grenfell Inc.
Goldman, Sachs & Co.
Hambrecht & Quist LLC
A.G. Edwards & Sons, Inc.
Needham & Company, Inc.
PaineWebber Incorporated
Soundview Financial Group, Inc.
UBS Securities LLC
BankAmerica Robertson Stephens
Bear, Stearns & Co. Inc.
BT Alex Brown Incorporated
Cowen & Company
J.P. Morgan Securities Inc.
NationsBanc Montgomery Securities, Inc.
CIBC Oppenheimer & Co., Inc.
Donaldson Lufkin Jenrette
Prudential Securities
Piper Jaffry
Lehman Brothers
Solomon Smith Barney
or any successor to any of the above
<PAGE> 42
SCHEDULE 3(a)
SUBSIDIARIES
<PAGE> 43
SCHEDULE 3(c)
CAPITALIZATION
<PAGE> 44
SCHEDULE 3(e)
CONFLICTS
<PAGE> 45
SCHEDULE 3(g)
MATERIAL CHANGES
<PAGE> 46
SCHEDULE 3(h)
LITIGATION
<PAGE> 47
SCHEDULE 3(n)
INTELLECTUAL PROPERTY
<PAGE> 48
SCHEDULE 3(p)
LIENS
<PAGE> 49
SCHEDULE 3(u)
TAX STATUS
<PAGE> 50
SCHEDULE 3(v)
CERTAIN TRANSACTIONS
<PAGE> 51
EXHIBIT A
FORM OF CERTIFICATE OF DESIGNATIONS, PREFERENCES
AND RIGHTS OF THE PREFERRED SHARES
Attached hereto.
<PAGE> 52
EXHIBIT B
FORM OF REGISTRATION RIGHTS AGREEMENT
Attached hereto.
<PAGE> 53
EXHIBIT C
FORM OF COMPANY COUNSEL OPINION
Attached hereto.
<PAGE> 54
EXHIBIT D
FORM OF IRREVOCABLE TRANSFER AGENT INSTRUCTIONS
Attached hereto.
<PAGE> 1
EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "AGREEMENT"), dated as of March 30,
1998, by and among YieldUP International Corporation, a Delaware corporation,
with headquarters located at 117 Easy Street, Mountain View, California 94043
(the "COMPANY"), and the undersigned buyers (each, a "BUYER" and collectively,
the "BUYERS").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among the
parties of even date herewith (the "SECURITIES PURCHASE AGREEMENT"), the Company
has agreed, upon the terms and subject to the conditions of the Securities
Purchase Agreement, to issue and sell to the Buyers shares of the Company's
Series A Convertible Preferred Stock (the "PREFERRED SHARES"), which will be
convertible into shares of the Company's common stock, par value $0.001 per
share (the "COMMON STOCK") (as converted, the "CONVERSION SHARES"), in
accordance with the terms of the Company's Certificate of Designations,
Preferences and Rights of Series A Convertible Preferred Stock (the "CERTIFICATE
OF DESIGNATIONS"); and
B. To induce the Buyers to execute and deliver the Securities Purchase
Agreement, the Company has agreed to provide certain registration rights under
the Securities Act of 1933, as amended, and the rules and regulations
thereunder, or any similar successor statute (collectively, the "1933 ACT"), and
applicable state securities laws:
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and the
Buyers hereby agree as follows:
1. DEFINITIONS.
As used in this Agreement, the following terms shall have the
following meanings:
a. "INVESTOR" means a Buyer and any transferee or assignee
thereof to whom a Buyer assigns its rights under this Agreement and who agrees
to become bound by the provisions of this Agreement in accordance with Section
9.
b. "PERSON" means a corporation, a limited liability company, an
association, a partnership, an organization, a business, an individual, a
governmental or political subdivision thereof or a governmental agency.
<PAGE> 2
c. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing one or more Registration
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering securities on a continuous
basis ("RULE 415"), and the declaration or ordering of effectiveness of such
Registration Statement(s) by the United States Securities and Exchange
Commission (the "SEC").
d. "REGISTRABLE SECURITIES" means the Conversion Shares issued or
issuable upon conversion of the Preferred Shares, any shares of capital stock
issued or issuable with respect to the Conversion Shares or the Preferred Shares
as a result of any stock split, stock dividend, recapitalization, exchange or
similar event or otherwise, regardless of any limitation on conversions of
Preferred Shares.
e. "REGISTRATION STATEMENT" means a registration statement of the
Company filed under the 1933 Act.
Capitalized terms used herein and not otherwise defined herein shall have the
respective meanings set forth in the Securities Purchase Agreement.
2. REGISTRATION.
a. Mandatory Registration. The Company shall prepare, and, as
soon as practicable but in no event later than 30 days after the date of
issuance of the relevant Preferred Shares, file with the SEC a Registration
Statement or Registration Statements (as is necessary) on Form S-3 (or, if such
form is unavailable for such a registration, on such other form as is available
for such a registration, subject to the consent of the Investors holding a
majority of the Registrable Securities and the provisions of Section 2(c), which
consent will not be unreasonably withheld), covering the resale of all of the
Registrable Securities, which Registration Statement(s) shall state that, in
accordance with Rule 416 promulgated under the 1933 Act, such Registration
Statement(s) also covers such indeterminate number of additional shares of
Common Stock as may become issuable upon conversion of the Preferred Shares (i)
to prevent dilution resulting from stock splits, stock dividends or similar
transactions and (ii) by reason of changes in the Conversion Price or Conversion
Rate of the Preferred Shares in accordance with the terms thereof. Such
Registration Statement shall initially register for resale at least 1,150,000
shares of Common Stock, subject to adjustment as provided in Section 3(b). Such
registered shares of Common Stock shall be allocated among the Investors pro
rata based on the total number of Registrable Securities issued or issuable as
of each date that a Registration Statement, as amended, relating to the resale
of the Registrable Securities is declared effective by the SEC. The Company
shall use its best efforts to have the Registration Statement(s) declared
effective by the SEC as soon as practicable, but in no event later than 120 days
after the issuance of the relevant Preferred Shares.
<PAGE> 3
b. Allocation of Registrable Securities. The initial number of
Registrable Securities included in any Registration Statement and each increase
in the number of Registrable Securities included therein shall be allocated pro
rata among the Investors based on the number of Registrable Securities held by
each Investor at the time of such establishment or increase, as the case may be.
In the event an Investor shall sell or otherwise transfer any of such holder's
Registrable Securities, each transferee shall be allocated a pro rata portion of
the then remaining number of Registrable Securities included in such
Registration Statement for such transferor. Any shares of Common Stock included
in a Registration Statement and which remain allocated to any person or entity
which does not hold any Registrable Securities shall be allocated to the
remaining Investors, pro rata based on the number of Registrable Securities then
held by such Investors. For the avoidance of doubt, the number of Registrable
Securities held by any Investor shall be determined as if all Preferred Shares
then outstanding were converted into or exercised for Registrable Securities.
c. Counsel and Investment Bankers. Subject to Section 5 hereof,
in connection with any offering pursuant to this Section 2, at their own expense
the Investors shall have the right to select one legal counsel and an investment
banker or bankers and manager or managers to administer their interest in the
offering, which investment banker or bankers or manager or managers shall be
reasonably satisfactory to the Company. The Company shall reasonably cooperate
with any such counsel and investment bankers.
d. Intentionally omitted.
e. Intentionally omitted.
f. Eligibility for Form S-3. The Company represents and warrants
that on the date hereof it meets the requirements for the use of Form S-3 for
registration of the sale by the Investors of the Registrable Securities and the
Company has filed and shall file all reports required to be filed by the Company
with the SEC in a timely manner so as to obtain and maintain such eligibility
for the use of Form S-3. In the event that Form S-3 is not available for sale by
the Investors of the Registrable Securities, then the Company (i) with the
consent of the Investors holding a majority of the Registrable Securities
pursuant to Section 2(a), shall register the sale of the Registrable Securities
on another appropriate form and (ii) the Company shall undertake to register the
Registrable Securities on Form S-3 as soon as such form is available, provided
that the Company shall maintain the effectiveness of the Registration Statement
then in effect until such time as a Registration Statement on Form S-3 covering
the Registrable Securities has been declared effective by the SEC.
<PAGE> 4
g. Rule 416. The Company and the Investors each acknowledge that
an indeterminate number of Registrable Securities shall be registered pursuant
to Rule 416 under the 1933 Act so as to include in such Registration Statement
any and all Registrable Securities which may become issuable (i) to prevent
dilution resulting from stock splits, stock dividends or similar transactions
and (ii) if permitted by law, by reason of reductions in the Conversion Price
(as defined in the Certificate of Designations) of the Preferred Shares in
accordance with the terms thereof, including, without limitation, the terms
which cause the Floating Conversion Price (as defined in the Certificate of
Designations) to decrease as the price of the Common Stock decreases
(collectively, the "RULE 416 SECURITIES"). In this regard, the Company agrees to
use all reasonable efforts to ensure that the maximum number of Registrable
Securities which may be registered pursuant to Rule 416 under the 1933 Act are
covered by the Registration Statement and, absent guidance from the SEC or other
definitive authority to the contrary, the Company shall use all reasonable
efforts to affirmatively support and to not take any position adverse to the
position that the Registration Statement filed hereunder covers all of the Rule
416 Securities. If the Company takes a position adverse to the position that the
Registration Statement filed hereunder covers all of the Rule 416 Securities,
then the Company shall immediately provide to each Investor written notice
setting forth the basis for the Company's position and the authority therefor.
h. Effect of Failure to Obtain and Maintain Effectiveness of
Registration Statement. If the Registration Statement is not (i) filed within 30
days of the first Issuance Date (as defined in the Certificate of Designations)
of any Preferred Shares (the "SCHEDULED FILING DATE"), (ii) declared effective
by the SEC on or before 120 days after the first Issuance Date for any Preferred
Shares (the "SCHEDULED EFFECTIVE DATE"), or (iii) if after the Registration
Statement has been declared effective by the SEC, sales cannot be made pursuant
to the Registration Statement (whether because of a failure to keep the
Registration Statement effective, to disclose such information as is necessary
for sales to be made pursuant to the Registration Statement, to register
sufficient shares of Common Stock or otherwise), then, as partial relief for the
damages to any holder by reason of any such delay in or reduction of its ability
to sell any of the Registrable Securities (which remedy shall not be exclusive
of any other remedies available at law or in equity), the Company shall pay to
each holder of Preferred Shares an amount in cash per Preferred Share held equal
to the product of (i) $10,000 multiplied by (ii) the sum of (A) .02, if the
Registration Statement is not filed by the Scheduled Filing Date, plus (B) .02,
if the Registration Statement is not declared effective by the SEC by the
Scheduled Effective Date, plus (C) the product of (I) .00067 multiplied by (II)
the sum of (x) the number of days after the Scheduled Filing Date that the
relevant Registration Statement has not been filed with the SEC, (y) the number
of days after the Scheduled Effective Date and prior to the date that the
relevant Registration Statement has not been declared effective by the SEC, and
(z) the number of days after the Registration Statement has been declared
effective by the SEC that the Registration Statement is not available for sales
of at least all of the Registrable Securities. The payments to which a holder
shall be entitled pursuant to this Section 2(h) are referred to herein as
"REGISTRATION DELAY PAYMENTS." Registration Delay
<PAGE> 5
Payments shall be paid within five business days of the earlier of (A) the first
day of the month following the occurrence of the event resulting in the
requirement to make Registration Delay Payments, or (B) the date on which the
event resulting in the requirement to make Registration Delay Payments is cured.
In the event the Company fails to make Registration Delay Payments in a timely
manner, such Registration Delay Payments shall bear interest at the rate of 2.0%
per month (or the maximum rate permitted by law), prorated for partial months,
until paid in full. If the Company fails to pay the Registration Delay Payments,
including any interest thereon, within 15 business days of the applicable
payment date, then the holder entitled to such payments shall have the right at
any time, so long as the Company continues to fail to make such payments, to
require the Company, upon written notice, to immediately issue, in lieu of the
Registration Delay Payments, including any interest thereon, the number of
shares of Common Stock equal to the quotient of (X) the sum of the Registration
Delay Payments and all interest accrued thereon divided by (Y) the lowest
Closing Bid Price on any day during the period beginning on and including the
date the Registration Delay Payments were due and payable and ending on and
including the date the holder delivers written notice to the Company of its
election to receive shares of Common Stock in lieu of the Registration Delay
Payments.
3. RELATED OBLIGATIONS.
At such time as the Company is obligated to file a Registration
Statement with the SEC pursuant to Section 2(a), the Company will use its best
efforts to effect the registration of the Registrable Securities in accordance
with the intended method of disposition thereof and, pursuant thereto, the
Company shall have the following obligations:
a. The Company shall promptly prepare and file with the SEC a
Registration Statement with respect to the Registrable Securities (on or prior
to the thirtieth (30th) day after the date of issuance of the relevant Preferred
Shares for the registration of Registrable Securities pursuant to Section 2(a))
and use its best efforts to cause such Registration Statement relating to the
Registrable Securities to become effective as soon as possible after such filing
(but in no event later than 120 days after the issuance of the relevant
Preferred Shares for the registration of Registrable Securities), and keep such
Registration Statement effective pursuant to Rule 415 at all times until the
earlier of (i) the date as of which the Investors may sell all of the
Registrable Securities without restriction pursuant to Rule 144(k) promulgated
under the 1933 Act (or successor thereto) or (ii) the date on which (A) the
Investors shall have sold all the Registrable Securities and (B) none of the
Preferred Shares is outstanding (the "REGISTRATION PERIOD"), which Registration
Statement (including any amendments or supplements thereto and prospectuses
contained therein) shall not contain any untrue statement of a material fact or
omit to state a material fact required to be stated therein, or necessary to
make the statements therein, in light of the circumstances in which they were
made, not misleading.
<PAGE> 6
b. The Company shall prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to a
Registration Statement and the prospectus used in connection with such
Registration Statement, which prospectus is to be filed pursuant to Rule 424
promulgated under the 1933 Act, as may be necessary to keep such Registration
Statement effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition of all Registrable Securities of the Company covered by such
Registration Statement until such time as all of such Registrable Securities
shall have been disposed of in accordance with the intended methods of
disposition by the seller or sellers thereof as set forth in such Registration
Statement. Upon written notice from any Investor that the number of shares
available under a Registration Statement filed pursuant to this Agreement is
insufficient to cover all of the Registrable Securities, the Company shall amend
such Registration Statement, or file a new Registration Statement (on the short
form available therefor, if applicable), or both, so as to cover all of the
Registrable Securities for all Investors, in each case, as soon as practicable,
but in any event within twenty (20) days after the Company's receipt of such
notice. The Company shall use its best efforts to cause such amendment and/or
new Registration Statement to become effective as soon as practicable following
the filing thereof. For purposes of the foregoing provision, the number of
shares available under a Registration Statement shall be deemed "insufficient to
cover all of the Registrable Securities" if at any time the number of
Registrable Securities issued or issuable upon conversion of the Preferred
Shares is greater than the quotient determined by dividing (i) the number of
shares of Common Stock available for resale under such Registration Statement by
(ii) 1.5. For purposes of the calculation set forth in the foregoing sentence,
any restrictions on the convertibility of the Preferred Shares shall be
disregarded and such calculation shall assume that the Preferred Shares are then
convertible into shares of Common Stock at the then prevailing Conversion Rate
(as defined in the Company's Certificate of Designations).
c. The Company shall furnish to each Investor whose Registrable
Securities are included in any Registration Statement and its legal counsel
without charge (i) promptly after the same is prepared and filed with the SEC at
least one copy of such Registration Statement and any amendment(s) thereto,
including financial statements and schedules, all documents incorporated therein
by reference and all exhibits, the prospectus included in such Registration
Statement (including each preliminary prospectus) and, with regards to such
Registration Statement(s), any correspondence by or on behalf of the Company to
the SEC or the staff of the SEC and any correspondence from the SEC or the staff
of the SEC to the Company or its representatives, (ii) upon the effectiveness of
any Registration Statement, ten (10) copies of the prospectus included in such
Registration Statement and all amendments and supplements thereto (or such other
number of copies as such Investor may reasonably request) and (iii) such other
documents, including copies of any preliminary or final prospectus, as such
Investor may reasonably request from time to time in order to facilitate the
disposition of the Registrable Securities owned by such Investor.
<PAGE> 7
d. The Company shall use reasonable efforts to (i) register and
qualify the Registrable Securities covered by a Registration Statement under
such other securities or "blue sky" laws of such jurisdictions in the United
States as any Investor reasonably requests, (ii) prepare and file in those
jurisdictions, such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (x) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (y) subject itself
to general taxation in any such jurisdiction, or (z) file a general consent to
service of process in any such jurisdiction. The Company shall promptly notify
each Investor who holds Registrable Securities of the receipt by the Company of
any notification with respect to the suspension of the registration or
qualification of any of the Registrable Securities for sale under the securities
or "blue sky" laws of any jurisdiction in the United States or its receipt of
actual notice of the initiation or threatening of any proceeding for such
purpose.
e. In the event Investors who hold a majority of the Registrable
Securities being offered in the offering select underwriters for the offering,
the Company shall enter into and perform its obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations (only with respect to violations
which occur in reliance upon and in conformity with information furnished in
writing to the Company by such Investor expressly for use in the Registration
Statement for such underwritten public offering), with the underwriters of such
offering.
f. As promptly as practicable after becoming aware of such event,
the Company shall notify each Investor in writing of the happening of any event
as a result of which the prospectus included in a Registration Statement, as
then in effect, includes an untrue statement of a material fact or omission to
state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading, and promptly prepare a supplement or amendment to such
Registration Statement to correct such untrue statement or omission, and deliver
ten (10) copies of such supplement or amendment to each Investor (or such other
number of copies as such Investor may reasonably request). The Company shall
also promptly notify each Investor in writing (i) when a prospectus or any
prospectus supplement or post-effective amendment has been filed, and when a
Registration Statement or any post-effective amendment has become effective
(notification of such effectiveness shall be delivered to each Investor by
facsimile on the same day of such effectiveness and by overnight mail), (ii) of
any request by the SEC for amendments or supplements to a Registration
<PAGE> 8
Statement or related prospectus or related information, and (iii) of the
Company's reasonable determination that a post-effective amendment to a
Registration Statement would be appropriate.
g. The Company shall use its best efforts to prevent the issuance
of any stop order or other suspension of effectiveness of a Registration
Statement, or the suspension of the qualification of any of the Registrable
Securities for sale in any jurisdiction and, if such an order or suspension is
issued, to obtain the withdrawal of such order or suspension at the earliest
possible moment and to notify each Investor who holds Registrable Securities
being sold (and, in the event of an underwritten offering, the managing
underwriters) of the issuance of such order and the resolution thereof or its
receipt of actual notice of the initiation or threat of any proceeding for such
purpose.
h. The Company shall permit each Investor and a single firm of
counsel, initially Katten Muchin & Zavis or such other counsel as thereafter
designated as selling stockholders' counsel by the Investors who hold a majority
of the Registrable Securities being sold, to review and comment upon a
Registration Statement and all amendments and supplements thereto at least seven
(7) business days prior to their filing with the SEC, and not file any document
in a form to which such counsel reasonably objects. The Company shall not submit
a request for acceleration of the effectiveness of a Registration Statement or
any amendment or supplement thereto without the prior approval of such counsel,
which consent shall not be unreasonably withheld.
i. At the request of any Investor, the Company shall use its
reasonable best efforts to furnish to such Investor, if required by an
underwriter, on the date of the effectiveness of the Registration Statement and
thereafter from time to time on such dates as an Investor may reasonably request
(i) a letter, dated such date, from the Company's independent certified public
accountants in form and substance as is customarily given by independent
certified public accountants to underwriters in an underwritten public offering,
addressed to the underwriters, and (ii) an opinion, dated as of such date, of
counsel representing the Company for purposes of such Registration Statement, in
form, scope and substance as is customarily given in an underwritten public
offering, addressed to the underwriters and the Investors.
j. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to a
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Investors, and (iv) one firm of attorneys
retained by all such underwriters (collectively, the "INSPECTORS") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "RECORDS"), as shall be reasonably deemed
necessary by each Inspector, and cause the Company's officers, directors and
employees to supply all information which any Inspector may reasonably request;
provided, however, that each Inspector shall hold in strict confidence and shall
<PAGE> 9
not make any disclosure (except to an Investor) or use of any Record or other
information which the Company determines in good faith to be confidential, and
of which determination the Inspectors are so notified, unless (a) the disclosure
of such Records is necessary to avoid or correct a misstatement or omission in
any Registration Statement or is otherwise required under the 1933 Act, (b) the
release of such Records is ordered pursuant to a final, non-appealable subpoena
or order from a court or government body of competent jurisdiction, or (c) the
information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement of which
the Inspector has knowledge. Each Investor agrees that it shall, upon learning
that disclosure of such Records is sought in or by a court or governmental body
of competent jurisdiction or through other means, give prompt notice to the
Company and allow the Company, at its expense, to undertake appropriate action
to prevent disclosure of, or to obtain a protective order for, the Records
deemed confidential.
k. The Company shall hold in confidence and not make any
disclosure of information concerning an Investor provided to the Company unless
(i) disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other final,
non-appealable order from a court or governmental body of competent
jurisdiction, or (iv) such information has been made generally available to the
public other than by disclosure in violation of this Agreement or any other
agreement. The Company agrees that it shall, upon learning that disclosure of
such information concerning an Investor is sought in or by a court or
governmental body of competent jurisdiction or through other means, give prompt
written notice to such Investor and allow such Investor, at the Investor's
expense, to undertake appropriate action to prevent disclosure of, or to obtain
a protective order for, such information.
l. The Company shall use its best efforts either to (i) cause all
the Registrable Securities covered by a Registration Statement to be listed on
each securities exchange on which securities of the same class or series issued
by the Company are then listed, if any, if the listing of such Registrable
Securities is then permitted under the rules of such exchange, or (ii) secure
designation and quotation of all the Registrable Securities covered by the
Registration Statement on the Nasdaq SmallCap Market or the Nasdaq National
Market, as the case may be, and, without limiting the generality of the
foregoing, to arrange for at least two market makers to register with the
National Association of Securities Dealers, Inc. ("NASD") as such with respect
to such Registrable Securities. The Company shall pay all fees and expenses in
connection with satisfying its obligation under this Section 3(l).
m. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and, to the extent applicable, any managing
underwriter or underwriters, to facilitate the timely preparation and delivery
of certificates (not bearing any restrictive legend)
<PAGE> 10
representing the Registrable Securities to be offered pursuant to a Registration
Statement and enable such certificates to be in such denominations or amounts,
as the case may be, as the managing underwriter or underwriters, if any, or, if
there is no managing underwriter or underwriters, the Investors may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request.
n. The Company shall take all other reasonable actions necessary
to expedite and facilitate disposition by the Investors of Registrable
Securities pursuant to a Registration Statement.
o. The Company shall provide a transfer agent and registrar for
all such Registrable Securities not later than the effective date of such
Registration Statement.
p. If reasonably requested by the managing underwriters or an
Investor, the Company shall (i) immediately incorporate in a prospectus
supplement or post-effective amendment such information as the managing
underwriters and the Investors agree should be included therein relating to the
sale and distribution of Registrable Securities, including, without limitation,
information with respect to the number of Registrable Securities being sold to
such underwriters, the purchase price being paid therefor by such underwriters
and any other terms of the underwritten (or best efforts underwritten) offering
of the Registrable Securities to be sold in such offering; (ii) make all
required filings of such prospectus supplement or post-effective amendment as
soon as notified of the matters to be incorporated in such prospectus supplement
or post-effective amendment; and (iii) supplement or make amendments to any
Registration Statement or the related prospectus if requested by a shareholder
or any underwriter of such Registrable Securities.
q. The Company shall use its best efforts to cause the
Registrable Securities covered by the applicable Registration Statement to be
registered with or approved by such other governmental agencies or authorities
as may be necessary to consummate the disposition of such Registrable
Securities.
r. The Company shall make generally available to its security
holders as soon as practical, but not later than 90 days after the close of the
period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the 1933 Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.
s. The Company shall otherwise use its best efforts to comply
with all applicable rules and regulations of the SEC in connection with any
registration hereunder.
<PAGE> 11
t. Within two (2) business days after the Registration Statement
which includes the Registrable Securities is ordered effective by the SEC, the
Company shall deliver, and shall cause legal counsel for the Company to deliver,
to the transfer agent for such Registrable Securities (with copies to the
Investors whose Registrable Securities are included in such Registration
Statement) confirmation that the Registration Statement has been declared
effective by the SEC in the form attached hereto as Exhibit A.
4. OBLIGATIONS OF THE INVESTORS.
a. At least seven (7) days prior to the first anticipated filing
date of a Registration Statement, the Company shall notify each Investor in
writing of the information the Company requires from each such Investor if such
Investor elects to have any of such Investor's Registrable Securities included
in such Registration Statement. It shall be a condition precedent to the
obligations of the Company to complete the registration pursuant to this
Agreement with respect to the Registrable Securities of a particular Investor
that such Investor shall furnish to the Company such information regarding
itself, the Registrable Securities held by it and the intended method of
disposition of the Registrable Securities held by it as shall be reasonably
required to effect the registration of such Registrable Securities and shall
execute such documents in connection with such registration as the Company may
reasonably request.
b. Each Investor, by such Investor's acceptance of the
Registrable Securities, agrees to cooperate with the Company as reasonably
requested by the Company in connection with the preparation and filing of any
Registration Statement hereunder, unless such Investor has notified the Company
in writing of such Investor's election to exclude all of such Investor's
Registrable Securities from such Registration Statement.
c. In the event any Investor elects to participate in an
underwritten public offering pursuant to Section 2, each such Investor agrees to
enter into and perform such Investor's obligations under an underwriting
agreement, in usual and customary form, including, without limitation, customary
indemnification and contribution obligations (only with respect to violations
which occur in reliance upon and in conformity with information furnished in
writing to the Company by such Investor expressly for use in the Registration
Statement for such underwritten public offering), with the managing underwriter
of such offering and take such other actions as are reasonably required in order
to expedite or facilitate the disposition of the Registrable Securities, unless
such Investor notifies the Company in writing of such Investor's election to
exclude all of such Investor's Registrable Securities from such Registration
Statement.
d. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(g) or
the first sentence of 3(f), such Investor will immediately discontinue
disposition of Registrable Securities pursuant to any
<PAGE> 12
Registration Statement(s) covering such Registrable Securities until such
Investor's receipt of the copies of the supplemented or amended prospectus
contemplated by Section 3(g) or the first sentence of 3(f).
e. No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements approved by
the Investors entitled hereunder to approve such arrangements, (ii) completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements and other documents reasonably required under the terms of such
underwriting arrangements, and (iii) agrees to pay its pro rata share of all
underwriting discounts and commissions.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, and
fees and disbursements of counsel for the Company, shall be paid by the Company.
<PAGE> 13
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a
Registration Statement under this Agreement:
<PAGE> 14
a. To the fullest extent permitted by law, the Company will, and
hereby does, indemnify, hold harmless and defend each Investor who holds such
Registrable Securities, the directors, officers, partners, employees, agents of,
and each Person, if any, who controls, any Investor within the meaning of the
1933 Act or the Securities Exchange Act of 1934, as amended (the "1934 ACT"),
and any underwriter (as defined in the 1933 Act) for the Investors, and the
directors and officers of, and each Person, if any, who controls, any such
underwriter within the meaning of the 1933 Act or the 1934 Act (each, an
"INDEMNIFIED PERSON"), against any losses, claims, damages, liabilities,
judgments, fines, penalties, charges, costs, attorneys' fees, amounts paid in
settlement or expenses, joint or several, (collectively, "CLAIMS") incurred in
investigating, preparing or defending any action, claim, suit, inquiry,
proceeding, investigation or appeal taken from the foregoing by or before any
court or governmental, administrative or other regulatory agency, body or the
SEC, whether pending or threatened, whether or not an indemnified party is or
may be a party thereto ("INDEMNIFIED DAMAGES"), to which any of them may become
subject insofar as such Claims (or actions or proceedings, whether commenced or
threatened, in respect thereof) arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or any post-effective amendment thereto or in any filing made in
connection with the qualification of the offering under the securities or other
"blue sky" laws of any jurisdiction in which Registrable Securities are offered
("BLUE SKY FILING"), or the omission or alleged omission to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading, (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus if used prior to the
effective date of such Registration Statement, or contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading, or (iii) any violation or alleged violation by the Company
of the 1933 Act, the 1934 Act, any other law, including, without limitation, any
state securities law, or any rule or regulation thereunder relating to the offer
or sale of the Registrable Securities pursuant to a Registration Statement (the
matters in the foregoing clauses (i) through (iii) being, collectively,
"VIOLATIONS"). Subject to the restrictions set forth in Section 6(d) with
respect to the number of legal counsel, the Company shall reimburse the
Investors and each such underwriter or controlling person, promptly as such
expenses are incurred and are due and payable, for any reasonable legal fees or
other reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (i) shall
not apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by any Indemnified Person or underwriter for such Indemnified Person
expressly for use in connection with the preparation of the Registration
Statement or any such amendment thereof or supplement thereto, if such
prospectus was timely made available by the Company pursuant to Section 3(c);
(ii) with respect to any preliminary prospectus, shall not inure to the benefit
of any such person from whom
<PAGE> 15
the person asserting any such Claim purchased the Registrable Securities that
are the subject thereof (or to the benefit of any person controlling such
person) if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected in the prospectus, as then amended or
supplemented, if such prospectus was timely made available by the Company
pursuant to Section 3(c), and the Indemnified Person was promptly advised in
writing not to use the incorrect prospectus prior to the use giving rise to a
violation and such Indemnified Person, notwithstanding such advice, used it;
(iii) shall not be available to the extent such Claim is based on a failure of
the Investor to deliver or to cause to be delivered the prospectus made
available by the Company; and (iv) shall not apply to amounts paid in settlement
of any Claim if such settlement is effected without the prior written consent of
the Company, which consent shall not be unreasonably withheld. Such indemnity
shall remain in full force and effect regardless of any investigation made by or
on behalf of the Indemnified Person and shall survive the transfer or
disposition of the Registrable Securities by the Investors.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees to severally and not
jointly indemnify, hold harmless and defend, to the same extent and in the same
manner as is set forth in Section 6(a), the Company, each of its directors, each
of its officers who signs the Registration Statement, each Person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act
(collectively and together with an Indemnified Person, an "INDEMNIFIED PARTY"),
against any Claim or Indemnified Damages to which any of them may become
subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim or
Indemnified Damages arise out of or are based upon any Violation, in each case
to the extent, and only to the extent, that such Violation occurs in reliance
upon and in conformity with written information furnished to the Company by such
Investor expressly for use in connection with such Registration Statement; and,
subject to Section 6(d), such Investor will reimburse any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such Claim; provided, however, that the indemnity agreement
contained in this Section 6(b) and the agreement with respect to contribution
contained in Section 7 shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of such
Investor, which consent shall not be unreasonably withheld; provided, further,
however, that the Investor shall be liable under this Section 6(b) for only that
amount of a Claim or Indemnified Damages as does not exceed the net proceeds to
such Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.
<PAGE> 16
c. The Company shall be entitled to receive indemnities from
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in any distribution, to the same extent as provided
above, with respect to information such persons so furnished in writing
expressly for inclusion in the Registration Statement.
d. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action or
proceeding (including any governmental action or proceeding) involving a Claim,
such Indemnified Person or Indemnified Party shall, if a Claim in respect
thereof is to be made against any indemnifying party under this Section 6,
deliver to the indemnifying party a written notice of the commencement thereof,
and the indemnifying party shall have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume control of the defense thereof with counsel
mutually satisfactory to the indemnifying party and the Indemnified Person or
the Indemnified Party, as the case may be; provided, however, that an
Indemnified Person or Indemnified Party shall have the right to retain its own
counsel with the reasonable fees and expenses to be paid by the indemnifying
party, if, in the reasonable opinion of counsel retained by the indemnifying
party, the representation by such counsel of the Indemnified Person or
Indemnified Party and the indemnifying party would be inappropriate due to
actual or potential differing interests between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding. The indemnifying party shall pay for only one separate legal counsel
for the Indemnified Persons or the Indemnified Parties, as applicable, and such
counsel shall be selected by Investors holding a majority-in-interest of the
Registrable Securities included in the Registration Statement to which the Claim
relates (and subject to the Company's approval which shall not be unreasonably
withheld), if the Investors are entitled to indemnification hereunder, or the
Company, if the Company is entitled to indemnification hereunder, as applicable.
The Indemnified Party or Indemnified Person shall cooperate fully with the
indemnifying party in connection with any negotiation or defense of any such
action or claim by the indemnifying party and shall furnish to the indemnifying
party all information reasonably available to the Indemnified Party or
Indemnified Person which relates to such action or claim. The indemnifying party
shall keep the Indemnified Party or Indemnified Person fully apprised at all
times as to the status of the defense or any settlement negotiations with
respect thereto. No indemnifying party shall be liable for any settlement of any
action, claim or proceeding effected without its written consent, provided,
however, that the indemnifying party shall not unreasonably withhold, delay or
condition its consent. No indemnifying party shall, without the consent of the
Indemnified Party or Indemnified Person, consent to entry of any judgment or
enter into any settlement or other compromise which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party or Indemnified Person of a release from all liability in
respect to such claim or litigation. Following indemnification as provided for
hereunder, the indemnifying party shall be subrogated to all rights of the
Indemnified Party or Indemnified
<PAGE> 17
Person with respect to all third parties, firms or corporations relating to the
matter for which indemnification has been made. The failure to deliver written
notice to the indemnifying party within a reasonable time of the commencement of
any such action shall not relieve such indemnifying party of any liability to
the Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is prejudiced in its ability to defend such
action.
e. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as and when bills are received or Indemnified Damages
are incurred.
f. The indemnity agreements contained herein shall be in addition
to (i) any cause of action or similar right of the Indemnified Party or
Indemnified Person against the indemnifying party or others, and (ii) any
liabilities the indemnifying party may be subject to pursuant to the law.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is
prohibited or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that:
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6; (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of fraudulent misrepresentation; and (iii) contribution by any seller of
Registrable Securities shall be limited in amount to the net amount of proceeds
received by such seller from the sale of such Registrable Securities.
<PAGE> 18
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of
Rule 144 promulgated under the 1933 Act or any other similar rule or regulation
of the SEC that may at any time permit the Investors to sell securities of the
Company to the public without registration ("RULE 144"), the Company agrees to:
a. make and keep public information available, as those terms are
understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable
by the Investors to any transferee of all or any portion of Registrable
Securities if: (i) the Investor agrees in writing with the transferee or
assignee to assign such rights, and a copy of such agreement is furnished to the
Company within a reasonable time after such assignment; (ii) the Company is,
within a reasonable time after such transfer or assignment, furnished with
written notice of (a) the name and address of such transferee or assignee, and
(b) the securities with respect to which such registration rights are being
transferred or assigned; (iii) immediately following such transfer or assignment
the further disposition of such securities by the transferee or assignee is
restricted under the 1933 Act and applicable state securities laws; (iv) at or
before the time the Company receives the written notice contemplated by clause
(ii) of this sentence the transferee or assignee agrees in writing with the
Company to be bound by all of the provisions contained herein; and (v) such
transfer shall have been made in accordance with the applicable requirements of
the Securities Purchase Agreement.
<PAGE> 19
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who hold two-thirds (_) of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 10 shall be binding
upon each Investor and the Company. No such amendment shall be effective to the
extent that it applies to less than all of the holders of the Registrable
Securities. No consideration shall be offered or paid to any person to amend or
consent to a waiver or modification of any provision of any of this Agreement
unless the same consideration also is offered to all of the parties to this
Agreement.
11. MISCELLANEOUS.
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices, consents, waivers or other communications
required or permitted to be given under the terms of this Agreement must be in
writing and will be deemed to have been delivered (i) upon receipt, when
delivered personally; (ii) upon receipt, when sent by facsimile (provided a
confirmation of transmission is mechanically generated and kept on file by the
sending party); (iii) upon receipt, when delivered by a delivery service, in
each case properly addressed to the party to receive the same. The addresses and
facsimile numbers for such communications shall be:
If to the Company:
YieldUP International Corporation
117 Easy Street
Mountain View, California 94043
Telephone: 650-964-0100
Facsimile: 650-940-4388
Attention: President
<PAGE> 20
With a copy to:
Gray Cary Ware & Freidenrich LLP
400 Hamilton Avenue
Palo Alto, California 94301-1825
Telephone: 650-328-6561
Facsimile: 650-327-3699
Attention: Peter M. Astiz, Esq.
If to a Buyer, to its address and facsimile number on the Schedule of
Buyers attached hereto, with copies to such Buyer's counsel as set forth
on the Schedule of Buyers.
Each party shall provide five (5) days prior notice to the other party of any
change in address, phone number or facsimile number.
c. Failure of any party to exercise any right or remedy under
this Agreement or otherwise, or delay by a party in exercising such right or
remedy, shall not operate as a waiver thereof.
d. The corporate laws of the State of Delaware shall govern all
issues concerning the relative rights of the Company and its stockholders. All
other questions concerning the construction, validity, enforcement and
interpretation of this Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York without regard to the
principles of conflict of laws. Each party hereby irrevocably submits to the
non-exclusive jurisdiction of the state and federal courts sitting in the City
of New York, borough of Manhattan, for the adjudication of any dispute hereunder
or in connection herewith or with any transaction contemplated hereby or
discussed herein, and hereby irrevocably waives, and agrees not to assert in any
suit, action or proceeding, any claim that it is not personally subject to the
jurisdiction of any such court, that such suit, action or proceeding is brought
in an inconvenient forum or that the venue of such suit, action or proceeding is
improper. Each party hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
mailing a copy thereof to such party at the address for such notices to it under
this Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
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 in that jurisdiction or the
validity or enforceability of any provision of this Agreement in any other
jurisdiction.
<PAGE> 21
e. This Agreement and the Securities Purchase Agreement
constitute the entire agreement among the parties hereto with respect to the
subject matter hereof and thereof. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein and
therein. This Agreement and the Securities Purchase Agreement supersede all
prior agreements and understandings among the parties hereto with respect to the
subject matter hereof and thereof.
f. Subject to the requirements of Section 9, this Agreement shall
inure to the benefit of and be binding upon the permitted successors and assigns
of each of the parties hereto.
g. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more identical
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same agreement. This Agreement, once executed by a party,
may be delivered to the other party hereto by facsimile transmission of a copy
of this Agreement bearing the signature of the party so delivering this
Agreement.
i. 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.
j. All consents and other determinations to be made by the
Investors pursuant to this Agreement shall be made, unless otherwise specified
in this Agreement, by Investors holding a majority of the Registrable
Securities, determined as if all of the Preferred Shares then outstanding have
been converted into Registrable Securities (without regard to any limitations on
conversion).
k. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent and no rules of
strict construction will be applied against any party.
<PAGE> 22
IN WITNESS WHEREOF, the parties have caused this Registration Rights
Agreement to be duly executed as of day and year first above written.
COMPANY: BUYERS:
YIELDUP INTERNATIONAL CORPORATION THEMIS PARTNERS L.P.
By: Promethean Investment Group
L.L.C.
Its: General Partner
By: __________________________
Name:
Its: By: ____________________________________
Name: James F. O'Brien, Jr.
Its: President
HERACLES FUND
By: Promethean Investment Group L.L.C.
Its: Investment Advisor
By:_____________________________________
Name: James F. O'Brien, Jr.
Its: President
LEONARDO, L.P.
By: Angelo, Gordon & Co., L.P.
Its: General Partner
By:_____________________________________
Name: Michael L. Gordon
Its: Chief Operating Officer
RAPHAEL, L.P.
By:_____________________________________
<PAGE> 23
Name: Michael L. Gordon
Its: Chief Operating Officer
[signature page to Registration Rights Agreement - p. 2 of 2]
RAMIUS FUND, LTD.
By: AG Ramius Partners, L.L.C.
Its: Investment Advisor
By:_____________________________________
Name: Michael L. Gordon
Its: Managing Officer
GAM ARBITRAGE INVESTMENTS, INC.
By: Angelo, Gordon & Co., L.P.
Its: Investment Advisor
By:_____________________________________
Name: Michael L. Gordon
Its: Chief Operating Officer
AG SUPER FUND INTERNATIONAL PARTNERS, L.P.
By: Angelo, Gordon & Co., L.P.
Its: General Partner
By:_____________________________________
Name: Michael L. Gordon
Its: Chief Operating Officer
<PAGE> 24
SCHEDULE OF BUYERS
<TABLE>
<CAPTION>
NUMBER OF
INITIAL
INVESTOR ADDRESS PREFERRED INVESTOR'S REPRESENTATIVES' ADDRESS
INVESTOR NAME AND FACSIMILE NUMBER SHARES AND FACSIMILE NUMBER
- ---------------------- ----------------------------------- ---------- ------------------------------------
<S> <C> <C> <C>
Themis Partners L.P. _Promethean Investment Group, L.L.C. 125 Promethean Investment Group, L.L.C.
40 West 57th Street, Suite 1520 40 West 57th Street, Suite 1520
New York, New York 10019 New York, New York 10019
Attn: James F. O'Brien, Jr. Attn: James F. O'Brien, Jr.
Facsimile: 212-698-0505 Thomas Lumsden
Facsimile: 212-698-0505
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman, Esq.
Facsimile: 312-902-1061
Heracles Fund Bank of Bermuda (Cayman) Limited 175 Promethean Investment Group, L.L.C.
P.O. Box 513 40 West 57th Street, Suite 1520
3rd Floor British American New York, New York 10019
Center Attn: James F. O'Brien, Jr.
Dr. Roy's Drive Thomas Lumsden
Georgetown, Grand Cayman Facsimile: 212-698-0505
Cayman Island, BWI
Attn: Allen J. Bernardo
Facsimile: 809-949-7802
Katten Muchin & Zavis
525 West Monroe, Suite 1600
Chicago, Illinois 60661-3693
Attn: Robert J. Brantman,
Esq.
Facsimile: 312-902-1061
Leonardo, L.P. _Angelo, Gordon & Co., L.P. 200 Angelo, Gordon & Co., L.P.
245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
New York, New York 10167 New York, New York 10167
Attn: Gary Wolf Attn: Gary Wolf
Facsimile: 212-867-6449 Facsimile: 212-867-6449
Raphael, L.P. _Angelo, Gordon & Co., L.P. 30 Angelo, Gordon & Co., L.P.
245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
New York, New York 10167 New York, New York 10167
Attn: Gary Wolf Attn: Gary Wolf
Facsimile: 212-867-6449 Facsimile: 212-867-6449
Ramius Fund, Ltd. _Angelo, Gordon & Co., L.P. 50 Angelo, Gordon & Co., L.P.
245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
New York, New York 10167 New York, New York 10167
Attn: Gary Wolf Attn: Gary Wolf
Facsimile: 212-867-6449 Facsimile: 212-867-6449
GAM Arbitrage _Angelo, Gordon & Co., L.P. 10 Angelo, Gordon & Co., L.P.
Investments, Inc. 245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
New York, New York 10167 New York, New York 10167
Attn: Gary Wolf Attn: Gary Wolf
Facsimile: 212-867-6449 Facsimile: 212-867-6449
AG Super Fund _Angelo, Gordon & Co., L.P. 10 Angelo, Gordon & Co., L.P.
International 245 Park Avenue - 26th Floor 245 Park Avenue - 26th Floor
Partners, L.P. New York, New York 10167 New York, New York 10167
Attn: Gary Wolf Attn: Gary Wolf
Facsimile: 212-867-6449 Facsimile: 212-867-6449
</TABLE>
<PAGE> 25
<TABLE>
<CAPTION>
INVESTOR ADDRESS INVESTOR'S REPRESENTATIVES' ADDRESS
INVESTOR NAME AND FACSIMILE NUMBER AND FACSIMILE NUMBER
- ---------------------- ----------------------------------- ------------------------------------
<S> <C> <C>
Facsimile: 212-867-6449 Facsimile: 212-867-6449
</TABLE>
<PAGE> 26
EXHIBIT A
FORM OF NOTICE OF EFFECTIVENESS
OF REGISTRATION STATEMENT
[TRANSFER AGENT]
ATTN:_______________________
RE: YIELDUP INTERNATIONAL CORPORATION
Ladies and Gentlemen:
We are counsel to YIELDUP INTERNATIONAL CORPORATION, a Delaware corporation
(the "COMPANY"), and have represented the Company in connection with that
certain Securities Purchase Agreement (the "PURCHASE AGREEMENT") entered into by
and among the Company and the Buyers named therein (collectively, the "HOLDERS")
pursuant to which the Company issued to the Holders shares of its Series A
Convertible Preferred Stock, par value $0.001 per share, (the "PREFERRED
SHARES"). Pursuant to the Purchase Agreement, the Company also has entered into
a Registration Rights Agreement with the Holders (the "REGISTRATION RIGHTS
AGREEMENT") pursuant to which the Company agreed, among other things, to
register the Registrable Securities (as defined in the Registration Rights
Agreement), including the shares of the Common Stock of the Company, par value
$0.001 per share (the "COMMON STOCK") issuable upon conversion of the Preferred
Shares, under the Securities Act of 1933, as amended (the "1933 ACT"). In
connection with the Company's obligations under the Registration Rights
Agreement, on ____________ ___, 1998, the Company filed a Registration Statement
on Form _____ (File No. 333-_____________) (the "REGISTRATION STATEMENT") with
the Securities and Exchange Commission (the "SEC") relating to the Registrable
Securities which names each of the Holders as a selling stockholder thereunder.
In connection with the foregoing, we advise you that a member of the SEC's
staff has advised us by telephone that the SEC has entered an order declaring
the Registration Statement effective under the 1933 Act at [ENTER TIME OF
EFFECTIVENESS] on [ENTER DATE OF EFFECTIVENESS] and we have no knowledge that
any stop order suspending its effectiveness has been issued or that any
proceedings for that purpose are pending before, or threatened by, the SEC and
the Registrable Securities are available for resale under the 1933 Act pursuant
to the Registration Statement.
Very truly yours,
[COMPANY COUNSEL]
<PAGE> 27
By:_____________________________
cc: [LIST NAMES OF HOLDERS]
<PAGE> 1
Exhibit 99.1
YieldUP International Announces Completion of $6 Million Equity
Financing
March 31, 1998 6:44 PM EST
MOUNTAIN VIEW, Calif-(BUSINESS WIRE)-March 31, 1998-YieldUP International Corp.
(NASDAQ:YILD)(NASDAQ:YILDZ) today announced that it has completed a $6 million
equity financing in a private placement of convertible preferred stock.
The shares of preferred stock have not been registered under the Securities
Act of 1933, as amended. The company, subject to certain conditions, may
exercise a put option for up to an additional $6 million, and the investors,
subject to certain conditions, may exercise a call option for up to an
additional $6 million.
Under the securities purchase agreement, the company has issued 600 shares of
Series A preferred stock, which are initially convertible into an aggregate of
approximately 615,000 shares of the company's common stock.
After the satisfaction of certain holding periods, each of the newly issued
shares of Series A preferred stock is convertible, at the option of the holder,
into shares of common stock of the company based upon a conversion price of
$10.8625 per share or if lower, 100% of the market price, defined as the lowest
closing bid price during the 20 trading days preceding a conversion.
The Series A preferred stock bears a dividend of 5% per year, payable in kind.
The shares of Series A preferred stock are subject to automatic conversion
after three years if not previously converted.
YieldUP has agreed to file a registration statement for the resale of the shares
of YieldUP common stock acquired on conversion of the convertible preferred
stock. The shares of convertible preferred stock and the shares of common stock
issuable on conversion thereof may not be offered or sold in the United States
absent registration under the Securities Act of 1933, as amended, or the
availability or an exemption from such registration requirements.
