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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities and Exchange Act of 1934
Date of Report (Date of earliest event reported): APRIL 19, 2000
Microware Systems Corporation
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(Exact name of registrant as specified in its charter)
Iowa 0-27988 42-1073196
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(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File number) Identification No.)
1500 Northwest 118th Street, Des Moines, IA 50325-7077
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (515) 223-8000
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Former name or former address, if changed since last report
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Item 5. OTHER EVENTS.
On April 19, 2000, pursuant to a Securities Purchase Agreement, Microware
System Corporation (the "Company") consummated a private placement of 3,500
shares of Series I 4% cumulative convertible preferred stock. In connection with
the transaction, the Company received gross cash proceeds of $3.5 million. The
Company has incurred various expenses in connection with this offering,
including a placement agent fee of $245,000. For a more complete description of
the terms of the Securities Purchase Agreement, see the Securities Purchase
Agreement as Exhibit 10.1 hereto, which is incorporated by reference herein.
Each share of preferred stock is convertible by the holder into shares of
common stock at any time pursuant to a conversion formula determined by dividing
(i) the sum of $1,000 multiplied by the number of shares being converted, plus
accrued and unpaid dividends thereon, by (ii) a conversion price. At the option
of the investor, the conversion price is either (a) $4.8497 or (b) a price equal
to the average of the two lowest closing bid prices of the common stock of the
Company during the 15 trading days immediately prior the date of conversion. In
addition, all outstanding shares of preferred stock must be converted by the
holders into shares of the Company's common stock in the event certain
conditions are met. The Company is obligated to repurchase all outstanding
shares of preferred stock upon the occurrence of certain events. Under the terms
of the preferred stock, the holders are entitled to receive, out of assets
legally available therefor, cumulative dividends at the rate of 4% per share per
annum, accruing daily and payable quarterly (whether or not declared). Such
dividends may be paid at the Company's option in cash or by adding the amount
thereof to the liquidation preference of the preferred stock. The Company is
required to pay any accrued and unpaid dividends on the outstanding shares of
preferred stock before declaring or paying any dividends for any other class or
series of stock, including the common stock.
Holders of the preferred stock have the right to vote with the holders of
the common stock, combined as one class, for the election of directors and such
other matters to be voted on at a meeting of the stockholders. Each share of
preferred stock has one vote on such matters. In addition, the affirmative vote
of holders of two-thirds of the outstanding shares of preferred stock is
required for amendments or waivers to the provisions of the Company's restated
and amended articles of incorporation relating to the preferred stock or any
amendments which may change the rights of the holders of the preferred stock. In
the event of the Company's liquidation, dissolution or winding up, the holders
of the preferred stock are entitled to receive, prior and in preference to any
distribution of Company assets to the holders of any other class or series of
shares, $1,000 per share plus any accrued but unpaid dividends. For a more
complete description of the terms of the preferred stock, see the First Articles
of Amendment to the Company's Articles of Incorporation filed as Exhibit 4.1
hereto, which is incorporated by reference herein.
In connection with the sale of the preferred stock, the Company issued to
the investors options to acquire up to in the aggregate $3.0 million of common
stock of the Company for $5.3116 per share. The exercise price of the options is
subject to adjustment from time to time upon the occurrence of certain events
such as dividends of the Company's securities, stock-splits, and certain
business combinations, among other things. The options will expire one year
after a registration statement filed to register the sale of the common stock
underlying the option is declared effective, unless earlier terminated in
accordance with the terms thereof. For a more
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complete description of the terms of the options, see the form of
Option Agreement filed as Exhibit 10.3 hereto, which are incorporated by
reference herein.
In connection with the sale of the preferred stock, the Company issued to
the investors five-year warrants to acquire in the aggregate up to 87,500 shares
of common stock of the Company for $5.3116 per share. The exercise price of the
warrants is subject to adjustment from time to time upon the occurrence of
certain events such as dividends of the Company's securities, stock-splits, and
certain business combinations, among other things. For a more complete
description of the terms of the warrants, see the form of Warrant Agreements
filed as Exhibit 10.4 hereto, which are incorporated by reference herein.
In connection with the sale of the preferred stock, the Company entered
into a registration rights agreement with the holders of the preferred stock,
option and warrants which provides that the Company file a registration
statement with the Securities and Exchange Commission relating to the shares of
common stock issuable upon conversion of the preferred stock and exercise of the
option and warrants no later than June 2, 2000 and will use its best efforts to
cause such registration statement to become effective. For a more complete
description of the terms of the registration rights agreement, see the
Registration Rights Agreement filed as Exhibit 10.2 hereto, which is
incorporated by reference herein.
Item 7. FINANCIAL STATEMENTS AND EXHIBITS.
(c) Exhibits.
3.1. Composite of Restated and Amended Articles of Incorporation as of
April 19, 2000.
4.1 Articles of Amendment to the Restated and Amended Articles of
Incorporation of the Company describing the terms of the 4%
Series I 4% Cumulative Convertible Preferred Stock.
10.1 Securities Purchase Agreement, dated as of April 19, 2000,
between the Company and Elliott Associates, L.P. and Westgate
International, L.P.
10.2 Registration Rights Agreement, dated as of April 19, 2000, the
Company and Elliott Associates, L.P. and Westgate International,
L.P.
10.3 Form of Option Agreement, dated as of April 19, 2000, issued to
Elliott Associates, L.P. and Westgate International, L.P.
10.4 From of Warrant Agreement, dated as of April 19, 2000, issued to
Elliott Associates, L.P. and Westgate International, L.P.
99.1 Press release issued April 19, 2000 relating to the transaction.
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SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: May 3, 2000 MICROWARE SYSTEMS CORPORATION
By: /s/ Kenneth B. Kaplan
Name: Kenneth B. Kaplan
Title: President and Chief Executive Officer
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EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
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<S> <C>
3.1. Composite of Restated and Amended Articles of Incorporation as of April
19, 2000.
4.1 Articles of Amendment to the Restated and Amended Articles of
Incorporation of the Company describing the terms of the 4% cumulative
convertible preferred stock.
10.1 Securities Purchase Agreement, dated as of April 19, 2000, between the
Company and Elliott Associates, L.P. and Westgate International, L.P.
10.2 Registration Rights Agreement, dated as of April 19, 2000, the Company
and Elliott Associates, L.P. and Westgate International, L.P.
10.3 Form of Option Agreement, dated as of April 19, 2000, issued to Elliott
Associates, L.P. and Westgate International, L.P.
10.4 From of Warrant Agreement, dated as of April 19, 2000, issued to
Elliott Associates, L.P. and Westgate International, L.P.
99.1 Press release issued April 19, 2000 relating to the transaction.
</TABLE>
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EXHIBIT 3.1
COMPOSITE OF
RESTATED AND AMENDED ARTICLES OF INCORPORATION
OF
MICROWARE SYSTEMS CORPORATION
AS MODIFIED BY THE FIRST ARTICLES OF AMENDMENT TO THE
RESTATED AND AMENDED ARTICLES OF INCORPORATION
FILED WITH THE SECRETARY OF STATE ON APRIL 19, 2000
******************
TO THE SECRETARY OF STATE OF THE STATE OF IOWA:
Pursuant to the provisions of Section 1007 of the Iowa Business
Corporation Act, Chapter 490, 1995 Code of Iowa, the undersigned corporation
adopts the following Restated and Amended Articles of Incorporation.
ARTICLE I
NAME OF CORPORATION
The name of the corporation is MICROWARE SYSTEMS CORPORATION.
ARTICLE II
DURATION
The corporation shall have perpetual existence.
ARTICLE III
REGISTERED AGENT AND REGISTERED OFFICE
The Registered Agent of the corporation shall be Kenneth B. Kaplan,
whose principal business of record shall be 1500 NW 118th Street, Des Moines,
Iowa 50325.
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ARTICLE IV
PURPOSE
The purpose which the corporation is authorized to pursue is, or
includes, the transaction of any or all lawful business for which the
corporation may be incorporated under the Iowa Business Corporation Act.
ARTICLE V
AUTHORIZED STOCK
The total number of shares of stock of all classes which the
corporation is authorized to issue is Fifty Million Five Hundred Thousand
(50,500,000) of which Fifty Million (50,000,000) shares shall be classified
as common stock, without par value ("Common Stock") and Five Hundred Thousand
(500,000) shares shall be classified as Series I Preferred Stock ("Series I
Preferred Stock")
Pursuant to Section 490.601 and Section 490.602 of the Iowa Business
Corporation Act, the Board of Directors shall determine the voting powers,
designations, preferences, limitations, restrictions, relative rights and
distinguishing designations with respect to the shares of the Series I
Preferred Stock as stated in the resolutions or resolutions pending for the
issuance of such preferred stock adopted or to be adopted by the Board of
Directors of the corporation pursuant to the authority hereby expressly
vested in the Board of Directors of the corporation by the Articles. The
Board of Directors shall further have the authority, without further
shareholder approval, to amend the Articles to provide for such voting
procedures, designations, preferences, limitations, restrictions, relative
rights and distinguishing designations with respect to the shares of the
Series I Preferred Stock; provided, however, that such amendments to the
Articles do not amend any other provision of the Articles.
1. DESIGNATION AND ISSUANCE. The Corporation shall issue 3,500
shares of the Series I Preferred Stock (the "Preferred Shares") pursuant to a
Securities Purchase Agreement, dated on or about the date hereof ("Purchase
Agreement"), between the Corporation and the initial subscribers for the
Preferred Shares thereunder (the "Subscribers"). Each of such Preferred
Shares shall rank equally in all respects.
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2. DIVIDENDS.
(a) CUMULATIVE. The holders of the Preferred Shares shall
be entitled to receive cumulative dividends at the per share rate of four
percent (4%) of the Liquidation Preference (as defined below) of each
Preferred Share, per annum accruing daily and payable quarterly on March 31,
June 30, September 30 and December 31 of each year (each a "Dividend Payment
Date") commencing with the first Dividend Payment Date occurring after the
original issuance date of such share, in preference and priority to any
payment of any dividend on the Common Stock (as defined below) or any other
class or series of equity security of the Corporation. Such dividends shall
accrue on any given share from the most recent date on which a dividend has
been paid with respect to such share, or if no dividends have been paid, from
the date of the original issuance of such share, and such dividends shall
accrue from day to day whether or not declared, based on the actual number of
days elapsed. If at any time dividends on the outstanding Preferred Shares at
the rate set forth above shall not have been paid or declared and set apart
for payment with respect to all preceding periods, the amount of the
deficiency shall be fully paid or declared and set apart for payment, but
without interest, before any distribution, whether by way of dividend or
otherwise, shall be declared or paid upon or set apart for the shares of any
other class or series of equity security of the Corporation. For so long as
any Preferred Shares are outstanding, the Corporation shall not pay any
dividends on any shares of Common Stock or any shares of any other capital
stock, or repurchase any shares of Common Stock or capital stock, without
having received written consent of two-thirds in interest of the holders of
Preferred Shares, except as otherwise provided herein or in the Purchase
Agreement or Registration Rights Agreement (as such terms are defined herein)
with respect to the Options, Preferred Shares, Warrants and underlying Common
Shares thereof. For purposes of computing any per diem accrual, calculations
shall be made using a 360-day year.
(b) PIK PAYMENT OR CASH PAYMENT. Any dividend payable on
the outstanding Preferred Shares shall be paid by adding the amount thereof
to the Liquidation Preference (as defined below) of such Preferred Shares.
Upon the payment of dividends as required by the immediately preceding
sentence, such dividends will be deemed paid in full. Notwithstanding the
foregoing, the Corporation may pay dividends in cash if on 10 Trading Days'
(as defined below) irrevocable prior written notice, it informs the holders
of the Preferred Shares of its
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election to pay cash dividends. Following notice of payment of cash dividends
by the Corporation, all dividends on the Preferred Shares shall be paid in
cash, until such time as the Corporation provides 10 Trading Days'
irrevocable written notice to the holders of Preferred Shares of its election
to pay dividends in-kind.
3. LIQUIDATION PREFERENCE. In the event of any liquidation,
dissolution or winding up of the Corporation, either voluntary or
involuntary, the holders of the Preferred Shares shall be entitled to
receive, out of the assets of the Corporation available for distribution to
stockholders, prior and in preference to any distribution of any assets of
the Corporation to the holders of any other class or series of equity
securities, the amount of $1,000 per share plus (i) dividends added to the
Liquidation Preference in accordance with Section 2(b) above; (ii) all
accrued but unpaid dividends; and (iii) all "Monthly Delay Payments" payable
under the Registration Rights Agreement (as defined below) (the "Liquidation
Preference").
4. REGISTRATION OF PREFERRED SHARES. The holders of Preferred
Shares shall enjoy the benefits of the Registration Rights Agreement dated
the date hereof ("Registration Rights Agreement") between the Corporation and
Subscribers in connection with the Purchase Agreement.
5. CONVERSION. Each holder of the Preferred Shares shall have the
right at any time and from time to time, at the option of such holder, to
convert any or all Preferred Shares held by such holder, for such number of
fully paid, validly issued and nonassessable shares ("Common Shares") of
common stock, no par value, of the Corporation ("Common Stock"), free and
clear of any liens, claims or encumbrances, as is determined by dividing (i)
the Liquidation Preference times the number of Preferred Shares being
converted (the "Conversion Amount"), by (ii) the applicable Conversion Price
determined as hereinafter provided in effect on the Conversion Date.
Immediately following such conversion, the rights of the holders of converted
Preferred Shares shall cease and the persons entitled to receive the Common
Shares upon the conversion of Preferred Shares shall be treated for all
purposes as having become the owners of such Common Shares, subject to the
rights provided herein to holders.
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(a) MECHANICS OF CONVERSION. To convert Preferred Shares
into Common Shares, the holder shall give written notice ("Conversion
Notice") to the Corporation in the form of page 1 of the form agreed to by
the Subscribers in the Purchase Agreement (which Conversion Notice may be
given by facsimile transmission no later than the Conversion Date) stating
that such holder elects to convert the same and shall state therein the
number of Preferred Shares to be converted and the name or names in which
such holder wishes the certificate or certificates for Common Shares to be
issued (the conversion date specified in such Conversion Notice shall be
referred to herein as the "Conversion Date"). Either simultaneously with the
delivery of the Conversion Notice, or within one (1) Trading Day (as defined
below) thereafter, the holder shall deliver (which also may be done by
facsimile transmission) page 2 to the form agreed to by the Subscribers in
the Purchase Agreement indicating the computation of the number of Common
Shares to be received. As soon as possible after delivery of the Conversion
Notice, such holder shall surrender the certificate or certificates
representing the Preferred Shares being converted, duly endorsed, at the
office of the Corporation or, if identified in writing to all the holders by
the Corporation, at the offices of any transfer agent for such shares. The
Corporation shall, immediately upon receipt of such Conversion Notice, issue
and deliver to or upon the order of such holder, against delivery of the
certificates representing the Preferred Shares which have been converted, a
certificate or certificates for the number of Common Shares to which such
holder shall be entitled (with the number of and denomination of such
certificates designated by such holder), and the Corporation shall
immediately issue and deliver to such holder a certificate or certificates
for the number of Preferred Shares (including any fractional shares) which
such holder has not yet elected to convert hereunder but which are evidenced
in part by the certificate(s) delivered to the Corporation in connection with
such Conversion Notice. The Corporation shall effect such issuance of Common
Shares (and certificates for unconverted Preferred Shares) within three (3)
Trading Days of the Conversion Date and shall transmit the certificates by
messenger or overnight delivery service to reach the address designated by
such holder within three (3) Trading Days after the receipt of such
Conversion Notice ("T+3"). If certificates evidencing the Common Shares are
not received by the holder within five (5) Trading Days of the Conversion
Notice, then the holder will be entitled to revoke and withdraw its
Conversion Notice, in whole or in part, at any time prior to its receipt of
those certificates. In lieu of delivering physical certificates representing
the Common Shares issuable upon
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conversion of Preferred Shares, provided the Corporation's transfer agent is
participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer ("FAST") program, upon request of the holder, the
Corporation shall use its best efforts to cause its transfer agent to
electronically transmit the Common Shares issuable upon conversion or
exercise to the holder, by crediting the account of the holder's prime broker
with DTC through its Deposit Withdrawal Agent Commission ("DWAC") system. The
time periods for delivery described above shall apply to the electronic
transmittals through the DWAC system. The parties agree to coordinate with
DTC to accomplish this objective. The conversion pursuant to this Section 5
shall be deemed to have been made immediately prior to the close of business
on the Conversion Date. The person or persons entitled to receive the Common
Shares issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such Common Shares at the close of business on
the Conversion Date.
The term "Trading Day" means a day on which there
is trading on the Nasdaq National Market or such other market or exchange on
which the Common Stock is then principally traded.
If a holder of Preferred Shares converts any of
such holder's Preferred Shares, the Corporation shall pay any documentary or
stamp or similar issue or transfer tax due on the issue of shares of Common
Stock upon the conversion. However, such holder shall pay any such tax that
is due because the shares of Common Stock are issued in a name other than
such holder's name.
The Corporation's obligation to issue Common
Shares upon conversion of Preferred Shares shall, except as set forth below,
be absolute, is independent of any covenant of any holder of Preferred
Shares, and shall not be subject to: (i) any offset or defense; or (ii) any
claims against the holders of Preferred Shares whether pursuant to this
Certificate, the Purchase Agreement, the Registration Rights Agreement or
otherwise.
(b) DETERMINATION OF CONVERSION PRICE.
The Conversion Price applicable with respect to the
Preferred Shares (the "Conversion Price") shall be the lesser of:
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(A) the price ("Fixed Price") equal to 105%
of the Closing Price (as defined below), subject to
adjustment as hereinafter set forth, or
(B) the price (the "Market Price") equal to the
average of the two (2) lowest closing bid prices of
the Common Stock recorded on the Principal Market
(as defined below) (as reported by the Bloomberg
financial network or any successor reporting
service) during the fifteen (15) Trading Days (the
"Market Price Period") immediately prior to the
Conversion Date (including the Trading Day
immediately preceding the Conversion Date).
"Closing Price" shall mean the average of the closing
bid prices of the Common Stock recorded on the Principal Market (as
reported by the Bloomberg financial network or any successor reporting
service) for the five (5) Trading Days (the "Closing Price Period")
immediately following the Closing Date.
"Principal Market" shall mean Nasdaq National Market
or such other market where the Common Stock is then listed for trading.
(c) STOCK SPLITS; DIVIDENDS; ADJUSTMENTS.
(i) If the Corporation, at any time while the
Preferred Shares are outstanding, (A) shall pay a stock dividend or
otherwise make a distribution or distributions on any equity securities
(including instruments or securities convertible into or exchangeable
for such equity securities) in shares of Common Stock, (B) subdivide
outstanding Common Shares into a larger number of shares, or (C)
combine outstanding Common Stock into a smaller number of shares, then
each Affected Conversion Price (as defined below) shall be multiplied
by a fraction, the numerator of which shall be the number
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of shares of Common Stock outstanding before such event and the
denominator of which shall be the number of shares of Common Stock
outstanding after such event. Any adjustment made pursuant to this
Section 5(c)(i) shall become effective immediately after the record
date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision or combination.
As used herein, the Affected Conversion
Prices (each an "Affected Conversion Price") shall refer to: (i) the
Fixed Price; and (ii) each reported price for the Common Stock on the
Principal Market occurring on any Trading Day included in the Market
Price Period or Closing Price Period, which Trading Day occurred before
the record date in the case of events referred to in clause (A) of this
subparagraph 5(c)(i) and the effective date in the case of the events
referred to in clauses (B) and (C) of this subparagraph 5(c)(i).
(ii) In the event that the Corporation issues or
sells any Common Stock or securities which are convertible into or
exchangeable for its Common Stock (other than Preferred Shares), or any
warrants or other rights to subscribe for or to purchase or any options
for the purchase of its Common Stock (other than shares or options
issued or which may be issued pursuant to (i) the Corporation's current
or future employee, director or BONA FIDE consultant option plans or
shares issued upon exercise of options, warrants or rights outstanding
on the date of the Purchase Agreement and listed in the Corporation's
most recent periodic report filed under the Securities Exchange Act of
1934, as amended, or (ii) arrangements with the holders of Preferred
Shares) at an effective purchase price per share which is less than the
greater of (1) the closing market price per share of the Common Stock
on the Principal Market on the Trading Day next preceding such issue or
sale or, in the case of issuances to holders of its Common stock, the
date fixed for the determination of stockholders entitled to receive
such warrants, rights, or options ("Fair Market Price") or (2) the
Fixed Price, then in each such case, the Fixed Price in effect
immediately prior to such issue or sale or record date, as applicable,
shall be reduced effective concurrently with such issue or sale to an
amount determined by multiplying the Fixed Price then in effect by a
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fraction, (x) the numerator of which shall be the sum of (1) the
number of shares of Common Stock and Convertible Securities (as
defined below) outstanding immediately prior to such issue or sale,
plus (2) the number of shares of Common Stock which the aggregate
consideration received by the Corporation for such additional shares
would purchase at such Fixed Price or Fair Market Price, as the case
may be; and (y) the denominator of which shall be the number of
shares of Common Stock and Convertible Securities (as defined below)
of the Company outstanding immediately after such issue or sale.
For purposes of the preceding paragraph, in
the event that the effective purchase price is less than both the Fair
Market Price and the Fixed Price, then the calculation method which
yields the greatest downward adjustment in the Conversion Price shall
be used.
For the purposes of the foregoing
adjustment, in the case of the issuance of any convertible securities,
warrants, options or other rights to subscribe for or to purchase or
exchange for, shares of Common Stock ("Convertible Securities"), the
maximum number of shares of Common Stock issuable upon exercise,
exchange or conversion of such Convertible Securities shall be deemed
to be outstanding, provided that no further adjustment shall be made
upon the actual issuance of Common Stock upon exercise, exchange or
conversion of such Convertible Securities.
(iii) If the Corporation, at any time while the
Preferred Shares are outstanding, shall distribute to all holders of
Common Stock evidences of its indebtedness or assets or cash or
rights or warrants to subscribe for or purchase any security of the
Corporation or any of its subsidiaries (excluding those referred to
in Sections 5(c)(i) or 5(c)(ii) above), then concurrently with such
distributions to holder of Common Stock, the Corporation shall
distribute to holders of the Preferred Shares, the amount of such
indebtedness, assets, cash or rights or warrants which the holders
of Preferred Shares would have received had they converted all their
Preferred Shares into Common Shares immediately prior to the
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record date for such distribution.
(iv) Whenever the Conversion Price is adjusted
pursuant to Section 5(c)(i) or (ii) above or the Corporation makes a
distribution as described in Section 5(c)(iii) above, the Corporation
shall promptly mail to each holder of the Preferred Shares a notice
setting forth the Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment, or
setting forth a description of the distribution and the facts
surrounding same.
(v) All calculations under this Section 5(c)
shall be made to the nearest cent or to the nearest 1/100th of a
share, as the case may be.
(vi) No adjustment in the Conversion Price
shall reduce the Conversion price below the then par value of the
Common Stock.
(vii) The Corporation from time to time may
reduce the Conversion Price by any amount for any period of time if
the period is at least 20 Trading Days and if the reduction is
irrevocable during the period. Whenever the Conversion Price is
reduced, the Corporation shall mail to the holders of Preferred
Shares a notice of the reduction. The Corporation shall mail, first
class, postage prepaid, the notice at least 15 days before the date
the reduced Conversion Price takes effect. The notice shall state
the reduced Conversion Price and the period it will be in effect. A
reduction of the Conversion Price does not change or adjust the
Conversion Price otherwise in effect for purposes of Section
5(c)(i), (ii), or (iii).
(d) NOTICE OF RECORD DATE. In the event of any taking by
the Corporation of a record date of the holders of any class of securities
for the purpose of determining the holders thereof who are entitled to
receive any dividend or other distribution, any security or right convertible
into or entitling the holder thereof to receive additional Common Shares, or
any right to subscribe for, purchase or otherwise acquire any shares of stock
of any class or any other securities or property, or to receive any other
right, the Corporation shall deliver to each holder of Preferred Shares at
least 20 days prior to the date specified therein, a notice specifying the
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date on which any such record is to be taken for the purpose of such
dividend, distribution, security or right and the amount and character of
such dividend, distribution, security or right.
(e) ISSUE TAXES. The Corporation shall pay any and all
issue and other taxes, excluding any income, franchise or similar taxes, that
may be payable in respect of any issue or delivery of Common Shares on
conversion of Preferred Shares pursuant hereto. However, the holder of any
Preferred Shares shall pay any tax that is due because the Common Shares
issuable upon conversion thereof are issued in a name other than such
holder's name.
(f) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its
authorized but unissued Common Stock, solely for the purposes of effecting
the conversion of the Preferred Shares, an amount of Common Shares equal to
200% of the number of shares issuable upon conversion of the Preferred Shares
at the then applicable Conversion Price. The Corporation promptly will take
such corporate action as may, in the opinion of its outside counsel, be
necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose, including
without limitation engaging in best efforts to obtain the requisite
stockholder approval.
(g) FRACTIONAL SHARES. No fractional shares shall be
issued upon the conversion of any Preferred Shares. All Common Shares
(including fractions thereof) issuable upon conversion of more than one
Preferred Share by a holder thereof and all Preferred Shares issuable upon
the purchase thereof shall be aggregated for purposes of determining whether
the conversion and/or purchase would result in the issuance of any fractional
share. If, after the aforementioned aggregation, the conversion and/or
purchase would result in the issuance of a fraction of a share of Common
Stock, the Corporation shall, in lieu of issuing any fractional share, either
round up the number of shares to the next highest whole number or, at the
Corporation's option, pay the holder otherwise entitled to such fraction a
sum in cash equal to the fair market value of such fraction on the Conversion
Date (as determined in good faith by the Board of Directors of the
Corporation).
(h) REORGANIZATION, MERGER OR GOING PRIVATE. In case of any
reorganization or any reclassification of the capital stock of the Corporation
or any consolidation or merger of the Corporation with or into any other
corporation or corporations or a sale or transfer of all or
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substantially all of the assets of the Corporation to any other person or a
"going private" transaction under Rule 13e-3 promulgated pursuant to the
Exchange Act, then, as part of such reorganization, consolidation, merger, or
transfer if the holders of shares of Common Stock receive any publicly traded
securities as part or all of the consideration for such reorganization,
consolidation, merger or sale, then it shall be a condition precedent of any
such event or transaction that provision shall be made such that each
Preferred Share shall thereafter be convertible into such new securities at a
conversion price and pricing formula which places the holders of Preferred
Shares in an economically equivalent position as they would have been if not
for such event. In addition to the foregoing, if the holders of shares of
Common Stock receive any non-publicly traded securities or other property or
cash as part or all of the consideration for such reorganization,
consolidation, merger or sale, then such distribution shall be treated to the
extent thereof as a distribution under Section 5(c) above and such Section
shall also apply to such distribution.
(i) LIMITATIONS ON HOLDER'S RIGHT TO CONVERT.
(i) Notwithstanding anything to the contrary
contained herein, the number of shares of Common Stock that may be
acquired by the holder upon conversion pursuant to the terms hereof
shall not exceed a number that, when added to the total number of
shares of Common Stock deemed beneficially owned by such holder
(other than by virtue of the ownership of securities or rights to
acquire securities that have limitations on the holder's right to
convert, exercise or purchase similar to the limitation set forth
herein), together with all shares of Common Stock deemed
beneficially owned by the holder's "affiliates" (as defined in Rule
144 of the Act) ("AGGREGATION PARTIES") that would be aggregated for
purposes of determining whether a group under Section 13(d) of the
Securities Exchange Act of 1934 as amended, exists, would exceed
9.99% of the total issued and outstanding shares of the Common Stock
(the "RESTRICTED OWNERSHIP PERCENTAGE"); PROVIDED that (w) each
holder shall have the right at any time and from time to time to
reduce its Restricted Ownership Percentage immediately upon notice
to the Corporation and (x) each holder shall have the right (subject
to waiver) at any time and from time to time, to increase its
Restricted Ownership Percentage immediately in the event of the
announcement as pending or planned, of a transaction or
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<PAGE>
event referred to in Section 5(m) below.
(ii) Each time (a "COVENANT TIME") the holder or
an Aggregation Party makes a Triggering Acquisition (as defined
below) of shares of Common Stock (the "TRIGGERING SHARES"), the
holder will be deemed to covenant that it will not, during the
balance of the day on which such Triggering Acquisition occurs, and
during the 61-day period beginning immediately after that day,
acquire additional shares of Common Stock pursuant to
rights-to-acquire existing at that Covenant Time, if the aggregate
amount of such additional shares so acquired (without reducing that
amount by any dispositions) would exceed (x) 9.99% of the number of
shares of Common Stock outstanding at that Covenant Time (including
the Triggering Shares) minus (y) the number of shares of Common
Stock actually owned by the holder at that Covenant Time (regardless
of how or when acquired, and including the Triggering Shares). A
"TRIGGERING ACQUISITION" means the giving of a Conversion Notice or
any other acquisition of Common Stock by the holder or an
Aggregation Party; PROVIDED, however, that with respect to the
giving of such Conversion Notice, if the associated issuance of
shares of Common Stock does not occur, such event shall cease to be
a Triggering Acquisition and the related covenant under this
paragraph shall terminate. At each Covenant Time, the holder shall
be deemed to waive any right it would otherwise have to acquire
shares of Common Stock to the extent that such acquisition would
violate any covenant given by the holder under this paragraph.
Notwithstanding anything to the contrary in the Transaction
Documents, in the event of a conflict between any covenant given
under this paragraph and any obligation of the holder to convert
Preferred Shares pursuant to the Transaction Documents, the former
shall supersede the latter, and the latter shall be reduced
accordingly. For the avoidance of doubt:
(A) The covenant to be given pursuant to this
paragraph will be given at every Covenant
Time and shall be calculated based on the
circumstances then in effect. The making of
a covenant at one Covenant Time shall not
terminate or modify any prior covenants.
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<PAGE>
(B) The holder may therefore from time to time
be subject to multiple such covenants, each
one having been made at a different Covenant
Time, and some possibly being more
restrictive than others. The holder must
comply with all such covenants then in
effect.
(iii) OVERALL LIMIT ON COMMON STOCK ISSUABLE.
Notwithstanding anything contained herein to the contrary, the
number of shares of Common Stock issuable by the Company and
acquirable by the holders hereunder, together with such shares
issuable by the Company and acquirable by the holders under the
Warrants and Options, shall not exceed 19.99% of the shares of
Common Stock outstanding on the Closing Date, subject to appropriate
adjustment for stock splits, stock dividends, or other similar
recapitalizations affecting the Common Stock (the "MAXIMUM COMMON
STOCK ISSUANCE"), unless the issuance of such shares in excess of
the Maximum Common Stock Issuance shall first be approved by the
Company's shareholders in accordance with applicable law and the
By-laws and Articles of Incorporation of the Company. The Company
agrees that if at any point in time (the "Trigger Date") the number
of Common Shares issued pursuant to conversion of the Preferred
Shares and exercise of the Warrants and Options, together with the
number of Common Shares that would then be issuable by the Company
in the event of conversion of all the Preferred Shares and exercise
of all the Warrants and Options then outstanding, would exceed the
Maximum Common Stock Issuance but for this Section 5(i)(iii), then
the Company shall promptly call a shareholders meeting to obtain
shareholder approval for the issuance of Common Shares hereunder in
excess of the Maximum Common Stock Issuance. If such shareholder
approval is not obtained within 60 days of the Trigger Date, then
each holder of Preferred Shares shall have the right to sell to the
Company such number of Preferred Shares, Warrants and Options which
cannot be converted or exercised due to such Maximum Common Stock
Issuance limitation at a redemption price equal to the "Mandatory
Repurchase Price" (as defined in the Registration Rights Agreement).
14
<PAGE>
(j) CERTIFICATE FOR CONVERSION PRICE ADJUSTMENT. The
Corporation shall promptly furnish or cause to be furnished to each holder a
certificate prepared by the Corporation setting forth any adjustments or
readjustments of the Conversion Price pursuant to this Section 5.
(k) SPECIFIC ENFORCEMENT. The Corporation agrees that
irreparable damage would occur in the event that any of the provisions of
these Articles of Amendment were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
holders of Preferred Shares shall be entitled to specific performance,
injunctive relief or other equitable remedies to prevent or cure breaches of
the provisions of these Articles of Amendment and to enforce specifically the
terms and provisions hereof, this being in addition to any other remedy to
which any of them may be entitled under agreement, at law or in equity.
(l) MANDATORY REPURCHASE. Notwithstanding anything
contained in Section 5(h) hereof, each holder of Preferred Shares shall have
the unilateral option and right to compel the Corporation to repurchase any
or all of such holder's Preferred Shares by delivering a written notice
requiring such repurchase, at a price per Preferred Share equal to the
Mandatory Repurchase Price, if at any time and from time to time there is an
announcement or public disclosure that any of the following transactions or
events involving or affecting the Corporation is expected to occur or any of
the following transactions or events occurs; provided, that payment of the
Mandatory Repurchase Price shall be subject to and conditioned upon the
consummation or occurrence of such transaction or event, and such payment of
the Mandatory Repurchase Price shall be a condition precedent of any such
transaction or occurrence:
(i) A Change in Control Transaction (as defined
below);
(ii) A "going private" transaction under Rule 13e-3
promulgated pursuant to the Exchange Act; or
(iii) A tender offer by the Corporation under Rule
13e-4 promulgated pursuant to the Exchange Act.
A "Change in Control Transaction" will be deemed to
exist if (i) there occurs any consolidation or merger of the Corporation with or
into any other corporation or other entity or person (whether or not the
Corporation is the surviving corporation), or any other
15
<PAGE>
corporate reorganization or transaction or series of related transactions in
which in excess of 50% of the Corporation's voting power is transferred
through a merger, consolidation, tender offer or similar transaction, (ii)
any person (as defined in Section 13(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act")), together with its affiliates and
associates (as such terms are defined in Rule 405 under the Securities Act of
1933, as amended (the "Act")), beneficially owns or is deemed to beneficially
own (as described in Rule 13d-3 under the Exchange Act without regard to the
60-day exercise period) in excess of 50% of the Corporation's voting power,
(iii) there is a replacement of more than one-half of the members of the
Corporation's Board of Directors which is not approved by those individuals
who are members of the Corporation's Board of Directors on the date thereof,
in one or a series of related transactions or (iv) a sale or transfer of all
or substantially all of the assets of the Corporation, determined on a
consolidated basis.
(m) MANDATORY CONVERSION.
(x) Subject to subsections (m)(y) and (m)(z)
below, the Preferred Shares shall be automatically converted into
Common Shares on the two (2) year anniversary of the Closing Date
(the "Mandatory Conversion Date"); provided, however, that such
Mandatory Conversion Date shall be deferred, at the sole option of a
holder of Preferred Shares, for such number of days as is equal to
1.5 times the number of days (A) there is a lack of Effective
Registration (as defined below), but not including the first 90 days
after the Closing; (B) there is not a sufficient amount of Common
Stock available for conversion of all outstanding Preferred Shares
and exercise of all the Warrants and Options; (C) for any other
reason the Corporation refuses or announces its refusal to honor
conversion of Preferred Shares or exercise of the Warrants or
Options; or (D) for any other reason there is a suspension,
restriction or limitation in the ability of holders of Preferred
Shares, Warrants or Options to sell Common Shares received upon
conversion of Preferred Shares or exercise of the Warrants or
Options pursuant to the prospectus included in the Registration
Statement (as defined in the Registration Rights Agreement).
For purposes of the preceding paragraph, a
lack of Effective Registration shall be deemed to have occurred at any
time the Common Shares issuable
16
<PAGE>
upon conversion of the Preferred Shares or exercise of the Warrants
or Options are not capable of being sold on an Approved Market (as
defined in the Purchase Agreement) pursuant to an effective
registration statement and deliverable prospectus.
(y) Notwithstanding the preceding subsection
(m)(x), no holder of Preferred Shares shall be obligated to convert
any Preferred Shares held by such holder on the Mandatory Conversion
Date (and there shall be no automatic conversion) unless and until
each of the following conditions has been satisfied or exists, each
of which shall be a condition precedent to any such forced
conversion:
(A) no material default or breach exists
which has not been cured, and no event shall have
occurred which constitutes (or would constitute with
notice or the passage of time or both) a material
default or breach of the Purchase Agreement, the
Registration Rights Agreement, the Warrants, the
Options or these Articles of Amendment, which has not
been cured;
(B) none of the events described in clauses
(i) through (iv) of Section 2(b) of the Registration
Rights Agreement shall have occurred and be
continuing;
(C) the Registration Statement (as defined
in the Registration Rights Agreement) is effective
and holders have received unlegended certificates
representing Common Shares with respect to all
conversions for which Conversion Notices have been
given and with respect to all exercises of Warrants
and Options for which Notices or Exercise have been
given; and
(D) the Corporation and its subsidiaries on
a consolidated basis has assets with a net realizable
fair market value exceeding its liabilities and is
able to pay all its debts as they become due in the
ordinary course of business, and the Corporation is
not subject
17
<PAGE>
to any liquidation, dissolution or winding up of
its affairs, or any bankruptcy, insolvency or
similar proceeding.
(z) Notwithstanding Section 5(m)(x) above, no
holder's Preferred Shares shall be subject to mandatory conversion
to the extent such mandatory conversion would result in the holder
of Preferred Shares exceeding any of the limitations contained in
Section 5(i) above. In such event, the Preferred Shares of such
holder shall be converted in such amount until such limitation is
reached, and the remaining Preferred Shares shall be purchased by
the Corporation at the Mandatory Redemption Price (as defined in the
Registration Rights Agreement).
Such forced conversion shall be subject to and
governed by all the provisions relating to voluntary conversion of the Preferred
Shares contained herein.
6. VOTING RIGHTS. In addition to all other requirements imposed by
Iowa law, and all other voting rights granted under the Corporation's
Articles of Incorporation, the affirmative vote of two-thirds in interest of
the Corporation's outstanding Preferred Shares shall be necessary for (i) any
amendment, modification or repeal of the provisions contained in these
Articles of Amendment (whether by merger, consolidation or otherwise) or for
any merger, reclassification, consolidation or reorganization, or (ii) any
other amendment to the Articles of Incorporation or the by-laws of the
Corporation that may amend or change or adversely affect any of the rights,
preferences, or privileges of the Preferred Shares, provided, however, that
holders of Preferred Shares (other than the Investor under the Purchase
Agreement and their affiliates) who are affiliates of the Corporation (and
the Corporation itself) shall not participate in such vote and the Preferred
Shares of such holders shall be disregarded and deemed not to be outstanding
for purposes of such vote.
7. NOTICES. The Corporation shall distribute to the holders of
Preferred Shares copies of all notices, materials, annual and quarterly
reports, proxy statements, information statements and any other documents
distributed generally to the holders of shares of Common Stock of the
18
<PAGE>
Corporation, at such times and by such method as such documents are
distributed to such holders of such Common Stock.
8. REPLACEMENT CERTIFICATES. The certificate(s) representing the
Preferred Shares held by any holder of Preferred Shares may be exchanged by
such holder at any time and from time to time for certificates with different
denominations representing an equal aggregate number of Preferred Shares, as
reasonably requested by such holder, upon surrendering the same. No service
charge will be made for such registration or transfer or exchange. Upon
receipt by the Corporation of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of any stock certificate representing
the Preferred Shares and, in the case of loss, theft or destruction, of
indemnity reasonably satisfactory to it, or upon surrender and cancellation
of such stock certificate if mutilated, the Corporation will make and deliver
a new stock certificate of like tenor and dated as of such cancellation at no
charge to the holder.
9. ATTORNEYS' FEES. In connection with enforcement by a holder of
Preferred Shares of any obligation of the Corporation hereunder, the
prevailing party shall be entitled to recovery of reasonable attorneys' fees
and expenses incurred.
10. NO REISSUANCE. No Preferred Shares acquired by the Corporation
by reason of redemption, purchase, conversion or otherwise shall be reissued.
11. SEVERABILITY OF PROVISIONS. If any right, preference or
limitation of the Preferred Shares set forth in these Articles of Amendment
or Articles of Incorporation (as either is amended from time to time) is
invalid, unlawful or incapable of being enforced by reason of any rule or law
or public policy, all other rights, preferences and limitations set forth in
these Articles of Amendment or Articles of Incorporation, which can be given
effect without the invalid, unlawful or unenforceable right, preference or
limitation shall nevertheless remain in full force and effect, and no right,
preference or limitation herein set forth be deemed dependent upon any such
other right, preference or limitation unless so expressed herein.
19
<PAGE>
12. LIMITATIONS. Except as may otherwise be required by law and as
are set forth in the Purchase Agreement and the Registration Rights
Agreement, the Preferred Shares shall not have any powers, preference or
relative participating, optional or other special rights other than those
specifically set forth in these Articles of Amendment (as may be amended from
time to time) or otherwise in the Articles of Incorporation of the
Corporation.
ARTICLE VI
ELECTION OF DIRECTORS
The number of directors of the corporation shall be not more than
nine (9), and the directors shall be divided into three classes designated as
Class I, Class II and Class III, respectively. Each class shall consist, as
nearly as may be possible, of one-third of the total number of directors
constituting the entire Board of Directors. The initial term of office of the
Class I directors shall expire at the 1996 annual meeting of the
shareholders. The initial term of office of the Class II directors shall
expire at the 1997 annual meeting of the shareholders. The initial term of
office of the Class III directors shall expire at the 1998 annual meeting of
shareholders. At each annual meeting of the shareholders, successors to the
class of directors whose term expires at the annual meeting shall be elected
for a three-year term. If the number of directors is changed by the Board of
Directors, any increase or decrease shall be apportioned among the classes so
as to maintain the number of directors in each class as nearly as possible,
but in no case shall a decrease in the number of directors shorten the term
of any incumbent director. A director shall hold office until the annual
meeting for the year in which his term expires and until his successor shall
be elected and qualified, subject, however, to prior death, resignation,
retirement, disqualification or removal for cause from office. The annual
meeting of shareholders shall be held each year on a date and at a time
designated by the Board of Directors of the corporation.
ARTICLE VII
REMOVAL OF DIRECTORS
Any or all of the directors may be removed at any time, but only for
cause, and any such removal shall require the vote, in addition to any vote
required by law, of not less than seventy percent (70%) of the total votes
eligible to be cast by the holders of all outstanding shares of capital stock
entitled to vote generally in the election of directors at a meeting of
shareholders expressly called for that purpose. For purposes of this Article
VII, conduct worthy of removal
20
<PAGE>
for "cause" shall include (a) conduct as a director of the corporation or any
subsidiary of the corporation, which conduct involves willful material
misconduct, breach of fiduciary duty involving personal pecuniary gain or
gross negligence in the performance of duties or (b) conduct, whether or not
as a director of the corporation or a subsidiary of the corporation, which
involves dishonesty or a breach of fiduciary duty and is punishable by
imprisonment for a term exceeding one year under state or federal law.
ARTICLE VIII
DIRECTOR LIABILITY FOR BREACH OF FIDUCIARY DUTY
A director of the corporation shall not be personally liable to the
corporation or its shareholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the corporation or its shareholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or
knowing violation of the law, (iii) for any transaction from which the
director derived an improper personal benefit, or (iv) under Section 833 of
the Iowa Business Corporation Act. No amendment to or repeal of this Article
shall apply to or have any effect on the liability or alleged liability of
any director of the corporation for or with respect to any acts or omissions
of such director occurring prior to such amendment or repeal. If Iowa law is
hereafter changed to permit further elimination or limitation of the
liability of directors for monetary damages to the corporation or its
shareholders, then the liability of a director of this corporation shall be
eliminated or limited to the full extent then permitted.
ARTICLE IX
INDEMNIFICATION OF OFFICERS, DIRECTORS, EMPLOYEES AND AGENTS.
Any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or investigative (other than an action by or
in the right of the corporation), by reason of the fact that such person is
or was a director or officer of the corporation or is or was serving at the
request of the corporation as a director or officer or similar manager of
another corporation, partnership, joint venture, trust or other enterprise
shall be indemnified by the corporation, and any person who was or is a party
or is threatened to be made a party to any such action, suit or proceeding by
reason of the fact that such person is or was an employee or agent of the
corporation or is or was serving at the request of the corporation as an
employee or agent of another corporation,
21
<PAGE>
partnership, joint venture, trust or other enterprise may be indemnified by
the corporation, against expenses (including attorneys' fees), judgments,
fines and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding if such person
acted in good faith and in a manner such person reasonably believed to be in
or not opposed to the best interest of the corporation, and, with respect to
any criminal action or proceeding, had no reasonable cause to believe such
person's conduct was unlawful. The termination of any action, suit or
proceeding by judgment, order, settlement, conviction upon a plea of NOLO
CONTENDERE or its equivalent shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which such person
reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that such person's conduct was unlawful.
The corporation may indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the corporation to procure a judgment in the
corporation's favor by reason of the fact that such person is or was a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses (including
attorneys' fees) actually and reasonably incurred by such person in
connection with the defense or settlement of such action or suit, if such
person acted in good faith and in a manner such person reasonably believed to
be in, or not opposed to, the best interest of the corporation. However, no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to the corporation
unless, and only to the extent that, the court in which such action or suit
was brought shall determine upon application that, despite the adjudication
of liability but in view of all the circumstances of the case, such person is
fairly and reasonably entitled to indemnity for such expenses which such
court shall deem proper.
Any indemnification pursuant to the first two paragraphs of this
Article IX (unless ordered by a court) shall be made by the corporation only as
authorized in the specific case upon a determination that indemnification of the
director, officer, employee or agent is proper in the circumstances because such
person has met the applicable standard of conduct set forth in the first two
paragraphs of this Article IX. Such determination shall be made by the Board of
Directors by a majority vote of a quorum
22
<PAGE>
consisting of directors who were not parties to such action, suit or
proceeding, or if such a quorum is not obtainable (or, even if obtainable, a
quorum of disinterested directors so directs) by independent legal counsel in
written opinion, or by the shareholders.
Expenses incurred in defending a civil or criminal action, suit or
proceeding may be paid by the corporation in advance of the final disposition
of such action, suit or proceeding upon receipt of an undertaking by or on
behalf of the director, officer, employee or agent to repay such amount if it
shall ultimately be determined that such person is not entitled to be
indemnified by the corporation as authorized in this Article IX.
The indemnification and advancement of expenses provided by this
Article IX shall not be deemed exclusive of any other rights to which those
seeking indemnification or advancement of expenses may be entitled under any
Bylaw, agreement, vote of shareholders or disinterested directors or
otherwise, both as to action in such person's official capacity and as to
action in another capacity while holding such office, and shall, unless
otherwise provided when authorized or ratified, continue as to a person who
has ceased to be a director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such person.
The corporation shall have power to purchase and maintain insurance
on behalf of any person who is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted
against such person and incurred by such person in any such capacity, or
arising out of the person's status as such, whether or not the corporation
would have the power to indemnify such person against such liability under
the provisions of this Article IX. No amendment or repeal of this Article IX
shall apply to or have any effect upon the indemnification of any director or
officer of the corporation provided herein.
For the purpose of this Article IX, all words and phrases used
herein shall have the meanings ascribed to them under Section 490.850 of the
Code of Iowa (1995).
ARTICLE X
EVALUATION OF ACQUISITION PROPOSALS
The Board of Directors of the corporation, when evaluating any offer
to the corporation or to the shareholders of the corporation from another
party to (a) purchase for cash, or exchange any securities or property for,
any outstanding equity securities of the corporation, (b) merge or
consolidate the corporation with another corporation, or (c) purchase or
otherwise acquire all or
23
<PAGE>
substantially all of the properties and assets of the corporation, may, in
connection with the exercise of its judgment in determining what is in the
best interest of the corporation and its shareholders, give due consideration
to the extent permitted by law not only to the price or other consideration
being offered, but also to all other relevant factors including, without
limitation, the long-term as well as the short-term interests of the
corporation and its shareholders, including the possibility that these
interests may be best served by the continued independence of the
corporation, which includes the financial and managerial resources and future
prospects of the other party, the possible effects on the business of the
corporation and its subsidiaries and on the employees, customers, suppliers
and creditors of the corporation and its subsidiaries, and the effects on the
communities in which facilities of the corporation are located.
ARTICLE XI
These Restated and Amended Articles of Incorporation shall become
effective on the date of filing with the Secretary of State for the State of
Iowa.
ARTICLE XII
These Restated and Amended Articles of Incorporation: (1) set forth the
provisions of the Articles of Incorporation of the corporation as heretofore and
hereby amended; (2) were adopted by the shareholders on March 11,1996; and (3)
supersede the original articles of incorporation of the corporation, the prior
Restated and Amended Articles of Incorporation and all amendments thereto. At
the date of adoption of these Restated and Amended Articles of Incorporation,
the number of outstanding shares of each voting group entitled to vote
separately on the adoption of such Articles, and the vote of such shares was:
<TABLE>
<CAPTION>
Number of Number of Number of Votes Number of Undisputed
Outstanding Votes Entitled Represented at Shares Voted
Voting Group Shares to be Cast the Meeting For/Against
<S> <C> <C> <C> <C>
Common 2,552,613 2,350,061 2,348,161 2,348,161/1,900
Preferred 340,000 340,000 338,310.4 338,310.4/0
</TABLE>
IN WITNESS WHEREOF, the undersigned have hereunto set our hands this
8th day of February, 1996.
MICROWARE SYSTEMS CORPORATION
24
<PAGE>
By: /s/ Kenneth B. Kaplan
Kenneth B. Kaplan,
President/Chairman
By: /s/ Lawrence A. Crane
Lawrence A. Crane
Secretary
25
<PAGE>
EXHIBIT 4.1
FIRST ARTICLES OF AMENDMENT
TO
RESTATED AND AMENDED ARTICLES OF INCORPORATION
FOR
MICROWARE SYSTEMS CORPORATION
MICROWARE SYSTEMS CORPORATION, an Iowa corporation (the
"Corporation"), pursuant to the provisions of Section 490.602 of the Business
Corporation Act of the State of Iowa, does hereby amend its Restated and Amended
Articles of Incorporation ("Articles of Incorporation"), and for that purpose,
submits the following statements:
A. The name of the corporation is MICROWARE SYSTEMS CORPORATION.
B. The Articles of Incorporation are hereby amended to add the following
provisions to Article V of the Articles of Incorporation:
1. DESIGNATION AND ISSUANCE. The Corporation shall issue 3,500
shares of the Series I Preferred Stock (the "Preferred Shares") pursuant to a
Securities Purchase Agreement, dated on or about the date hereof ("Purchase
Agreement"), between the Corporation and the initial subscribers for the
Preferred Shares thereunder (the "Subscribers"). Each of such Preferred
Shares shall rank equally in all respects.
2. DIVIDENDS.
(a) CUMULATIVE. The holders of the Preferred Shares shall be
entitled to receive cumulative dividends at the per share rate of four
percent (4%) of the Liquidation Preference (as defined below) of each
Preferred Share, per annum accruing daily and payable quarterly on March 31,
June 30, September 30 and December 31 of each year (each a "Dividend Payment
Date") commencing with the first Dividend Payment Date occurring after the
original issuance date of such share, in preference and priority to any
payment of any dividend on the Common Stock (as defined below) or any other
class or series of equity security of the Corporation. Such dividends shall
accrue on any given share from the most recent date on which a dividend has
been paid with respect to such share, or if no dividends have been paid, from
the date of the original issuance of such share, and such dividends shall
accrue from day to day whether or not declared, based on the actual number of
days elapsed. If at any time dividends on the outstanding Preferred Shares at
the rate set forth above shall not have been paid or declared and set apart
for payment with respect to all preceding periods, the amount of the
deficiency shall be fully paid or declared and set apart for payment, but
without interest, before any distribution, whether by way of dividend or
otherwise, shall be declared or paid upon or set apart for the shares of any
other class or series of equity security of the Corporation. For so long as
any Preferred Shares are outstanding, the Corporation shall not pay any
dividends on any shares of Common
<PAGE>
Stock or any shares of any other capital stock, or repurchase any shares of
Common Stock or capital stock, without having received written consent of
two-thirds in interest of the holders of Preferred Shares, except as
otherwise provided herein or in the Purchase Agreement or Registration Rights
Agreement (as such terms are defined herein) with respect to the Options,
Preferred Shares, Warrants and underlying Common Shares thereof. For purposes
of computing any per diem accrual, calculations shall be made using a 360-day
year.
(b) PIK PAYMENT OR CASH PAYMENT. Any dividend payable on
the outstanding Preferred Shares shall be paid by adding the amount thereof
to the Liquidation Preference (as defined below) of such Preferred Shares.
Upon the payment of dividends as required by the immediately preceding
sentence, such dividends will be deemed paid in full. Notwithstanding the
foregoing, the Corporation may pay dividends in cash if on 10 Trading Days'
(as defined below) irrevocable prior written notice, it informs the holders
of the Preferred Shares of its election to pay cash dividends. Following
notice of payment of cash dividends by the Corporation, all dividends on the
Preferred Shares shall be paid in cash, until such time as the Corporation
provides 10 Trading Days' irrevocable written notice to the holders of
Preferred Shares of its election to pay dividends in-kind.
3. LIQUIDATION PREFERENCE. In the event of any liquidation,
dissolution or winding up of the Corporation, either voluntary or
involuntary, the holders of the Preferred Shares shall be entitled to
receive, out of the assets of the Corporation available for distribution to
stockholders, prior and in preference to any distribution of any assets of
the Corporation to the holders of any other class or series of equity
securities, the amount of $1,000 per share plus (i) dividends added to the
Liquidation Preference in accordance with Section 2(b) above; (ii) all
accrued but unpaid dividends; and (iii) all "Monthly Delay Payments" payable
under the Registration Rights Agreement (as defined below) (the "Liquidation
Preference").
4. REGISTRATION OF PREFERRED SHARES. The holders of Preferred
Shares shall enjoy the benefits of the Registration Rights Agreement dated
the date hereof ("Registration Rights Agreement") between the Corporation and
Subscribers in connection with the Purchase Agreement.
5. CONVERSION. Each holder of the Preferred Shares shall have
the right at any time and from time to time, at the option of such holder, to
convert any or all Preferred Shares held by such holder, for such number of
fully paid, validly issued and nonassessable shares ("Common Shares") of
common stock, no par value, of the Corporation ("Common Stock"), free and
clear of any liens, claims or encumbrances, as is determined by dividing (i)
the Liquidation Preference times the number of Preferred Shares being
converted (the "Conversion Amount"), by (ii) the applicable Conversion Price
determined as hereinafter provided in effect on the Conversion Date.
Immediately following such conversion, the rights of the holders of converted
Preferred Shares shall cease and the persons entitled to receive the Common
Shares upon the conversion of Preferred Shares shall be treated for all
purposes as having become the owners of such Common Shares, subject to the
rights provided herein to holders.
(a) MECHANICS OF CONVERSION. To convert Preferred Shares
into Common Shares, the holder shall give written notice ("Conversion
Notice") to the Corporation in the form of page
<PAGE>
1 of the form agreed to by the Subscribers in the Purchase Agreement (which
Conversion Notice may be given by facsimile transmission no later than the
Conversion Date) stating that such holder elects to convert the same and
shall state therein the number of Preferred Shares to be converted and the
name or names in which such holder wishes the certificate or certificates for
Common Shares to be issued (the conversion date specified in such Conversion
Notice shall be referred to herein as the "Conversion Date"). Either
simultaneously with the delivery of the Conversion Notice, or within one (1)
Trading Day (as defined below) thereafter, the holder shall deliver (which
also may be done by facsimile transmission) page 2 to the form agreed to by
the Subscribers in the Purchase Agreement indicating the computation of the
number of Common Shares to be received. As soon as possible after delivery of
the Conversion Notice, such holder shall surrender the certificate or
certificates representing the Preferred Shares being converted, duly
endorsed, at the office of the Corporation or, if identified in writing to
all the holders by the Corporation, at the offices of any transfer agent for
such shares. The Corporation shall, immediately upon receipt of such
Conversion Notice, issue and deliver to or upon the order of such holder,
against delivery of the certificates representing the Preferred Shares which
have been converted, a certificate or certificates for the number of Common
Shares to which such holder shall be entitled (with the number of and
denomination of such certificates designated by such holder), and the
Corporation shall immediately issue and deliver to such holder a certificate
or certificates for the number of Preferred Shares (including any fractional
shares) which such holder has not yet elected to convert hereunder but which
are evidenced in part by the certificate(s) delivered to the Corporation in
connection with such Conversion Notice. The Corporation shall effect such
issuance of Common Shares (and certificates for unconverted Preferred Shares)
within three (3) Trading Days of the Conversion Date and shall transmit the
certificates by messenger or overnight delivery service to reach the address
designated by such holder within three (3) Trading Days after the receipt of
such Conversion Notice ("T+3"). If certificates evidencing the Common Shares
are not received by the holder within five (5) Trading Days of the Conversion
Notice, then the holder will be entitled to revoke and withdraw its
Conversion Notice, in whole or in part, at any time prior to its receipt of
those certificates. In lieu of delivering physical certificates representing
the Common Shares issuable upon conversion of Preferred Shares, provided the
Corporation's transfer agent is participating in the Depository Trust Company
("DTC") Fast Automated Securities Transfer ("FAST") program, upon request of
the holder, the Corporation shall use its best efforts to cause its transfer
agent to electronically transmit the Common Shares issuable upon conversion
or exercise to the holder, by crediting the account of the holder's prime
broker with DTC through its Deposit Withdrawal Agent Commission ("DWAC")
system. The time periods for delivery described above shall apply to the
electronic transmittals through the DWAC system. The parties agree to
coordinate with DTC to accomplish this objective. The conversion pursuant to
this Section 5 shall be deemed to have been made immediately prior to the
close of business on the Conversion Date. The person or persons entitled to
receive the Common Shares issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such Common Shares at the
close of business on the Conversion Date.
The term "Trading Day" means a day on which there is
trading on the Nasdaq National Market or such other market or exchange on
which the Common Stock is then principally traded.
<PAGE>
If a holder of Preferred Shares converts any of such
holder's Preferred Shares, the Corporation shall pay any documentary or stamp
or similar issue or transfer tax due on the issue of shares of Common Stock
upon the conversion. However, such holder shall pay any such tax that is due
because the shares of Common Stock are issued in a name other than such
holder's name.
The Corporation's obligation to issue Common Shares
upon conversion of Preferred Shares shall, except as set forth below, be
absolute, is independent of any covenant of any holder of Preferred Shares,
and shall not be subject to: (i) any offset or defense; or (ii) any claims
against the holders of Preferred Shares whether pursuant to this Certificate,
the Purchase Agreement, the Registration Rights Agreement or otherwise.
(b) DETERMINATION OF CONVERSION PRICE.
The Conversion Price applicable with respect to the
Preferred Shares (the "Conversion Price") shall be the lesser of:
(A) the price ("Fixed Price") equal to 105%
of the Closing Price (as defined below), subject to
adjustment as hereinafter set forth, or
(B) the price (the "Market Price") equal to
the average of the two (2) lowest closing bid prices
of the Common Stock recorded on the Principal Market
(as defined below) (as reported by the Bloomberg
financial network or any successor reporting service)
during the fifteen (15) Trading Days (the "Market
Price Period") immediately prior to the Conversion
Date (including the Trading Day immediately preceding
the Conversion Date).
"Closing Price" shall mean the average of the closing
bid prices of the Common Stock recorded on the Principal Market (as
reported by the Bloomberg financial network or any successor reporting
service) for the five (5) Trading Days (the "Closing Price Period")
immediately following the Closing Date.
"Principal Market" shall mean Nasdaq National Market
or such other market where the Common Stock is then listed for trading.
(c) STOCK SPLITS; DIVIDENDS; ADJUSTMENTS.
(i) If the Corporation, at any time while the
Preferred Shares are outstanding, (A) shall pay a stock dividend or
otherwise make a distribution or distributions on any equity securities
(including instruments or securities convertible into or exchangeable
for such equity securities) in shares of Common Stock, (B) subdivide
outstanding Common Shares into a larger number of shares, or (C)
combine outstanding Common Stock into a smaller number of shares, then
each Affected Conversion Price (as defined below) shall be multiplied
by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding before such event and the denominator of which
shall be the number of shares of Common Stock
<PAGE>
outstanding after such event. Any adjustment made pursuant to this
Section 5(c)(i) shall become effective immediately after the record
date for the determination of stockholders entitled to receive such
dividend or distribution and shall become effective immediately
after the effective date in the case of a subdivision or combination.
As used herein, the Affected Conversion
Prices (each an "Affected Conversion Price") shall refer to: (i) the
Fixed Price; and (ii) each reported price for the Common Stock on the
Principal Market occurring on any Trading Day included in the Market
Price Period or Closing Price Period, which Trading Day occurred before
the record date in the case of events referred to in clause (A) of this
subparagraph 5(c)(i) and the effective date in the case of the events
referred to in clauses (B) and (C) of this subparagraph 5(c)(i).
(ii) In the event that the Corporation issues or
sells any Common Stock or securities which are convertible into or
exchangeable for its Common Stock (other than Preferred Shares), or any
warrants or other rights to subscribe for or to purchase or any options
for the purchase of its Common Stock (other than shares or options
issued or which may be issued pursuant to (i) the Corporation's current
or future employee, director or BONA FIDE consultant option plans or
shares issued upon exercise of options, warrants or rights outstanding
on the date of the Purchase Agreement and listed in the Corporation's
most recent periodic report filed under the Securities Exchange Act of
1934, as amended, or (ii) arrangements with the holders of Preferred
Shares) at an effective purchase price per share which is less than the
greater of (1) the closing market price per share of the Common Stock
on the Principal Market on the Trading Day next preceding such issue or
sale or, in the case of issuances to holders of its Common stock, the
date fixed for the determination of stockholders entitled to receive
such warrants, rights, or options ("Fair Market Price") or (2) the
Fixed Price, then in each such case, the Fixed Price in effect
immediately prior to such issue or sale or record date, as applicable,
shall be reduced effective concurrently with such issue or sale to an
amount determined by multiplying the Fixed Price then in effect by a
fraction, (x) the numerator of which shall be the sum of (1) the number
of shares of Common Stock and Convertible Securities (as defined below)
outstanding immediately prior to such issue or sale, plus (2) the
number of shares of Common Stock which the aggregate consideration
received by the Corporation for such additional shares would purchase
at such Fixed Price or Fair Market Price, as the case may be; and (y)
the denominator of which shall be the number of shares of Common Stock
and Convertible Securities (as defined below) of the Company
outstanding immediately after such issue or sale.
For purposes of the preceding paragraph, in
the event that the effective purchase price is less than both the Fair
Market Price and the Fixed Price, then the calculation method which
yields the greatest downward adjustment in the Conversion Price shall
be used.
<PAGE>
For the purposes of the foregoing
adjustment, in the case of the issuance of any convertible
securities, warrants, options or other rights to subscribe for or to
purchase or exchange for, shares of Common Stock ("Convertible
Securities"), the maximum number of shares of Common Stock issuable
upon exercise, exchange or conversion of such Convertible Securities
shall be deemed to be outstanding, provided that no further
adjustment shall be made upon the actual issuance of Common Stock
upon exercise, exchange or conversion of such Convertible Securities.
(iii) If the Corporation, at any time while the
Preferred Shares are outstanding, shall distribute to all holders of
Common Stock evidences of its indebtedness or assets or cash or rights
or warrants to subscribe for or purchase any security of the
Corporation or any of its subsidiaries (excluding those referred to in
Sections 5(c)(i) or 5(c)(ii) above), then concurrently with such
distributions to holder of Common Stock, the Corporation shall
distribute to holders of the Preferred Shares, the amount of such
indebtedness, assets, cash or rights or warrants which the holders of
Preferred Shares would have received had they converted all their
Preferred Shares into Common Shares immediately prior to the record
date for such distribution.
(iv) Whenever the Conversion Price is adjusted
pursuant to Section 5(c)(i) or (ii) above or the Corporation makes a
distribution as described in Section 5(c)(iii) above, the Corporation
shall promptly mail to each holder of the Preferred Shares a notice
setting forth the Conversion Price after such adjustment and setting
forth a brief statement of the facts requiring such adjustment, or
setting forth a description of the distribution and the facts
surrounding same.
(v) All calculations under this Section 5(c)
shall be made to the nearest cent or to the nearest 1/100th of a
share, as the case may be.
(vi) No adjustment in the Conversion Price shall
reduce the Conversion price below the then par value of the Common
Stock.
(vii) The Corporation from time to time may reduce
the Conversion Price by any amount for any period of time if the period
is at least 20 Trading Days and if the reduction is irrevocable during
the period. Whenever the Conversion Price is reduced, the Corporation
shall mail to the holders of Preferred Shares a notice of the
reduction. The Corporation shall mail, first class, postage prepaid,
the notice at least 15 days before the date the reduced Conversion
Price takes effect. The notice shall state the reduced Conversion Price
and the period it will be in effect. A reduction of the Conversion
Price does not change or adjust the Conversion Price otherwise in
effect for purposes of Section 5(c)(i), (ii), or (iii).
(d) NOTICE OF RECORD DATE. In the event of any taking by
the Corporation of a record date of the holders of any class of securities
for the purpose of determining the holders thereof who are entitled to
receive any dividend or other distribution, any security or right
<PAGE>
convertible into or entitling the holder thereof to receive additional Common
Shares, or any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to
receive any other right, the Corporation shall deliver to each holder of
Preferred Shares at least 20 days prior to the date specified therein, a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution, security or right and the amount and
character of such dividend, distribution, security or right.
(e) ISSUE TAXES. The Corporation shall pay any and all
issue and other taxes, excluding any income, franchise or similar taxes, that
may be payable in respect of any issue or delivery of Common Shares on
conversion of Preferred Shares pursuant hereto. However, the holder of any
Preferred Shares shall pay any tax that is due because the Common Shares
issuable upon conversion thereof are issued in a name other than such
holder's name.
(f) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its
authorized but unissued Common Stock, solely for the purposes of effecting
the conversion of the Preferred Shares, an amount of Common Shares equal to
200% of the number of shares issuable upon conversion of the Preferred Shares
at the then applicable Conversion Price. The Corporation promptly will take
such corporate action as may, in the opinion of its outside counsel, be
necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose, including
without limitation engaging in best efforts to obtain the requisite
stockholder approval.
(g) FRACTIONAL SHARES. No fractional shares shall be
issued upon the conversion of any Preferred Shares. All Common Shares
(including fractions thereof) issuable upon conversion of more than one
Preferred Share by a holder thereof and all Preferred Shares issuable upon
the purchase thereof shall be aggregated for purposes of determining whether
the conversion and/or purchase would result in the issuance of any fractional
share. If, after the aforementioned aggregation, the conversion and/or
purchase would result in the issuance of a fraction of a share of Common
Stock, the Corporation shall, in lieu of issuing any fractional share, either
round up the number of shares to the next highest whole number or, at the
Corporation's option, pay the holder otherwise entitled to such fraction a
sum in cash equal to the fair market value of such fraction on the Conversion
Date (as determined in good faith by the Board of Directors of the
Corporation).
(h) REORGANIZATION, MERGER OR GOING PRIVATE. In case of
any reorganization or any reclassification of the capital stock of the
Corporation or any consolidation or merger of the Corporation with or into
any other corporation or corporations or a sale or transfer of all or
substantially all of the assets of the Corporation to any other person or a
"going private" transaction under Rule 13e-3 promulgated pursuant to the
Exchange Act, then, as part of such reorganization, consolidation, merger, or
transfer if the holders of shares of Common Stock receive any publicly traded
securities as part or all of the consideration for such reorganization,
consolidation, merger or sale, then it shall be a condition precedent of any
such event or transaction that provision shall be made such that each
Preferred Share shall thereafter be convertible into such new securities at a
conversion price and pricing formula which places the holders of Preferred
Shares in an economically equivalent position as they would have been if not
for such event. In addition to the foregoing, if the holders of shares of
Common Stock receive any non-publicly traded securities or other property or
cash as part or all of the
<PAGE>
consideration for such reorganization, consolidation, merger or sale, then
such distribution shall be treated to the extent thereof as a distribution
under Section 5(c) above and such Section shall also apply to such
distribution.
(i) LIMITATIONS ON HOLDER'S RIGHT TO CONVERT.
(i) Notwithstanding anything to the contrary
contained herein, the number of shares of Common Stock that may be
acquired by the holder upon conversion pursuant to the terms hereof
shall not exceed a number that, when added to the total number of
shares of Common Stock deemed beneficially owned by such holder (other
than by virtue of the ownership of securities or rights to acquire
securities that have limitations on the holder's right to convert,
exercise or purchase similar to the limitation set forth herein),
together with all shares of Common Stock deemed beneficially owned by
the holder's "affiliates" (as defined in Rule 144 of the Act)
("AGGREGATION PARTIES") that would be aggregated for purposes of
determining whether a group under Section 13(d) of the Securities
Exchange Act of 1934 as amended, exists, would exceed 9.99% of the
total issued and outstanding shares of the Common Stock (the
"RESTRICTED OWNERSHIP PERCENTAGE"); PROVIDED that (w) each holder shall
have the right at any time and from time to time to reduce its
Restricted Ownership Percentage immediately upon notice to the
Corporation and (x) each holder shall have the right (subject to
waiver) at any time and from time to time, to increase its Restricted
Ownership Percentage immediately in the event of the announcement as
pending or planned, of a transaction or event referred to in Section
5(m) below.
(ii) Each time (a "COVENANT TIME") the holder or an
Aggregation Party makes a Triggering Acquisition (as defined below) of
shares of Common Stock (the "TRIGGERING SHARES"), the holder will be
deemed to covenant that it will not, during the balance of the day on
which such Triggering Acquisition occurs, and during the 61-day period
beginning immediately after that day, acquire additional shares of
Common Stock pursuant to rights-to-acquire existing at that Covenant
Time, if the aggregate amount of such additional shares so acquired
(without reducing that amount by any dispositions) would exceed (x)
9.99% of the number of shares of Common Stock outstanding at that
Covenant Time (including the Triggering Shares) minus (y) the number of
shares of Common Stock actually owned by the holder at that Covenant
Time (regardless of how or when acquired, and including the Triggering
Shares). A "TRIGGERING ACQUISITION" means the giving of a Conversion
Notice or any other acquisition of Common Stock by the holder or an
Aggregation Party; PROVIDED, however, that with respect to the giving
of such Conversion Notice, if the associated issuance of shares of
Common Stock does not occur, such event shall cease to be a Triggering
Acquisition and the related covenant under this paragraph shall
terminate. At each Covenant Time, the holder shall be deemed to waive
any right it would otherwise have to acquire shares of Common Stock to
the extent that such acquisition would violate any covenant given by
the holder under this paragraph. Notwithstanding anything to the
contrary in the Transaction Documents, in the event of a conflict
between any covenant given under this paragraph and any obligation of
the holder to convert Preferred Shares pursuant to the Transaction
Documents, the former shall supersede the latter, and the latter shall
be reduced accordingly. For the avoidance of doubt:
<PAGE>
(A) The covenant to be given pursuant to this
paragraph will be given at every Covenant
Time and shall be calculated based on the
circumstances then in effect. The making of
a covenant at one Covenant Time shall not
terminate or modify any prior covenants.
(B) The holder may therefore from time to time
be subject to multiple such covenants, each
one having been made at a different Covenant
Time, and some possibly being more
restrictive than others. The holder must
comply with all such covenants then in
effect.
(iii) OVERALL LIMIT ON COMMON STOCK ISSUABLE.
Notwithstanding anything contained herein to the contrary, the number
of shares of Common Stock issuable by the Company and acquirable by the
holders hereunder, together with such shares issuable by the Company
and acquirable by the holders under the Warrants and Options, shall not
exceed 19.99% of the shares of Common Stock outstanding on the Closing
Date, subject to appropriate adjustment for stock splits, stock
dividends, or other similar recapitalizations affecting the Common
Stock (the "MAXIMUM COMMON STOCK ISSUANCE"), unless the issuance of
such shares in excess of the Maximum Common Stock Issuance shall first
be approved by the Company's shareholders in accordance with applicable
law and the By-laws and Articles of Incorporation of the Company. The
Company agrees that if at any point in time (the "Trigger Date") the
number of Common Shares issued pursuant to conversion of the Preferred
Shares and exercise of the Warrants and Options, together with the
number of Common Shares that would then be issuable by the Company in
the event of conversion of all the Preferred Shares and exercise of all
the Warrants and Options then outstanding, would exceed the Maximum
Common Stock Issuance but for this Section 5(i)(iii), then the Company
shall promptly call a shareholders meeting to obtain shareholder
approval for the issuance of Common Shares hereunder in excess of the
Maximum Common Stock Issuance. If such shareholder approval is not
obtained within 60 days of the Trigger Date, then each holder of
Preferred Shares shall have the right to sell to the Company such
number of Preferred Shares, Warrants and Options which cannot be
converted or exercised due to such Maximum Common Stock Issuance
limitation at a redemption price equal to the "Mandatory Repurchase
Price" (as defined in the Registration Rights Agreement).
(j) CERTIFICATE FOR CONVERSION PRICE ADJUSTMENT. The
Corporation shall promptly furnish or cause to be furnished to each holder a
certificate prepared by the Corporation setting forth any adjustments or
readjustments of the Conversion Price pursuant to this Section 5.
(k) SPECIFIC ENFORCEMENT. The Corporation agrees that
irreparable damage would occur in the event that any of the provisions of these
Articles of Amendment were not performed in accordance with their specific terms
or were otherwise breached. It is accordingly agreed that the holders of
Preferred Shares shall be entitled to specific performance, injunctive relief or
other equitable remedies to prevent or cure breaches of the provisions of these
Articles of Amendment and to enforce specifically the terms and provisions
hereof, this being in addition to any other remedy to which any of them may be
entitled under agreement, at law or in equity.
<PAGE>
(l) MANDATORY REPURCHASE. Notwithstanding anything
contained in Section 5(h) hereof, each holder of Preferred Shares shall have
the unilateral option and right to compel the Corporation to repurchase any
or all of such holder's Preferred Shares by delivering a written notice
requiring such repurchase, at a price per Preferred Share equal to the
Mandatory Repurchase Price, if at any time and from time to time there is an
announcement or public disclosure that any of the following transactions or
events involving or affecting the Corporation is expected to occur or any of
the following transactions or events occurs; provided, that payment of the
Mandatory Repurchase Price shall be subject to and conditioned upon the
consummation or occurrence of such transaction or event, and such payment of
the Mandatory Repurchase Price shall be a condition precedent of any such
transaction or occurrence:
(i) A Change in Control Transaction (as defined
below);
(ii) A "going private" transaction under Rule 13e-3
promulgated pursuant to the Exchange Act; or
(iii) A tender offer by the Corporation under Rule
13e-4 promulgated pursuant to the Exchange Act.
A "Change in Control Transaction" will be deemed
to exist if (i) there occurs any consolidation or merger of the Corporation
with or into any other corporation or other entity or person (whether or not
the Corporation is the surviving corporation), or any other corporate
reorganization or transaction or series of related transactions in which in
excess of 50% of the Corporation's voting power is transferred through a
merger, consolidation, tender offer or similar transaction, (ii) any person
(as defined in Section 13(d) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), together with its affiliates and associates
(as such terms are defined in Rule 405 under the Securities Act of 1933, as
amended (the "Act")), beneficially owns or is deemed to beneficially own (as
described in Rule 13d-3 under the Exchange Act without regard to the 60-day
exercise period) in excess of 50% of the Corporation's voting power, (iii)
there is a replacement of more than one-half of the members of the
Corporation's Board of Directors which is not approved by those individuals
who are members of the Corporation's Board of Directors on the date thereof,
in one or a series of related transactions or (iv) a sale or transfer of all
or substantially all of the assets of the Corporation, determined on a
consolidated basis.
(m) MANDATORY CONVERSION.
(x) Subject to subsections (m)(y) and (m)(z) below, the
Preferred Shares shall be automatically converted into Common Shares on
the two (2) year anniversary of the Closing Date (the "Mandatory
Conversion Date"); provided, however, that such Mandatory Conversion
Date shall be deferred, at the sole option of a holder of Preferred
Shares, for such number of days as is equal to 1.5 times the number of
days (A) there is a lack of Effective Registration (as defined below),
but not including the first 90 days after the Closing; (B) there is not
a sufficient amount of Common Stock available for conversion of all
outstanding Preferred Shares and exercise of all the Warrants and
Options; (C) for any other reason the Corporation refuses or announces
its refusal to honor conversion of Preferred Shares or exercise of the
Warrants or Options; or (D) for
<PAGE>
any other reason there is a suspension, restriction or limitation in
the ability of holders of Preferred Shares, Warrants or Options to
sell Common Shares received upon conversion of Preferred Shares or
exercise of the Warrants or Options pursuant to the prospectus
included in the Registration Statement (as defined in the
Registration Rights Agreement).
For purposes of the preceding paragraph, a
lack of Effective Registration shall be deemed to have occurred at any
time the Common Shares issuable upon conversion of the Preferred Shares
or exercise of the Warrants or Options are not capable of being sold on
an Approved Market (as defined in the Purchase Agreement) pursuant to
an effective registration statement and deliverable prospectus.
(y) Notwithstanding the preceding subsection
(m)(x), no holder of Preferred Shares shall be obligated to convert
any Preferred Shares held by such holder on the Mandatory Conversion
Date (and there shall be no automatic conversion) unless and until
each of the following conditions has been satisfied or exists, each
of which shall be a condition precedent to any such forced
conversion:
(A) no material default or breach exists
which has not been cured, and no event shall have
occurred which constitutes (or would constitute with
notice or the passage of time or both) a material
default or breach of the Purchase Agreement, the
Registration Rights Agreement, the Warrants, the
Options or these Articles of Amendment, which has not
been cured;
(B) none of the events described in clauses
(i) through (iv) of Section 2(b) of the Registration
Rights Agreement shall have occurred and be
continuing;
(C) the Registration Statement (as defined
in the Registration Rights Agreement) is effective
and holders have received unlegended certificates
representing Common Shares with respect to all
conversions for which Conversion Notices have been
given and with respect to all exercises of Warrants
and Options for which Notices or Exercise have been
given; and
(D) the Corporation and its subsidiaries on
a consolidated basis has assets with a net realizable
fair market value exceeding its liabilities and is
able to pay all its debts as they become due in the
ordinary course of business, and the Corporation is
not subject to any liquidation, dissolution or
winding up of its affairs, or any bankruptcy,
insolvency or similar proceeding.
(z) Notwithstanding Section 5(m)(x) above, no
holder's Preferred Shares shall be subject to mandatory conversion
to the extent such mandatory conversion would result in the holder
of Preferred Shares exceeding any of the limitations contained in
Section 5(i) above. In such event, the Preferred Shares of such
holder shall be converted in such amount until such limitation is
reached, and the remaining Preferred
<PAGE>
Shares shall be purchased by the Corporation at the Mandatory
Redemption Price (as defined in the Registration Rights Agreement).
Such forced conversion shall be subject to and
governed by all the provisions relating to voluntary conversion of the
Preferred Shares contained herein.
6. VOTING RIGHTS. In addition to all other requirements imposed by
Iowa law, and all other voting rights granted under the Corporation's
Articles of Incorporation, the affirmative vote of two-thirds in interest of
the Corporation's outstanding Preferred Shares shall be necessary for (i) any
amendment, modification or repeal of the provisions contained in these
Articles of Amendment (whether by merger, consolidation or otherwise) or for
any merger, reclassification, consolidation or reorganization, or (ii) any
other amendment to the Articles of Incorporation or the by-laws of the
Corporation that may amend or change or adversely affect any of the rights,
preferences, or privileges of the Preferred Shares, provided, however, that
holders of Preferred Shares (other than the Investor under the Purchase
Agreement and their affiliates) who are affiliates of the Corporation (and
the Corporation itself) shall not participate in such vote and the Preferred
Shares of such holders shall be disregarded and deemed not to be outstanding
for purposes of such vote.
7. NOTICES. The Corporation shall distribute to the holders of
Preferred Shares copies of all notices, materials, annual and quarterly
reports, proxy statements, information statements and any other documents
distributed generally to the holders of shares of Common Stock of the
Corporation, at such times and by such method as such documents are
distributed to such holders of such Common Stock.
8. REPLACEMENT CERTIFICATES. The certificate(s) representing the
Preferred Shares held by any holder of Preferred Shares may be exchanged by
such holder at any time and from time to time for certificates with different
denominations representing an equal aggregate number of Preferred Shares, as
reasonably requested by such holder, upon surrendering the same. No service
charge will be made for such registration or transfer or exchange. Upon
receipt by the Corporation of evidence reasonably satisfactory to it of the
loss, theft, destruction or mutilation of any stock certificate representing
the Preferred Shares and, in the case of loss, theft or destruction, of
indemnity reasonably satisfactory to it, or upon surrender and cancellation
of such stock certificate if mutilated, the Corporation will make and deliver
a new stock certificate of like tenor and dated as of such cancellation at no
charge to the holder.
9. ATTORNEYS' FEES. In connection with enforcement by a holder of
Preferred Shares of any obligation of the Corporation hereunder, the
prevailing party shall be entitled to recovery of reasonable attorneys' fees
and expenses incurred.
10. NO REISSUANCE. No Preferred Shares acquired by the Corporation
by reason of redemption, purchase, conversion or otherwise shall be reissued.
<PAGE>
11. SEVERABILITY OF PROVISIONS. If any right, preference or
limitation of the Preferred Shares set forth in these Articles of Amendment
or Articles of Incorporation (as either is amended from time to time) is
invalid, unlawful or incapable of being enforced by reason of any rule or law
or public policy, all other rights, preferences and limitations set forth in
these Articles of Amendment or Articles of Incorporation, which can be given
effect without the invalid, unlawful or unenforceable right, preference or
limitation shall nevertheless remain in full force and effect, and no right,
preference or limitation herein set forth be deemed dependent upon any such
other right, preference or limitation unless so expressed herein.
12. LIMITATIONS. Except as may otherwise be required by law and as
are set forth in the Purchase Agreement and the Registration Rights
Agreement, the Preferred Shares shall not have any powers, preference or
relative participating, optional or other special rights other than those
specifically set forth in these Articles of Amendment (as may be amended from
time to time) or otherwise in the Articles of Incorporation of the
Corporation.
C. The date of adoption of these Articles of Amendment is April 19, 2000.
D. These Articles of Amendment was duly adopted by the Board of
Directors of the Corporation without shareholder action, and shareholder
action was not required pursuant to authority expressly vested in the Board
of Directors of the Corporation by Article V of the Restated and Amended
Articles of Incorporation of the Corporation.
Signed on April 19, 2000
MICROWARE SYSTEMS CORPORATION
By: /s/ Kenneth B. Kaplan
Name: Kenneth B. Kaplan
Title: President
By: /s/ George E. Leonard
Name: /s/ George E. Leonard
Title: Secretary
<PAGE>
EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT ("AGREEMENT") dated as of April
19, 2000 between Microware Systems Corporation, an Iowa corporation (the
"COMPANY"), and Elliott Associates, L.P., a Delaware limited partnership, and
Westgate International, L.P., a Cayman Islands limited partnership (individually
and collectively, the "INVESTOR").
W I T N E S S E T H:
WHEREAS, the Company desires to sell and issue to the
Investor, and the Investor wishes to purchase from the Company (i) an aggregate
of 3,500 shares of the Company's Series I Preferred Stock, liquidation
preference $1,000 per share (all of such shares being the "PREFERRED SHARES"),
having the rights, designations and preferences set forth in the Articles of
Amendment to the Articles of Incorporation (the "CERTIFICATE") in the form of
EXHIBIT A attached hereto, on the terms and conditions set forth herein, which
Preferred Shares shall be convertible into Common Stock (as defined below) upon
submission of a Conversion Notice (as defined below), (ii) warrants (the
"WARRANTS") in the form of EXHIBIT B attached hereto to purchase up to an
aggregate of 87,500 Common Shares (as defined below), and (iii) options (the
"OPTIONS") in the form of EXHIBIT C attached hereto to purchase shares ("OPTION
SHARES") of Common Stock (as defined below) for an aggregate purchase price of
up to $3,000,000; and
WHEREAS, the Preferred Shares will be convertible into shares
("COMMON SHARES") of common stock, no par value, of the Company ("COMMON
STOCK"), pursuant to the terms of the Certificate, and the Investor will have
registration rights with respect to the Common Shares issuable upon conversion
of the Preferred Shares and/or exercise of the Warrants and the Option Shares,
pursuant to the terms of that certain Registration Rights Agreement to be
entered into between the Company and the Investor substantially in the form of
EXHIBIT D hereto ("REGISTRATION RIGHTS AGREEMENT");
NOW, THEREFORE, in consideration of the foregoing premises and
the covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
ARTICLE I
PURCHASE AND SALE OF PREFERRED SHARES
Section 1.1 ISSUANCE OF PREFERRED SHARES AND WARRANTS. Upon the
following terms and conditions, the Company shall issue and sell to the
Investor, and the Investor shall purchase from the Company, the number of
Preferred Shares, Warrants and Options indicated next to the Investor's name on
SCHEDULE I attached hereto.
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Page 2
Section 1.2 PURCHASE PRICE. The purchase price for the Preferred
Shares, Warrants and Options to be acquired by the Investor (the "PURCHASE
PRICE") shall be the Purchase Price set forth next to the Investor's name on
SCHEDULE I.
Section 1.3 THE CLOSING.
(a) TIMING. Subject to the fulfillment or waiver of the conditions
set forth in Article V hereof, the purchase and sale of the Preferred Shares,
Warrants and Options shall take place at a closing (the "CLOSING"), on or
about April 19, 2000 or such other date as the Investor and the Company may
agree upon (the "CLOSING DATE").
(b) FORM OF PAYMENT. Each Investor shall pay its respective purchase
price for the Preferred Shares, Warrants and Options by wire transfer to the
account or accounts designated by the Company upon delivery by the Company to
the Investors' counsel of the applicable Preferred Shares, Warrants and Options
and upon satisfaction of the other conditions to the Closing. In addition, each
party shall deliver all documents, instruments and writings required to be
delivered by such party pursuant to this Agreement at or prior to the Closing.
Section 1.5 WARRANTS AND OPTIONS EXCHANGE. The Company agrees that
within ten (10) business days after the exercise price under the Warrants and
Options has been determined or adjusted pursuant to the terms thereof or of
the Transaction Documents (as defined below), it shall deliver to each
Investor (or then holder of Warrants and Options) new Warrants and Options in
exchange for the Warrants and Options issued on the Closing Date or
thereafter which are identical in all respects except that the then fixed
exercise price under the Warrants and Options shall be appropriately
specified in the Warrants and Options, and the Warrants and Options shall
specify the fixed number of Warrant Shares or dollar amount of Option Shares
into which the Warrants and Options, respectively, are then exercisable. Such
changes are intended not as amendments to the Warrants or Options but only as
clarification of the foregoing numbers for convenience purposes, and such
changes shall not affect any provisions concerning adjustments to the
exercise price or number or amount of Warrant Shares or Option Shares
contained therein. The Options and Warrants shall be marked "cancelled" and
returned to the Company by the Investor or holder thereof within 5 business
days of receipt of the new Options and Warrants.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
Section 2.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company hereby makes the following representations and warranties to the
Investor as of the date hereof and the Closing Date:
(a) ORGANIZATION AND QUALIFICATION; MATERIAL ADVERSE
EFFECT. The Company is a corporation duly incorporated and existing in good
standing under the laws of the State of Iowa and has the requisite corporate
power to own its properties and to carry on its business as now being
conducted. The Company does not have any subsidiaries other than the
subsidiaries listed on SCHEDULE 2.1(a) attached hereto ("SUBSIDIARIES").
Except where specifically indicated
<PAGE>
Page 3
to the contrary, all references in this Agreement to subsidiaries shall be
deemed to refer to all direct and indirect subsidiaries of the Company. The
Company is duly qualified as a foreign corporation to do business and is in
good standing in every jurisdiction in which the nature of the business
conducted or property owned by it makes such qualification necessary other
than those in which the failure so to qualify would not have a Material
Adverse Effect. The Company is qualified to do business as a foreign
corporation in the jurisdictions set forth in SCHEDULE 2.1(a). "MATERIAL
ADVERSE EFFECT" means any adverse effect on the business, operations,
properties, prospects or financial condition of the Company and its
subsidiaries, if any, and which is (either alone or together with all other
adverse effects) material to the Company and its Subsidiaries, if any, taken
as a whole, and any material adverse effect on the transactions contemplated
under this Agreement, the Certificate and the Registration Rights Agreement,
or any other agreement or document contemplated hereby or thereby.
(b) AUTHORIZATION; ENFORCEMENT. (i) The Company has all
requisite corporate power and authority to enter into and perform this
Agreement, the Certificate, the Registration Rights Agreement, the Warrants
and the Options ("TRANSACTION DOCUMENTS") and to issue the Preferred Shares,
Options and Warrants in accordance with the terms hereof, (ii) the execution
and delivery of this Agreement, the Registration Rights Agreement, the
Warrants and the Options by the Company and the consummation by it of the
transactions contemplated hereby and thereby, including the issuance of the
Preferred Shares, Options and Warrants and the resolutions contained in the
Certificate, have been duly authorized by all necessary corporate action, and
no further consent or authorization of the Company or its Board of Directors
(or any committee or subcommittee thereof) or stockholders is required, (iii)
this Agreement, the Registration Rights Agreement, the Warrants and the
Options have been duly executed and delivered by the Company, (iv) this
Agreement, the Certificate, the Registration Rights Agreement, the Warrants
and the Options constitute valid and binding obligations of the Company
enforceable against the Company in accordance with their terms, except (A) as
such enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, liquidation or similar laws relating to, or
affecting generally the enforcement of creditors' rights and remedies or by
other equitable principles of general application, and (B) to the extent the
indemnification provisions contained in this Agreement and the Registration
Rights Agreement may be limited by applicable federal or state securities
laws and (v) the Preferred Shares, the Warrants, the Common Shares issuable
upon the conversion and/or exercise thereof and the Options and Option Shares
have been duly authorized, and upon issuance thereof and payment therefor in
accordance with the terms of this Agreement, the Preferred Shares, the
Warrants, the Common Shares issuable upon the conversion and/or exercise
thereof and the Option and Option Shares will be validly issued, fully paid
and non-assessable, free and clear of any and all liens, claims and
encumbrances.
(c) CAPITALIZATION. As of the date hereof, the authorized
capital stock of the Company consists of (i) 50,000,000 shares of Common
Stock, of which as of the date hereof, 15,186,800 shares are issued and
outstanding, 2,342,850 shares are issuable and reserved for issuance pursuant
to the Company's stock option and purchase plans, and 1,248,736 shares are
issuable and reserved for issuance pursuant to securities exercisable or
exchangeable for, or convertible into, shares of Common Stock, and (ii)
500,000 shares of preferred stock, no par value, of which as of the date
hereof, no shares are currently designated other than the Series I Preferred
Stock and no shares are issued and outstanding. All of such outstanding
shares have
<PAGE>
Page 4
been, or upon issuance will be, validly issued, fully paid and nonassessable.
As of the date hereof, except as disclosed in SCHEDULE 2.1(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 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 Securities Act of 1933, as amended ("SECURITIES ACT" or
"1933 ACT") (except the Registration Rights Agreement and except as set forth
on SCHEDULE 2.1(c)), (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)
there are no securities or instruments containing anti-dilution or similar
provisions that will be triggered by the issuance of the Preferred Shares,
the Options, the Option Shares or the Warrants as described in this
Agreement, the Certificate or the Warrants 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 Investor true
and correct copies of the Company's ARTICLES 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 or exchangeable into or exercisable for
Common Stock and the material rights of the holders thereof in respect
thereto.
(d) ISSUANCE OF SHARES. Upon issuance in accordance with
this Agreement and the Certificate, the Preferred Shares, Options, Option
Shares, Warrants and Common Shares will be validly issued, fully paid and
nonassessable and free from all taxes, liens and charges with respect to the
issue thereof.
(e) NO CONFLICTS. The execution, delivery and performance
of the Transaction Documents by the Company and the consummation by the
Company of the transactions contemplated hereby and thereby and issuance of
the Preferred Shares, the Options, the Option Shares, the Warrants and the
Common Shares underlying the Preferred Shares or the Warrants 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 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
United States federal and state securities laws and regulations and the rules
and regulations of the Nasdaq National Market ("PRINCIPAL MARKET") or
principal securities exchange or trading market on which the Common Stock is
traded or listed) applicable
<PAGE>
Page 5
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. Neither the
Company nor its Subsidiaries is in violation of any term of, or in default
under, (x) its certificate of incorporation, any certificate of designations,
preferences and rights of any outstanding series of preferred stock or
By-laws or their organizational charter or by-laws, respectively, (y) any
material contract, agreement, mortgage, indebtedness, indenture, instrument,
or (z) any judgment, decree or order or any statute, rule or regulation
applicable to the Company or its Subsidiaries, the non-compliance with which
(in the case of (z) only), would be material to the Company or its
Subsidiaries or interfere with the performance of its obligations under the
Transaction Documents. 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, 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 issuance of the Preferred
Shares, the Options, the Option Shares, the Warrants and the Common Shares
underlying the Preferred Shares or the Warrants in accordance with the terms
hereof or thereof. 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 complies with and is not in violation of the listing
requirements of the Principal Market 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
Principal Market in the foreseeable future.
(f) SEC DOCUMENTS; FINANCIAL STATEMENTS. Since December
31, 1998, 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 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 Investor or its
representatives true and complete copies of any SEC Documents that were not
filed electronically via EDGAR. As of 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 other written information provided by or on behalf of the
Company to the Investor which is not included in the SEC Documents,
including, without limitation, information referred to in
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Page 6
Section 2.2(b) of this Agreement, 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.
(g) ABSENCE OF CERTAIN CHANGES. Except as disclosed on
Schedule 2.1(g), since December 31, 1998 there has been no adverse change or
adverse development in the business, properties, assets, operations,
financial condition, prospects, liabilities or results of operations of the
Company or its Subsidiaries which has had or, to the knowledge of the Company
or its Subsidiaries, is reasonably likely to have a Material Adverse Effect.
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 its Subsidiaries have any knowledge or reason to believe that its
creditors intend to initiate involuntary bankruptcy proceedings.
(h) ABSENCE OF LITIGATION. Except as disclosed on SCHEDULE
2.1(h), 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 which individually and in the aggregate, respectively, would be
reasonably likely to result in liability to the Company in excess of $50,000
and $100,000, respectively.
(i) ACKNOWLEDGMENT REGARDING INVESTOR'S PURCHASE OF
SHARES. The Company acknowledges and agrees that the Investor is acting
solely in the capacity of arm's length purchaser with respect to the
Transaction Documents and the transactions contemplated hereby and thereby.
The Company further acknowledges that the Investor 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 transactions contemplated
hereby and thereby, and any advice given by the Investor or any of its
respective representatives or agents in connection with the Transaction
Documents and the transactions contemplated hereby and thereby is merely
incidental to the Investor's purchase of the Preferred Shares. The Company
further represents to the Investor 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 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 an issuance
and sale by the Company of its Common Stock and which has not been publicly
disclosed.
(k) NO INSIDE INFORMATION. Neither the Company nor any of
its Subsidiaries or any of their officers, directors, employees or agents
have provided any Investor with any material, nonpublic information which was
not publicly disclosed prior to the date hereof, and the Company shall not,
and shall cause its Subsidiaries and their officers, directors, employees or
<PAGE>
Page 7
agents not to, provide any Investor with any material non-public information
unless requested in writing by such Investor.
(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 cause this
offering of Preferred Shares, Options and Warrants to the Investor to be
integrated with prior offerings by the Company for purposes of the 1933 Act
or any applicable shareholder approval provisions, including, without
limitation, under the rules and regulations of the Principal Market or other
Approved Market, nor will the Company or any of its Subsidiaries take any
action or steps that would cause the offering of the Preferred Shares,
Options and Warrants to be integrated with other offerings.
(m) EMPLOYEE RELATIONS. Neither the Company nor any of its
Subsidiaries is involved in any labor dispute nor, to the knowledge of the
Company or any of its Subsidiaries, is any such dispute threatened, the
effect of which would be reasonably likely to result in a Material Adverse
Effect. Neither the Company nor any of its Subsidiaries is a party to a
collective bargaining agreement. The Company and its Subsidiaries believe
that relations between the Company and its Subsidiaries and their respective
employees are good. No executive officer (as defined in Rule 501(f) of the
1933 Act) whose departure would be adverse to the Company 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. 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 (2) years from the date of this Agreement. Except as disclosed on
SCHEDULE 2.1(n), the Company and its Subsidiaries do not have any knowledge
of any infringement by the Company or its Subsidiaries of trademark, trade
name rights, patents, patent rights, copyrights, inventions, licenses,
service names, service marks, service mark registrations, trade secret or
other similar rights of others, or of any such development of similar or
identical trade secrets or technical information by others, and 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. 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
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Page 8
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 where such noncompliance or failure to receive permits, licenses or
approvals referred to in clauses (i), (ii) or (iii) above could have,
individually or in the aggregate, 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
2.1(p) or such as do not materially and adversely affect the value of such
property and do not interfere with the use made and proposed to 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 material certificates, authorizations and permits issued by the
appropriate federal, state or foreign regulatory authorities, necessary to
conduct their respective businesses, and neither the Company nor any such
Subsidiary has received any notice of proceedings relating to the revocation
or modification of any such certificate, authorization or permit.
(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) FOREIGN CORRUPT PRACTICES ACT. Neither the Company,
nor any director, officer, agent, employee or other person acting on behalf
of the Company or any Subsidiary has, in the course of acting for, or on
behalf of, the Company, directly or indirectly used any corporate funds for
any unlawful contribution, gift, entertainment or other unlawful expenses
<PAGE>
Page 9
relating to political activity; directly or indirectly made any direct or
indirect unlawful payment to any foreign or domestic government official or
employee from corporate funds; violated or is in violation of any provision
of the U.S. Foreign Corrupt Practices Act of 1977, as amended, or any similar
treaties of the United States; or directly or indirectly made any bribe,
rebate, payoff, influence payment, kickback or other unlawful payment to any
foreign or domestic government or party official or employee.
(u) TAX STATUS. The Company and each of its Subsidiaries
has made or filed all United States federal and state income and all other
tax returns, reports and declarations required by any jurisdiction to which
it is subject and (i) has paid all taxes and other governmental assessments
and charges, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith and (ii) has set
aside on its books provisions reasonably adequate for the payment of all
taxes for periods subsequent to the periods to which such returns, reports or
declarations apply. There are no unpaid taxes claimed to be due by the taxing
authority of any jurisdiction, and the Company is not aware of any basis for
any such claim.
(v) CERTAIN TRANSACTIONS. Except as set forth in the SEC
Documents filed on EDGAR at least thirty (30) Trading 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 2.1(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 Option Shares issuable upon exercise of the
Option and Common Shares issuable upon conversion of Preferred Shares and
exercise of the Warrants will increase in certain circumstances. The Company
further acknowledges that, subject to such limitations as are expressly set
forth in the Transaction Documents, its obligation (x) to issue Option Shares
upon exercise of the Options and (y) to issue Common Shares upon conversion
of Preferred Shares and exercise of the Warrants, is absolute and
unconditional regardless of the dilutive effect that such issuance may have
on the ownership interests of other shareholders of the Company.
(x) APPLICATION OF TAKEOVER PROTECTIONS. There are no
anti-takeover provisions contained in the Company's Certificate of
Incorporation or other organizational document or at law or otherwise which
will be triggered as a result of the transactions contemplated by this
Agreement, including, without limitation, the Company's issuance of the
Common Shares or Option Shares and the Investor's ownership of the Common
Shares.
(y) RIGHTS PLAN. Neither the Company nor any of its
Subsidiaries has adopted a shareholder or rights plan or similar arrangement
relating to accumulations of beneficial
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ownership of Common Stock or a change in control of the Company. The Company
confirms that no provision of such plan will, under any present or future
circumstances, delay, prevent or interfere with the performance of any of the
Company's obligations under the Transaction Documents and such plan will not
be "triggered" by such performance.
(z) MARKET CAPITALIZATION. As of the date hereof, the
aggregate market value of the voting common equity of the Company held by
non-affiliates of the Company is greater than $40 million.
(aa) OBLIGATIONS ABSOLUTE. Each of the Company and the
Investor agrees that, subject only to the conditions, qualifications and
exceptions (if any) specifically set forth in the Transaction Documents, its
obligations under the Transaction Documents are unconditional and absolute.
Except to the extent (if any) specifically set forth in the Transaction
Documents, each party's obligations thereunder are not subject to any right
of set off, counterclaim, delay or reduction.
(bb) ISSUANCE OF COMMON SHARES. The Common Shares and
Option Shares are duly authorized and reserved for issuance and, upon
conversion of Preferred Shares in accordance with the Certificate, purchase
of the Option Shares pursuant to the Options or exercise of the Warrants in
accordance with the terms thereof, such Common Shares and Option Shares will
be validly issued, fully paid and non-assessable, free and clear of any and
all liens, claims and encumbrances, and the holders of such Common Shares and
Option Shares shall be entitled to all rights and preferences accorded to a
holder of Common Stock. As of the date of this Agreement and the Closing
Date, the outstanding shares of Common Stock are currently listed on the
Principal Market, and the Company is not aware of any reason that would
preclude the listing of the Option Shares and the Common Shares issuable upon
conversion of the Preferred Shares and exercise of the Warrants on the
Principal Market or the New York Stock Exchange, the American Stock Exchange
or the Nasdaq small cap market (collectively with the Principal Market, the
"APPROVED MARKETS").
(cc) FORM S-3. The Company is eligible to file the
Registration Statement (as defined in the Registration Rights Agreement) for
secondary offerings on Form S-3 (as in effect on the date of this Agreement)
under the 1933 Act and rules promulgated thereunder, and Form S-3 (as in
effect on the date of this Agreement) is permitted to be used for the
transactions contemplated hereby under the 1933 Act and rules promulgated
thereunder.
(dd) BROKERS. The Company has taken no action which would
give rise to any claim by any person for brokerage commissions, finder's fees
or similar payments by the Company or the Investor relating to this Agreement
or the transactions contemplated hereby, except for the broker's fee of
Houlihan Lokey Howard & Zukin (the "Placement Agent"), which shall be paid by
the Company out of the Closing proceeds.
Section 2.2 REPRESENTATIONS AND WARRANTIES OF THE INVESTOR. The
Investor hereby makes the following representations and warranties to the
Company as of the date hereof and the Closing Date:
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(a) ACCREDITED INVESTOR STATUS; SOPHISTICATED INVESTOR. The
Investor is an "accredited investor" as that term is defined in Rule 501(a)
of Regulation D under the 1933 Act. The Investor has such knowledge and
experience in financial and business matters that it is capable of evaluating
the merits and risks of investment in the Preferred Shares, Options, Option
Shares, Warrants and Common Shares.
(b) INFORMATION. The Investor and its advisors, if any, have
been furnished with all materials relating to the business, finances and
operations of the Company which have been requested and materials relating to
the offer and sale of the Preferred Shares, the Options, the Option Shares, the
Warrants and Common Shares which have been requested by the Investor. The
Investor 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 the Investor or its advisors, if any, or its
representatives shall modify, amend or affect the Investor's right to rely on
the Company's representations and warranties contained in Section 2.1 above. The
Investor understands that its investment in the Preferred Shares, the Options,
the Option Shares, the Warrants and Common Shares involves a high degree of
risk. The Investor 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 Preferred Shares, the Options, the Option Shares, the
Warrants and Common Shares.
(c) NO GOVERNMENTAL REVIEW. The Investor 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 Preferred
Shares, the Options, the Option Shares, the Warrants and Common Shares or the
fairness or suitability of the investment in the Preferred Shares, the Option
Shares, the Options, the Warrants and Common Shares nor have such authorities
passed upon or endorsed the merits of the offering of the Preferred Shares, the
Options, the Option Shares, the Warrants and Common Shares.
(d) LEGENDS. The Company shall issue certificates for the
Preferred Shares, the Options, the Option Shares, the Warrants and Common Shares
to the Investor without any legend except as described in Article VI below. The
Investor covenants that, in connection with any transfer of Common Shares or
Option Shares by the Investor pursuant to the registration statement
contemplated by the Registration Rights Agreement, it will comply with the
applicable prospectus delivery requirements of the 1933 Act, provided that
copies of a current prospectus relating to such effective registration statement
are or have been supplied to the Investor.
(e) AUTHORIZATION; ENFORCEMENT. Each of this Agreement and
the Registration Rights Agreement has been duly and validly authorized,
executed and delivered on behalf of the Investor and is a valid and binding
agreement of the Investor enforceable against the Investor 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. The Investor has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement and the Registration Rights Agreement and each other agreement
entered into by the parties hereto in connection with the transactions
contemplated by this Agreement.
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(f) RESIDENCY. The Investor is a resident of the jurisdiction
indicated on SCHEDULE I.
(g) NO CONFLICTS. The execution, delivery and performance of
this Agreement and the Registration Rights Agreement by the Investor and the
consummation by the Investor of the transactions contemplated hereby and thereby
will not result in a violation of the certificate of limited partnership,
limited partnership agreement, or other documents of organization of the
Investor.
(h) INVESTMENT REPRESENTATION. The Investor is purchasing the
Preferred Shares, Options and Warrants for its own account and not with a view
to distribution in violation of any securities laws. The Investor has been
advised and understands that neither the Preferred Shares, the Options, the
Warrants nor the Option Shares or shares of Common Stock issuable upon
conversion or exercise thereof have been registered under the 1933 Act or under
the "blue sky" laws of any jurisdiction and may be resold only if registered
pursuant to the provisions of the 1933 Act or if an exemption from registration
is available, except under circumstances where neither such registration nor
such an exemption is required by law. The Investor has been advised and
understands that the Company, in issuing the Preferred Shares, the Options and
Warrants, is relying upon, among other things, the representations and
warranties of the Investor contained in this Section 2.2 in concluding that such
issuance is a "private offering" and is exempt from the registration provisions
of the 1933 Act.
(i) RULE 144. The Investor understands that there is no
public trading market for the Preferred Shares, Options or Warrants, that
none is expected to develop, and that the Preferred Shares, Options and
Warrants must be held indefinitely unless and until such Preferred Shares,
Options, Warrants or Common Shares or Option Shares received upon conversion
or exercise thereof are registered under the 1933 Act or an exemption from
registration is available. The Investor has been advised or is aware of the
provisions of Rule 144 promulgated under the 1933 Act.
(j) BROKERS. The Investor has taken no action which would
give rise to any claim by any person for brokerage commissions, finder's fees
or similar payments by the Company or the Investor relating to this Agreement
or the transactions contemplated hereby except for the broker's fee of the
Placement Agent which shall be paid by the Company out of the Closing
proceeds.
(k) RELIANCE BY THE COMPANY. The Investor understands that
the Preferred Shares, Options and Warrants are being offered and sold in
reliance on a transactional exemption from the registration requirements of
Federal and state securities laws and that the Company is relying upon the
truth and accuracy of the representations, warranties, agreements,
acknowledgments and understandings of the Investor set forth herein in order
to determine the applicability of such exemptions and the suitability of the
Investor to acquire the Preferred Shares, Options and Warrants.
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ARTICLE III
COVENANTS
Section 3.1 REGISTRATION AND LISTING; EFFECTIVE REGISTRATION.
Until such time as no Preferred Shares, Options or Warrants are outstanding,
the Company will cause the Common Stock to continue at all times to be
registered under Sections 12(b) or (g) of the Exchange Act, will comply in
all material respects with its reporting and filing obligations under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and will
not take any action or file any document (whether or not permitted by the
Exchange Act or the rules thereunder) to terminate or suspend such reporting
and filing obligations. Until such time as no Preferred Shares, Options or
Warrants are outstanding, the Company shall continue the listing or trading
of the Common Stock on the Principal Market or one of the other Approved
Markets and comply in all material respects with the Company's reporting,
filing and other obligations under the bylaws or rules of the Approved Market
on which the Common Stock is listed. The Company shall cause the Common
Shares and Option Shares to be listed on the Principal Market or one of the
other Approved Markets no later than the effectiveness of the registration of
the Common Shares and Option Shares under the Act, and shall continue such
listing(s) on one of the Approved Markets, for so long as any Preferred
Shares, Options or Warrants are outstanding.
Section 3.2 CERTIFICATES ON CONVERSION. Upon any conversion by the
Investor (or then holder of Preferred Shares) of the Preferred Shares
pursuant to the Certificate, the Company shall issue and deliver to the
Investor (or holder) within three (3) trading days of the conversion date a
new certificate or certificates for the number of Preferred Shares which the
Investor (or holder) has not yet elected to convert but which are evidenced
in part by the certificate(s) submitted to the Company in connection with
such conversion (with the denominations of such new certificate(s) designated
by the Investor or holder).
Section 3.3 REPLACEMENT CERTIFICATES. The certificate(s)
representing the Preferred Shares held by any Investor (or then holder) may
be exchanged by the Investor (or such holder) at any time and from time to
time for certificates with different denominations representing an equal
aggregate number of Preferred Shares, as requested by the Investor (or such
holder) upon surrendering the same. No service charge will be made for such
registration or transfer or exchange.
Section 3.4 SECURITIES COMPLIANCE. The Company shall notify the
SEC and the Principal Market, in accordance with their requirements, of the
transactions contemplated by this Agreement, the Certificate, the Warrants,
the Options and the Registration Rights Agreement, and shall take all other
necessary action and proceedings as may be required and permitted by
applicable law, rule and regulation, for the legal and valid issuance of the
Preferred Shares, Options and Warrants hereunder and the Common Shares and
Option Shares issuable upon conversion or exercise thereof.
Section 3.5 NOTICES. The Company agrees to provide all holders of
Preferred Shares. Options and Warrants with copies of all notices and
information, including without limitation notices and proxy statements in
connection with any meetings, that are provided to the holders of
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shares of Common Stock, contemporaneously with the delivery of such notices
or information to such Common Stock holders.
Section 3.6 USE OF PROCEEDS. The Company agrees that the net
proceeds received by the Company from the sale of the Preferred Shares
hereunder and payment of the exercise price of the Warrants or Options shall
be used for legally permitted corporate purposes.
Section 3.7 RESERVATION OF SHARES; STOCK ISSUABLE UPON CONVERSION.
(a) The Company shall reserve all authorized but unissued
Series I Cumulative Convertible Preferred Stock for issuance to the Investor
pursuant to the terms of this Agreement.
(b) The Company shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, solely
for the purpose of effecting the conversion of the Preferred Shares, issuance
of the Option Shares and exercise of the Warrants, such number of its shares
of Common Stock as shall from time to time be sufficient to effect the
conversion of all Preferred Shares, issuance of all the Option Shares and
exercise of all of the Warrants, and if at any time the number of authorized
but unissued shares of Common Stock shall not be sufficient to effect the
conversion of all the then outstanding Preferred Shares and all of the then
outstanding Warrants and issuance of all of the Option Shares, the Company
will take such corporate action as may be necessary to increase its
authorized but unissued shares of Common Stock to such number of shares as
shall be sufficient for such purpose, including without limitation engaging
in best efforts to obtain the requisite shareholder approval and taking the
actions described in the Certificate. Without in any way limiting the
foregoing, the Company agrees to reserve and at all times keep available
solely for purposes of conversion of Preferred Shares, issuance of the Option
Shares and exercise of the Warrants, such number of authorized but unissued
shares of Common Stock that is at least equal to 200% of the number of Common
Shares issuable upon conversion of all Preferred Shares, issuance of all
Option Shares and exercise of all the Warrants, computed as if all Preferred
Shares are convertible at the then Conversion Price (as defined in the
Certificate), all Warrants are exercisable at the then Exercise Price (as
defined in the Warrants), and all Options are exercisable in full at the then
exercise price under the Options. If at any time the number of authorized but
unissued shares of Common Stock is not sufficient to effect such issuance,
conversion, or exercise, respectively, up to the Maximum Common Stock
Issuance (as defined in the Certificate), of the Option Shares, all the then
outstanding Preferred Shares and the Warrants, the Investor shall be entitled
to, INTER ALIA, the redemption rights provided in the Registration Rights
Agreement.
Section 3.8 BEST EFFORTS. The parties shall use their best efforts
to satisfy timely each of the conditions described in Article V of this
Agreement.
Section 3.9 FORM D; BLUE SKY LAWS. The Company agrees to file a
Form D with respect to the Preferred Shares, the Options, the Option Shares,
the Warrants and Common Shares, as required under Regulation D and to provide
a copy thereof to the Investor promptly after such filing. The Company shall,
on or before the Closing Date, take such action as the Company shall have
reasonably determined is necessary to qualify the Preferred Shares, the
Option Shares, the Warrants and Common Shares for sale to the Investor under
applicable
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securities or "blue sky" laws of the states of the United States (or to
obtain an exemption from such qualification), and shall provide evidence of
any such action so taken to the Investor on or prior to the Closing Date;
provided, however, that the Company shall not be required in connection
therewith to register or qualify as a foreign corporation in any jurisdiction
where it is not now so qualified or to take any action that would subject it
to service of process in suits or taxation, in each case, in any jurisdiction
where it is not now so subject.
Section 3.10 PUBLICITY. The Company shall, immediately upon the
Closing, issue a press release with respect to such transactions, in the form
of press release attached as EXHIBIT E hereto.
Section 3.11 SHAREHOLDER RIGHTS PLAN. None of the acquisitions of
Preferred Shares, Option Shares, Warrants or Common Shares nor the deemed
beneficial ownership of shares of Common Stock prior to, or the acquisition
of such shares pursuant to, the conversion of Preferred Shares or Option
Shares or exercise of the Warrants will in any event under any circumstances
trigger the poison pill provisions of any stockholders' rights or similar
agreements, or a substantially similar occurrence under any successor or
similar plan.
Section 3.12 FINANCIAL INFORMATION. The Company agrees to send the
following to the Investor for so long as any Preferred Shares, Options or
Warrants: (i) on the same day as the release thereof, facsimile or e-mail
copies of all press releases issued by the Company or any of its
Subsidiaries; and (ii) copies of any notices and other information made
available or given to the shareholders of the Company generally,
contemporaneously with the making available or giving thereof to the
shareholders.
Section 3.13 TRANSACTIONS WITH AFFILIATES. The Company agrees that
any transaction or arrangement between it or any of its subsidiaries and any
affiliate (excluding transactions with the Company and its wholly-owned
subsidiaries on terms consistent with customary practices of the Company) or
employee of the Company shall be effected on an arm's length basis in
accordance with customary commercial practice and, except with respect to
grants of options and stock to service providers, including employees, shall
be approved by a majority of the Company's outside directors.
Section 3.14 RIGHT OF FIRST REFUSAL ON FUTURE FINANCINGS. The
Company agrees that for a period of one year immediately following the
Closing Date, the Investors shall have a right of first refusal with respect
to all non-public capital raising transactions which constitute an MFN
Transaction or a Variable Rate Transaction (as such terms are defined below)
(each a "Financing Transaction") as set forth in this Section 3.14. The
Company shall give advance written notice to the Investors prior to any offer
or sale of any of its securities in a Financing Transaction. The Investors
shall have twenty (20) business days from receipt of such notice to deliver a
written notice to the Company that one or more of such Investors elects to
exercise its right of first refusal with respect to the entire issuance or a
part thereof. If, subsequent to the Company giving notice to the Investors
hereunder, the terms and conditions of the proposed Financing Transaction are
changed in any way, the Company shall be required to provide a new notice to
the Investors hereunder and the Investors shall have the right of refusal
again to purchase all or a portion of the securities in the offering on such
changed terms and conditions as provided hereunder. In such event, if such
other Financing Transaction provides for non-cash
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consideration, in whole or in part, from such other potential investor(s),
the Investors shall still have the right to participate in the Financing
Transaction as provided herein, provided that cash or cash equivalents may be
substituted by the Investors for such non-cash consideration. This right of
first refusal shall continue even if the Investors elect not to participate
in one or more Financing Transactions. The term "MFN Transaction" shall mean
a transaction in which the Company issues or sells any securities in a
capital raising transaction or series of related transactions (the "New
Offering") which grants to an investor (the "New Investor") the right to
receive additional shares (including without limitation as a result of a
lower conversion, exchange or exercise price) based upon subsequent
transactions of the Company on terms more favorable than those granted to
such New Investor in such New Offering. The term "Variable Rate Transaction"
shall mean a transaction in which the Company issues or sells (a) any debt or
equity securities that are convertible into, exchangeable or exercisable for,
or include the right to receive additional shares of Common Stock either (x)
at a conversion, exercise or exchange rate or other price that is based upon
and/or varies with the trading prices of or quotations for the Common Stock
at any time after the initial issuance of such debt or equity securities, or
(y) with a fixed conversion, exercise or exchange price that is subject to
being reset at some future date after the initial issuance of such debt or
equity security or upon the occurrence of specified or contingent events
directly or indirectly related to the business of the Company or the market
for the Common Stock (but excluding standard stock split anti-dilution
provisions), or (b) any securities of the Company pursuant to an "equity
line" structure which provides for the sale, from time to time, of securities
of the Company which are registered for resale pursuant to the 1933 Act.
Section 3.15 PREFERRED SHARES. After the issuance of the Preferred
Shares to the Investors hereunder, the Company shall not issue any other or
further Series I Preferred Stock or other shares of the Company's preferred
stock (other than to the Investors) until such time as none of the Preferred
Shares issued hereunder are outstanding. The Investors and the Company agree
that the Form of Conversion Notice for the Preferred Shares shall be in the
form of EXHIBIT A-1 attached hereto ("Conversion Notice").
ARTICLE IV
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 the Investor or its respective nominee(s), for the Common
Shares and Option Shares in such amounts as specified from time to time by
the Investor to the Company upon delivery of a conversion or exercise notice
(the "IRREVOCABLE TRANSFER AGENT INSTRUCTIONS"). The Company warrants that no
instruction relating to the Common Shares and Option Shares other than the
Irrevocable Transfer Agent Instructions referred to in this Article IV will
be given by the Company to its transfer agent and that the Common Shares and
Option Shares shall be freely transferable on the books and records of the
Company as contemplated by Article VI below when the legend referred to
therein may be removed. Nothing in this Article IV shall affect in any way
the Investor's obligations and agreements set forth in Section 2.2(d) to
comply with all applicable prospectus delivery requirements, if any, upon
resale of the Common Shares and Option Shares. The Company shall instruct its
transfer agent to issue one or more certificates in such name and in
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such denominations as specified by the Investor and without any restrictive
legends. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to the Investor 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 will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section, that the
Investor 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.
ARTICLE V
CONDITIONS TO CLOSINGS
Section 5.1 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE COMPANY
TO SELL THE PREFERRED SHARES, OPTIONS AND WARRANTS. The obligation hereunder
of the Company to issue and/or sell the Preferred Shares, Options and the
Warrants to the Investor at the Closing is subject to the satisfaction, at or
before the Closing, of each of the applicable conditions set forth below.
These conditions are for the Company's sole benefit and may be waived by the
Company at any time in its sole discretion.
(a) ACCURACY OF THE INVESTOR'S REPRESENTATIONS AND
WARRANTIES. The representations and warranties of the Investor will be true
and correct in all material respects as of the date when made and as of the
Closing Date.
(b) PERFORMANCE BY THE INVESTOR. The Investor shall have
performed all agreements and satisfied all conditions required to be
performed or satisfied by the Investor at or prior to the Closing, including
payment of the purchase price set forth on SCHEDULE I hereto.
(c) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement or the Registration Rights Agreement or the
Certificate.
Section 5.2 CONDITIONS PRECEDENT TO THE OBLIGATION OF THE INVESTOR
TO PURCHASE THE PREFERRED SHARES, OPTIONS AND WARRANTS. The obligation
hereunder of the Investor to acquire and pay for the Preferred Shares,
Options and Warrants at the Closing is subject to the satisfaction, at or
before the Closing, of each of the applicable conditions set forth below.
These conditions are for the Investor's benefit and may be waived by the
Investor at any time in its sole discretion.
(a) ACCURACY OF THE COMPANY'S REPRESENTATIONS AND
WARRANTIES. The representations and warranties of the Company shall be true
and correct in all material respects as of the date when made and as of the
Closing Date as though made at that time (except for representations and
warranties as of an earlier date, which shall be true and correct in all
material respects as of such date).
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(b) PERFORMANCE BY THE COMPANY. The Company shall have
performed all agreements and satisfied all conditions required to be
performed or satisfied by the Company at or prior to the Closing, including,
without limitation, delivery of certificates representing the Preferred
Shares, Options and Warrants issued to Investor.
(c) NASDAQ TRADING. From the date hereof to the Closing
Date, trading in the Company's Common Stock shall not have been suspended by
the SEC and trading in securities generally as reported by the Principal
Market (or other Approved Market) shall not have been suspended or limited,
and the Common Stock shall be listed on the Principal Market or another
Approved Market.
(d) NO INJUNCTION. No statute, rule, regulation, executive
order, decree, ruling or injunction shall have been enacted, entered,
promulgated or endorsed by any court or governmental authority of competent
jurisdiction which prohibits the consummation of any of the transactions
contemplated by this Agreement, the Warrants, the Options, the Registration
Rights Agreement or the Certificate. The NASD shall not have objected or
indicated that it may object to the consummation of any of the transactions
contemplated by this Agreement.
(e) OPINION(S) OF COUNSEL. At the Closing, the Investor
shall have received opinion(s) of counsel(s) to the Company covering the
matters set forth in EXHIBIT F attached hereto and such other opinions,
certificates and documents as the Investor or their counsel shall reasonably
require incident to the Closing.
(f) REGISTRATION RIGHTS AGREEMENT. The Company and the
Investor shall have executed and delivered the Registration Rights Agreement
in the form and substance of EXHIBIT D attached hereto.
(g) OFFICER'S CERTIFICATE. The Company shall have
delivered to the Investor a certificate in form and substance satisfactory to
the Investor and the Investor's counsel, executed by an officer of the
Company, certifying as to satisfaction of closing conditions, incumbency of
signing officers, and the true, correct and complete nature of the charter,
By-Laws, good standing and authorizing resolutions of the Company.
(h) CERTIFICATE. The Certificate shall have been accepted
for filing by the Secretary of State of the State of Iowa and a stamped copy
thereof shall have been provided to the Investor's counsel.
(i) MISCELLANEOUS. The Company shall have delivered to the
Investor such other documents relating to the transactions contemplated by
this Agreement or the Investor or its counsel may reasonable request.
ARTICLE VI
LEGEND AND STOCK
Upon payment therefor as provided in this Agreement,
the Company will issue one or more certificates representing the Preferred
Shares, Options and Warrants in the
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name the Investor or its designees and in such denominations to be specified
by the Investor prior to (or from time to time subsequent to) Closing. Each
certificate representing the Preferred Shares, Options or Warrants, the
Option Shares and any Common Shares issued upon conversion or exercise
thereof, prior to such Common Shares or Option Shares being registered under
the 1933 Act for resale or available for resale under Rule 144 under the 1933
Act, shall be stamped or otherwise imprinted with a legend substantially in
substantially the following form:
THESE SECURITIES HAVE NOT BEEN REGISTERED FOR
OFFER OR SALE UNDER THE SECURITIES ACT OF 1933 OR ANY STATE
SECURITIES LAWS. THEY MAY NOT BE SOLD OR OFFERED FOR SALE EXCEPT
PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND
ANY APPLICABLE STATE SECURITIES LAW OR AN APPLICABLE EXEMPTION FROM
SUCH REGISTRATION REQUIREMENTS.
The Company agrees to reissue Preferred Shares, Common
Shares, Option Shares or Warrants without the legend set forth above at such
time as (i) the holder thereof is permitted to dispose of such Preferred
Shares, Warrants, Option Shares and/or Common Shares issuable upon conversion
of the Preferred Shares or exercise of the Warrants pursuant to Rule 144(k)
under the Act or has disposed of such securities pursuant to Rule 144 under
the Act, or (ii) such Preferred Shares or Option Shares are sold to a
purchaser or purchasers who (in the opinion of counsel to the seller or such
purchaser(s), in form and substance reasonably satisfactory to the Company
and its counsel) are able to dispose of such shares publicly without
registration under the Act, or (iii) such securities have been registered
under the 1933 Act.
Prior to the Registration Statement (as defined in the
Registration Rights Agreement) being declared effective, any Option Shares
and any Common Shares issued pursuant to conversion of Preferred Shares or
exercise of the Options or Warrants shall bear a legend in the same form as
the legend indicated above; provided that such legend shall be removed from
the Option Shares and Common Shares and the Company shall issue new
certificates without such legend if (i) the holder has sold or disposed of
such Common Shares or Option Shares pursuant to Rule 144 under the 1933 Act,
or the holder is permitted to dispose of such Common Shares or Option Shares
pursuant to Rule 144(k) under the 1933 Act, (ii) such Common Shares or Option
Shares are registered for resale under the 1933 Act, or (iii) such Common
Shares or Option Shares are sold to a purchaser or purchasers who (in the
opinion of counsel to the seller or such purchaser(s), in form and substance
reasonably satisfactory to the Company and it counsel) are able to dispose of
such shares publicly without registration under the 1933 Act. Upon such
Registration Statement becoming effective, the Company agrees to promptly,
but no later than three (3) business days thereafter, issue new certificates
representing such Common Shares or Option Shares without such legend. Any
Common Shares or Option Shares issued after the Registration Statement has
become effective shall be free and clear of any legends, transfer
restrictions and stop orders. Notwithstanding the removal of such legend, the
Investor agrees to sell the Common Shares or Option Shares represented by the
new certificates in accordance with the applicable prospectus delivery
requirements (if copies of a current prospectus are provided to the Investor
by the Company) or in accordance with an exemption from the registration
requirements of the 1933 Act.
<PAGE>
Page 20
Nothing herein shall limit the right of any holder to
pledge these securities pursuant to a bona fide margin account or lending
arrangement entered into in compliance with law, including applicable
securities laws.
ARTICLE VII
TERMINATION
Section 7.1 TERMINATION BY MUTUAL CONSENT. This Agreement may be
terminated at any time prior to the Closing by the mutual written consent of
the Company and the Investor.
Section 7.2 OTHER TERMINATION. This Agreement may be terminated by
action of the Board of Directors of the Company or by the Investor at any
time if the Closing shall not have been consummated by the fifth business day
following the date of this Agreement; provided, however, that the party (or
parties) prepared to close shall retain its (or their) right to sue for any
breach by the other party (or parties).
ARTICLE VIII
INDEMNIFICATION
In consideration of the Investor's execution and delivery
of this Agreement and the Registration Rights Agreement and acquiring the
Preferred Shares hereunder and in addition to all of the Company's other
obligations under the Transaction Documents, the Company shall defend,
protect, indemnify and hold harmless the Investor and all of its partners,
officers, directors, employees, members and direct or indirect investors and
any of the foregoing 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 any other certificate or document
contemplated hereby or thereby, (b) any breach of any covenant, agreement or
obligation of the Company contained in the Transaction Documents or any other
certificate or document contemplated hereby or thereby, (c) any cause of
action, suit or claim brought or made against such Indemnitee by a third
party and arising out of or resulting from (i) the execution, delivery,
performance, breach by the Company or enforcement of the Transaction
Documents or any other certificate, instrument or document contemplated
hereby or thereby, (ii) any transaction financed or to be financed in whole
or in part, directly or indirectly, with the proceeds of the issuance of the
Preferred Shares or (iii) the status of the Investor or holder of the
Preferred Shares, Options or Warrants as the Investor in the Company and (d)
the enforcement of this Section. Notwithstanding the foregoing, Indemnified
Liabilities shall not include any liability of any Indemnitee arising solely
out of such Indemnitee's willful misconduct or fraudulent action(s). To the
extent that the foregoing undertaking by the Company may be
<PAGE>
Page 21
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. Except as otherwise set forth herein,
the mechanics and procedures with respect to the rights and obligations under
this Article VIII shall be the same as those set forth in Section 6 (other
than Section 6(b)) of the Registration Rights Agreement, including, without
limitation, those procedures with respect to the settlement of claims and
Company's right to assume the defense of claims.
ARTICLE IX
GOVERNING LAW, MISCELLANEOUS
Section 9.1 GOVERNING LAW. 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 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. EACH PARTY HERETO IRREVOCABLY WAIVES ANY RIGHT TO TRIAL BY JURY.
Section 9.2 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>
Page 22
Section 9.3 HEADINGS. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
Section 9.4 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.
Section 9.5 ENTIRE AGREEMENT; AMENDMENTS; WAIVERS.
(a) This Agreement supersedes all other prior oral or
written agreements between the Investor, 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 (including the other
Transaction Documents) 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 the Investor 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 Investor, and no
provision hereof may be waived other than by an instrument in writing signed
by the party against whom enforcement is sought. Any covenant or obligation
of the Company hereunder may be waived by a two-thirds vote of the
outstanding Preferred Shares, provided that no such waiver shall be deemed to
be a continuous waiver in the future or a waiver of any other provision
hereunder.
(b) The Investor may at any time elect, by notice to the
Company, to waive (whether permanently or temporarily, and subject to such
conditions, if any, as the Investor may specify in such notice) any of its
rights under any of the Transaction Documents to acquire shares of Common
Stock from the Company, in which event such waiver shall be binding against
the Investor in accordance with its terms; PROVIDED, however, that the
voluntary waiver contemplated by this sentence may not reduce the Investor's
obligations to the Company under the Transaction Documents.
Section 9.6 NOTICES. Any notices, consents, waivers or other
communications required or permitted to be given under the terms of this
Agreement must be in writing, must be delivered by (i) courier, mail or hand
delivery OR (ii) facsimile, and will be deemed to have been delivered upon
receipt. The addresses and facsimile numbers for such communications shall be:
If to the Company:
Microware Systems Corporation
1500 N.W. 118th Street
Des Moines, Iowa 50325
Telephone: (515) 223-8000
Facsimile: (515) 224-1352
Attention: Mr. Kenneth B. Kaplan, President & CEO
With a copy to:
D'Ancona & Pflaum
111 East Wacker Drive
<PAGE>
Page 23
Suite 2800
Chicago, Illinois 60601
Telephone: (312) 602-2000
Facsimile: (312) 602-3048
Attention: Arthur Don, Esq.
If to the Transfer Agent:
Norwest Bank Minnesota, N.A.
Shareholder Services
161 North Concord Exchange
South St. Paul, MN 55075
Telephone: (651) 450-4000
Facsimile: (651) 450-4078
Attention: Ms. Beverly Robinson
If to the Investor:
Elliott Associates, L.P.
c/o Stonington Management Corporation
712 Fifth Avenue
New York, New York 10019
Telephone: 212-506-2999
Facsimile: 212-974-2093 and (212) 586-9467
Attention: Mr. Brett Cohen
and
Westgate International, L.P.
c/o Stonington Management Corporation
712 Fifth Avenue
New York, New York 10019
Telephone: 212-506-2999
Facsimile: 212-974-2093 and (212) 586-9467
Attention: Mr. Brett Cohen
With a copy to:
Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue, 18th Floor
New York, New York 10176
Telephone: 212-986-6000
Facsimile: 212-986-8866
Attention: Stephen M. Schultz, Esq.
<PAGE>
Page 24
Each party shall provide five (5) days prior written notice to the
other party of any change in address, telephone number or facsimile number.
Written confirmation of receipt (A) given by the recipient of such notice,
consent, waiver or other communication, (B) mechanically or electronically
generated by the sender's facsimile machine containing the time, date,
recipient facsimile number and an image of the first page of such
transmission or (C) provided by a nationally recognized overnight delivery
service, shall be rebuttable evidence of personal service, receipt by
facsimile or receipt from a nationally recognized overnight delivery service
in accordance with clause (i), (ii) or (iii) above, respectively.
Section 9.7 SUCCESSORS AND ASSIGNS. Except as otherwise provided
herein, this Agreement shall be binding upon and inure to the benefit of the
parties and their respective successors and assigns, including any Permitted
Assignee (as defined below). The Company shall not assign this Agreement or
any rights or obligations hereunder without the prior written consent of the
Investor, including by merger or consolidation. The Investor may assign some
or all of its rights hereunder to any assignee of the Preferred Shares,
Warrants, Options, Common Shares or Option Shares who is an Accredited
Investor, as defined in Rule 501(a) under the 1933 Act (in each case, a
"PERMITTED ASSIGNEE"); PROVIDED, however, that any such assignment shall not
release the Investor 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, the Investor shall be entitled to pledge the Preferred
Shares, Options, Warrants, Option Shares or Common Shares in connection with
a bona fide margin account.
Section 9.8 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.
Section 9.9 SURVIVAL. The representations and warranties of the
Company and the Investor contained in this Agreement shall survive the
Closing until such time as no Preferred Shares, Warrants or Options are
outstanding and the Investor no longer owns any Common Shares or Option
Shares (but in no event shall such survival period be less than 2 years). The
agreements contained herein shall survive the Closing.
Section 9.10 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.
Section 9.11 PLACEMENT AGENT. The Investor and the Company each
acknowledges and warrants that it has not engaged any placement agent in
connection with the sale of the Preferred Shares, the Options and the
Warrants other than the Placement Agent, whose fees will be paid exclusively
by the Company. The Company and the Investor shall each be responsible for
the payment of any other fees or commissions of placement agents or brokers
engaged, directly or indirectly, by the Company or the Investor,
respectively, in connection with the purchase of the Preferred Shares, the
Options and the Warrants by the Investor. The Company and the Investor
<PAGE>
Page 25
shall pay, and hold the other party harmless against, any liability, loss or
expense (including, without limitation, reasonable attorneys' fees and
out-of-pocket expenses) arising in connection with any such claim.
Section 9.12 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.
Section 9.13 REMEDIES. The Investor and each Permitted Assignee
shall have all rights and remedies set forth in this Agreement and the
Registration Rights Agreement 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 or the Registration Rights
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 or the Registration Rights Agreement and
to exercise all other rights granted by law. The Investor and each Permitted
Assignee without prejudice may withdraw, revoke or suspend its pursuit of any
remedy at any time prior to its complete recovery as a result of such remedy.
Section 9.14 PAYMENT SET ASIDE. (a) To the extent that the Company
makes a payment or payments to the Investor hereunder or under the
Registration Rights Agreement or the Investor enforces or exercises its
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 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.
(b) To the extent that the Investor makes a payment or
payments to the Company hereunder or under the Registration Rights Agreement
or the Company enforces or exercises its 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 Investor, a trustee, receiver
or any other person under any law (including, without limitation, any
bankruptcy law, state or federal law, common 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.
Section 9.15 DAYS. Unless the context refers to "business days" or
"Trading Days", all references herein to "days" shall mean calendar days.
Section 9.16 RESCISSION AND WITHDRAWAL RIGHT. Notwithstanding anything
to the contrary contained in (and without limiting any similar provisions of)
the Transaction
<PAGE>
Page 26
Documents, wherever the Investor exercises a right, election, demand or
option under a Transaction Document and the Company does not fully perform
its related obligations within the periods therein provided, then the
Investor in its sole discretion may rescind or withdraw from time to time any
relevant notice, demand or election in whole or in part without prejudice to
its future actions and rights.
Section 9.17 EXPENSES. If the Closing does not occur due to the
default of or choice by the Company, the Company shall promptly reimburse
Investor for all of its out of pocket costs (including without limitation
travel expenses and legal fees) up to a total of $25,000.
* * * *
[SIGNATURE PAGE FOLLOWS]
<PAGE>
Page 27
IN WITNESS WHEREOF, the parties hereto have caused this Securities Purchase
Agreement to be duly executed as of the date and year first above written.
COMPANY: INVESTOR:
MICROWARE SYSTEMS CORPORATION WESTGATE INTERNATIONAL, L.P.
By: MARTLEY INTERNATIONAL, INC.,
as attorney-in-fact
By: /s/ Kenneth B. Kaplan By: /s/ Paul E. Singer
Name: Kenneth B. Kaplan Name: Paul E. Singer
Title: Chief Executive Officer Title: President
ELLIOTT ASSOCIATES, L.P.
By: /s/ Paul E. Singer
Name: Paul E. Singer
Title: General Partner
<PAGE>
LIST OF SCHEDULES
Schedule 2.1(a) Subsidiaries
Schedule 2.1(c) Capitalization
Schedule 2.1(g) Certain Changes
Schedule 2.1 (h) Litigation
Schedule 2.1 (n) Intellectual Property
Infringement Claims
Schedule 2.1(p) Title
Schedule I Investors
LIST OF EXHIBITS
Exhibit A Certificate
Exhibit A-1 Form of Conversion Notice
Exhibit B Warrant
Exhibit C Option
Exhibit D Registration Rights Agreement
Exhibit E Form of Press Release
Exhibit F Opinion of Counsel
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
JURISDICTION OF NUMBER OF NUMBER OF DOLLAR AMOUNT OF
INVESTOR ORGANIZATION PREFERRED SHARES WARRANTS PURCHASE PRICE OPTION SHARES
-------- ------------ ---------------- -------- -------------- -------------
<S> <C> <C> <C> <C> <C>
Elliott Associates, L.P. Delaware, U.S.A. 1,750 43,750 $1,750,000 $1,500,000
Westgate International, L.P. Cayman Islands, B.W.I. 1,750 43,750 $1,750,000 $1,500,000
</TABLE>
<PAGE>
EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement ("Agreement") is entered into as of
April 19, 2000, between Microware Systems Corporation, a Iowa corporation, with
offices at 1500 N.W. 118th Street, Des Moines, Iowa 50325 (the "Company"), and
Elliott Associates, L.P., a Delaware limited partnership, and Westgate
International, L.P., a Cayman Islands limited partnership (individually and
collectively, the "Investor").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Securities Purchase Agreement, dated
on or about the date hereof, by and between the Company and the Investor (the
"Purchase Agreement"), the Company has agreed to sell and issue to the Investor,
and the Investor has agreed to purchase from the Company, (i) an aggregate of
3,500 shares, Liquidation Preference $1,000 each, of the Company's Series I
Cumulative Convertible Preferred Stock (the "Preferred Shares"), which will be
convertible into shares (the "Common Shares") of the Company's Common Stock, no
par value per share (the "Common Stock"), pursuant to the terms and conditions
set forth in the Certificate of Designations for the Preferred Shares (the
"Certificate"), (ii) Warrants (the "Warrants") to purchase Common Shares, and
(iii) options (the "Options") to purchase Common Shares, in each case subject to
the terms and conditions set forth in the Purchase Agreement;
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in the Purchase
Agreement and this Agreement, the Company and the Investor agree as follows:
1. CERTAIN DEFINITIONS. Capitalized terms used herein and not
otherwise defined shall have the meaning ascribed thereto in the Purchase
Agreement or the Certificate. As used in this Agreement, the following terms
shall have the following respective meanings:
"Closing" and "Closing Date" shall have the meanings ascribed to such
terms in the Purchase Agreement.
"Commission" or "SEC" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities Act.
"Holder" and "Holders" shall include the Investor and any transferee or
transferees of the Preferred Shares, Warrants, Options, Common Shares or
Registrable Securities which have not been sold to the public, to whom the
registration rights conferred by this Agreement have been transferred in
compliance with this Agreement and the Purchase Agreement.
<PAGE>
Page 2
The terms "register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
"Registrable Securities" shall mean: (i) the Common Shares or other
securities issued or issuable to each Holder or its permitted transferee or
designee upon conversion of the Preferred Shares, exercise of the Warrants or
exercise of the Options; (ii) securities issued or issuable upon any stock
split, stock dividend, recapitalization or similar event with respect to such
Common Shares; and (iii) any other security issued as a dividend or other
distribution with respect to, in exchange for or in replacement of the
securities referred to in the preceding clauses.
"Registration Expenses" shall mean all expenses to be incurred by the
Company in connection with each Holder's registration rights under this
Agreement, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel for the Company, blue sky
fees and expenses, reasonable fees and disbursements of counsel to Holders
(using a single counsel selected by a majority in interest of the Holders) for
review of the Registration Statement and related documents, and the expense of
any special audits incident to or required by any such registration (but
excluding the compensation of regular employees of the Company, which shall be
paid in any event by the Company).
"Registration Statement" shall have the meaning set forth in Section
2(a) herein.
"Regulation D" shall mean Regulation D as promulgated pursuant to the
Securities Act, and as subsequently amended.
"Securities Act" or "Act" shall mean the Securities Act of 1933, as
amended.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
disbursements of counsel for Holders not included within "Registration
Expenses".
2. REGISTRATION REQUIREMENTS. The Company shall use its best
efforts to effect the registration of the Registrable Securities (including,
without limitation, the execution of an undertaking to file post-effective
amendments, appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations issued
under the Securities Act) as would permit or facilitate the sale or distribution
of all the Registrable Securities in the manner (including manner of sale) and
in all states reasonably requested by the Holder. Such best efforts by the
Company shall include, without limitation, the following:
(a) The Company shall, as expeditiously as possible after
the Closing Date:
<PAGE>
Page 3
i) But in any event within 45 days of the Closing,
prepare and file a registration statement with the
Commission pursuant to Rule 415 under the Securities Act
on Form S-3 under the Securities Act (or in the event that
the Company is ineligible to use such form, such other
form as the Company is eligible to use under the
Securities Act) covering resales by the Holders of the
Registrable Securities and no other securities except for
Common Stock held by Motorola, Inc. ("Registration
Statement"), which Registration Statement, to the extent
allowable under the Securities Act and the rules
promulgated thereunder (including Rule 416), shall state
that such Registration Statement also covers such
indeterminate number of additional shares of Common Stock
as may become issuable upon conversion of the Preferred
Shares, exercise of the Warrants and exercise of the
Options. The number of shares of Common Stock initially
included in such Registration Statement shall be no less
than the sum of two times the number of Common Shares that
are then issuable upon conversion of the Preferred Shares,
exercise of the Warrants and exercise of the Options
(assuming full conversion or exercise, respectively, at
the then applicable Conversion Price (as defined in the
Certificate) or exercise price under the Warrants or
Options, as the case may be). Nothing in the preceding
sentence will limit the Company's obligations to reserve
shares of Common Stock pursuant to Section 3.7 of the
Purchase Agreement. Thereafter the Company shall use its
best efforts to cause such Registration Statement and
other filings to be declared effective as soon as
possible, and in any event prior to 90 days following the
Closing Date. Without limiting the foregoing, the Company
will promptly respond to all SEC comments, inquiries and
requests, and shall request acceleration of effectiveness
at the earliest possible date. The Company shall provide
the Holders reasonable opportunity to review any such
Registration Statement or amendment or supplement thereto
prior to filing.
ii) Prepare and file with the SEC such amendments
and supplements to such Registration Statement and the
prospectus used in connection with such Registration
Statement as may be necessary to comply with the
provisions of the Act with respect to the disposition of
all securities covered by such Registration Statement and
notify the Holders of the filing and effectiveness of such
Registration Statement and any amendments or supplements.
iii) Furnish to each Holder such numbers of copies
of a current prospectus conforming with the requirements
of the Act, copies of the Registration Statement, any
amendment or supplement thereto and any documents
incorporated by reference therein and such other documents
as such Holder may reasonably require in order to
facilitate the disposition of Registrable Securities owned
by such Holder.
<PAGE>
Page 4
iv) Register and qualify the securities covered by
such Registration Statement under the securities or "Blue
Sky" laws of all domestic jurisdictions; provided that the
Company shall not be required in connection therewith or
as a condition thereto to qualify to do business or to
file a general consent to service of process in any such
states or jurisdictions.
v) Notify each Holder immediately of the happening
of any event (but not the substance or details of any such
events unless specifically requested by a Holder) as a
result of which the prospectus (including any supplements
thereto or thereof) included in such Registration
Statement, as then in effect, includes an untrue statement
of material fact or omits to state a material fact
required to be stated therein or necessary to make the
statements therein not misleading in light of the
circumstances then existing, and use its best efforts to
promptly update and/or correct such prospectus.
vi) Notify each Holder immediately of the issuance
by the Commission or any state securities commission or
agency of any stop order suspending the effectiveness of
the Registration Statement or the threat or initiation of
any proceedings for that purpose. The Company shall use
its best efforts to prevent the issuance of any stop order
and, if any stop order is issued, to obtain the lifting
thereof at the earliest possible time.
vii) Permit counsel to the Holders to review the
Registration Statement and all amendments and supplements
thereto within a reasonable period of time (but not less
than 5 full Trading Days (as defined in the Certificate))
prior to each filing, and shall not file any document in a
form to which such counsel reasonably objects and will not
request acceleration of the Registration Statement without
prior notice to such counsel.
viii) List the Registrable Securities covered by
such Registration Statement with all securities
exchange(s) and/or markets on which the Common Stock is
then listed and prepare and file any required filings with
the Nasdaq National Market or any exchange or market where
the Common Shares are traded.
ix) Take all steps necessary to enable Holders to
avail themselves of the prospectus delivery mechanism set
forth in Rule 153 (or successor thereto) under the Act.
(b) Set forth below in this Section 2(b) are (I) events
that may arise that the Investors consider will interfere with the full
enjoyment of their rights under this Agreement, the Purchase Agreement, the
Warrants, the Options and the Certificate (the
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"Interfering Events"), and (II) certain remedies applicable in each of these
events.
Paragraphs (i) through (iv) of this Section 2(b)
describe the Interfering Events, provide a remedy to the Investors if an
Interfering Event occurs, and provide that the Investors may require that the
Company repurchase outstanding Preferred Shares, Warrants and Options at a
specified price if certain Interfering Events are not timely cured.
Paragraph (v) provides, inter alia, that if default
adjustments required as the remedy in the case of certain of the Interfering
Events are not provided when due, the Company may be required by the Investors
to redeem outstanding Preferred Shares, Warrants and Options at a specified
price.
Paragraph (vi) provides, inter alia, that the
Investors have the right to specific performance.
The preceding paragraphs in this Section 2(b) are
meant to serve only as an introduction to this Section 2(b), are for convenience
only, and are not to be considered in applying, construing or interpreting this
Section 2(b).
(i) DELAY IN EFFECTIVENESS OF REGISTRATION STATEMENT.
(A) In the event that such Registration
Statement has not been declared effective within 90
days from the Closing Date, or the Company at any
time fails to issue unlegended Registrable Securities
as required by Article VI of the Purchase Agreement,
then the Company shall pay each Holder a Monthly
Delay Payment (as defined below) for each 30 day
period (or portion thereof) that effectiveness of the
Registration Statement is delayed or failure to issue
such unlegended Registrable Securities persists. In
addition to the foregoing, if the Registration
Statement has not been declared effective within 180
days after the Closing Date, then each Holder shall
have the right to sell, at any time after the 180th
day after the Closing Date (which 180th day shall be
extended with respect to such Holder by 1 day for
each day that any delay is caused by such Holder, its
counsel or the underwriter selected by such Holder,
failing to timely take action or provide information
as required hereunder), any or all of its Preferred
Shares, Warrants and Options to the Company for
consideration (the "Mandatory Repurchase Price")
equal to (I) for the Preferred Shares, the greater of
(x) 125% of the Liquidation Preference of all such
Preferred Shares being sold to the Company, or (y)
the Liquidation Preference for the Preferred Shares
being sold to the Company divided by the then
applicable Conversion Price multiplied by the greater
of the last closing price of the Common Stock on (i)
the
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date a Holder exercises its option pursuant to
this Section 2(b) to require repurchase of Preferred
Shares or (ii) the date on which the event triggering
Holder's remedies under this Section 2(b) first
occurred, in each case payable in cash, (II) for the
Warrants, 125% of the product of (a) the difference
between the greater of clauses (i) or (ii) above and
the exercise price of the Warrants, multiplied by (b)
the number of Warrants being sold to the Company,
payable in cash, and (III) for the Options, 125% of
the product of (a) the difference between the greater
of clauses (i) or (ii) above and the exercise price
of the Options, multiplied by (b) the number of
Options being sold to the Company, payable in cash.
(B) As used in this Agreement, a "Monthly
Delay Payment" shall be a cash payment equal to 1% of
the Liquidation Preference of the Preferred Shares
held by a Holder for the first 30 day period (or
portion thereof) that the specified condition in this
Section 2(b) has not been fulfilled or the specified
deficiency has not been remedied, 2% of such
Liquidation Preference for the next 30 day period (or
portion thereof) that the specified condition in this
Section 2(b) has not been fulfilled or the specified
deficiency has not been remedied, and 3% of such
Liquidation Preference thereafter for each subsequent
30 day period (or portion thereof) that the specified
condition in this Section 2(b) has not been fulfilled
or the specified deficiency has not been remedied,
prorated for any partial months. Payment of the
Monthly Delay Payments and Mandatory Repurchase Price
shall be due and payable from the Company to such
Holder within 5 business days of demand therefor.
Without limiting the foregoing, if cash payment of
the Mandatory Repurchase Price is not made within
such 5 business day period, the Holder may revoke and
withdraw its election to cause the Company to make
such mandatory purchase at any time prior to its
receipt of such cash. At the option of the Holder,
Monthly Delay Payments may be added to the
Liquidation Preference of the Preferred Shares held
by it.
(ii) NO LISTING; PREMIUM PRICE REDEMPTION FOR DELISTING OF
CLASS OF SHARES.
(A) In the event that the Company fails,
refuses or for any other reason is unable to cause
the Registrable Securities covered by the
Registration Statement to be listed with Nasdaq
National Market or one of the other Approved Markets
(as defined in the Purchase Agreement) at all times
during the period ("Listing Period") from the earlier
of the effectiveness of the Registration Statement
and the 90th day following the Closing Date until
such time as the registration period specified in
Section 5 terminates,
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Page 7
then the Company shall provide to each Holder a
Monthly Delay Payment, for each 30 day period or
portion thereof during which such listing is not
in effect. In addition to the foregoing, following
the 10th day that such listing is not in effect,
each Holder shall have the right to sell to the
Company any or all of its Preferred Shares,
Warrants and Options at the Mandatory Repurchase
Price. The provisions of Section 2(b)(i)(B) shall
apply to this Section 2(b)(ii)(A).
(B) In the event that shares of Common Stock
of the Company are not listed on any of the Approved
Markets at all times following the Closing Date, or
are otherwise suspended from trading and remain
unlisted or suspended for 3 consecutive days, then
the Company shall provide to each Holder a Monthly
Delay Payment for each 30 day period or portion
thereof during which such listing is not in effect.
In addition to the foregoing, following the 5th day
that the shares are not so listed or are otherwise
suspended, at the option of each Holder and to the
extent such Holder so elects, each Holder shall have
the right to sell to the Company the Preferred
Shares, the Warrants and the Options held by such
Holder, in whole or in part, for the Mandatory
Repurchase Price on the terms set forth in Section
2(b)(i)(B) above.
(iii) BLACKOUT PERIODS. In the event any Holder's ability
to sell Registrable Securities under the Registration
Statement is suspended for more than (i) five (5)
consecutive days or (ii) twenty (20) days in any
calendar year ("Suspension Grace Period"), including
without limitation by reason of any suspension or
stop order with respect to the Registration Statement
or the fact that an event has occurred as a result of
which the prospectus (including any supplements
thereto) included in such Registration Statement then
in effect includes an untrue statement of material
fact or omits to state a material fact required to be
stated therein or necessary to make the statements
therein not misleading in light of the circumstances
then existing (a "Blackout"), then the Company shall
provide to each Holder a Monthly Delay Payment for
each 30 day period or portion thereof from and after
the expiration of the Suspension Grace Period, on the
terms set forth in Section 2(b)(i)(B) above. In
addition, at any time following the expiration of the
Suspension Grace Period if the Blackout continues for
more than five (5) additional consecutive days, a
Holder shall have the right to sell to the Company
its Preferred Shares, Options and/or Warrants in
whole or in part for the Mandatory Repurchase Price
on the terms set forth in Section 2(b)(i)(B) above.
(iv) REDEMPTION FOR CONVERSION DEFICIENCY. In the event
that the
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Page 8
Company does not have a sufficient number of
Common Shares available to satisfy the Company's
obligations to any Holder upon receipt of a
Conversion Notice (as defined in the Certificate)
or exercise of the Warrants or exercise of the
Options or the Company is otherwise unable or
unwilling for any reason to issue such Common
(each, a "Conversion/Exercise Deficiency") in
accordance with the terms of the Certificate,
Purchase Agreement, Warrants and Options for any
reason after receipt of a Conversion Notice or
exercise notice from any Holder, then:
(A) The Company shall provide to each Holder
a Monthly Delay Payment for each 30 day period or
portion thereof following the Conversion/Exercise
Deficiency on all outstanding Preferred Shares,
Options and Warrants, on the terms set forth in
Section 2(b)(i)(B) above.
(B) At any time five days after the
commencement of the running of the first 30-day
period described above in clause (A) of this
paragraph (iv), at the request of any Holder, the
Company promptly shall purchase from such Holder, for
the Mandatory Repurchase Price and on the terms set
forth in Section 2(b)(i)(B) above, any and all
outstanding Preferred Shares, Options and/or
Warrants, if the failure to issue Common Shares
results from the lack of a sufficient number thereof
and shall purchase all of such Holder's Preferred
Shares, Options and/or Warrants (or such portion
requested by such Holder) for such consideration and
on such terms if the failure to issue Common Shares
results from any other cause, or is without cause.
(v) MANDATORY PURCHASE PRICE FOR DEFAULTS.
(A) The Company acknowledges that any
failure, refusal or inability by the Company to
perform the obligations described in the foregoing
paragraphs (i) through (iv) will cause the Holders to
suffer damages in an amount that will be difficult to
ascertain, including without limitation damages
resulting from the loss of liquidity in the
Registrable Securities and the additional investment
risk in holding the Preferred Shares, Options,
Warrants and Registrable Securities. Accordingly, the
parties acknowledge that they have consulted with
their respective counsel and agree that it is
appropriate to include in this Agreement the
foregoing provisions for Monthly Delay Payments and
mandatory redemptions in order to compensate the
Holders for such damages. The parties acknowledge and
agree that the Monthly Delay Payments and mandatory
redemptions set forth above represent the parties'
good faith effort to quantify such damages and, as
such,
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Page 9
agree that the form and amount of such payments
and mandatory redemptions are reasonable and will
not constitute a penalty.
(B) In the event that the Company fails to
pay any Monthly Delay Payment within 5 business days
of demand therefor, each Holder shall have the right
to sell to the Company any or all of its Preferred
Shares, Options and/or Warrants at the Mandatory
Repurchase Price on the terms set forth in Section
2(b)(i)(B) above.
(C) The Holder shall have the right to
withdraw any request for redemption hereunder at any
time prior to its receipt of the Mandatory Repurchase
Price.
(vi) CUMULATIVE REMEDIES. The Monthly Delay
Payments and mandatory purchases provided for above are in
addition to and not in lieu or limitation of any other
rights the Holders may have at law, in equity or under the
terms of the Certificate, the Purchase Agreement, the
Warrants, the Options and this Agreement, including
without limitation the right to monetary contract damages
and specific performance. Each Holder shall be entitled to
specific performance of any and all obligations of the
Company in connection with the registration rights of the
Holders hereunder. Each Monthly Delay Payment provided for
herein in the foregoing clauses shall be in addition to
each other Monthly Delay Payment.
REMEDIES FOR REGISTRABLE SECURITIES. In any case in
which a Holder of Preferred Shares, Options and/or
Warrants has the right to cause the purchase of its
securities under this Section 2(b), it shall also have the
right to cause the Company to purchase the Registrable
Securities that such Holder owns, in whole or in part at
the Holder's option, at a purchase price equal to 125% of
the product of (a) the greater of the last closing price
of the Common Stock on (i) the date a Holder exercises its
option pursuant to this Section 2(b) or (ii) the date on
which the event triggering Holder's remedies under this
Section 2(b) first occurred, multiplied by (b) the number
of Registrable Securities being sold to the Company,
payable in cash.
In the case in which a Holder of Preferred Shares, Options
or Warrants would have the right to receive Monthly Delay
Payments with respect to Preferred Shares, Options or
Warrants under Section 2(b), it shall also have the right
to receive payments with respect to Registrable Securities
owned by it in an amount at the rate of the Monthly Delay
Payments that would have applied to the Preferred Shares,
Options or Warrants converted into or exercised for Common
Shares had such
<PAGE>
Page 10
Preferred Shares, Options or Warrants not been converted
or exercised.
(c) If the Holder(s) intend to distribute the Registrable
Securities by means of an underwriting, the Holder(s) shall so advise the
Company. Any such underwriting may only be administered by nationally or
regionally recognized investment bankers reasonably satisfactory to the Company.
(d) The Company shall enter into such customary agreements
for secondary offerings (including a customary underwriting agreement with the
underwriter or underwriters, if any) and take all such other reasonable actions
reasonably requested by the Holders in connection therewith in order to expedite
or facilitate the disposition of such Registrable Securities. Whether or not an
underwriting agreement is entered into and whether or not the Registrable
Securities are to be sold in an underwritten offering, the Company shall:
i) make such representations and warranties to
the Holders and the underwriter or underwriters, if any, in
form, substance and scope as are customarily made by issuers
to underwriters in secondary offerings;
ii) cause to be delivered to the sellers of
Registrable Securities and the underwriter or underwriters, if
any, opinions of independent counsel to the Company, on and
dated as of each effective day (or in the case of an
underwritten offering, dated the date of delivery of any
Registrable Securities sold pursuant thereto) of the
Registration Statement, and within ninety (90) days following
the end of each fiscal year thereafter, which counsel and
opinions (in form, scope and substance) shall be reasonably
satisfactory to the Holders and the underwriter(s), if any,
and their counsel and covering, without limitation, such
matters as the due authorization and issuance of the
securities being registered and compliance with securities
laws by the Company in connection with the authorization,
issuance and registration thereof and other matters that are
customarily given to underwriters in underwritten offerings,
addressed to the Holders and each underwriter, if any;
iii) cause to be delivered, immediately prior to
the effectiveness of the Registration Statement (and, in the
case of an underwritten offering, at the time of delivery of
any Registrable Securities sold pursuant thereto), and at the
beginning of each fiscal year following a year during which
the Company's independent certified public accountants shall
have reviewed any of the Company's books or records, a
"comfort" letter from the Company's independent certified
public accountants addressed to the Holders and each
underwriter, if any, stating that such accountants are
independent public accountants within the meaning of the
Securities Act and the applicable published rules and
regulations thereunder, and otherwise in customary form and
covering such financial and accounting matters as are
customarily covered by letters of the
<PAGE>
Page 11
independent certified public accountants delivered in
connection with secondary offerings; such accountants shall
have undertaken in each such letter to update the same
during each such fiscal year in which such books or records
are being reviewed so that each such letter shall remain
current, correct and complete throughout such fiscal year;
and each such letter and update thereof, if any, shall be
reasonably satisfactory to the Holders;
iv) if an underwriting agreement is entered into,
the same shall include customary indemnification and
contribution provisions to and from the underwriters and
procedures for secondary underwritten offerings; and
v) deliver such documents and certificates as may
be reasonably requested by the Holders of the Registrable
Securities being sold or the managing underwriter or
underwriters, if any, to evidence compliance with clause (i)
above and with any customary conditions contained in the
underwriting agreement, if any.
(e) The Company shall make available for inspection by the
Holders, representative(s) of all the Holders together, any underwriter
participating in any disposition pursuant to a Registration Statement, and any
attorney or accountant retained by any Holder or underwriter, all financial and
other records customary for purposes of the Holders' due diligence examination
of the Company and review of any Registration Statement, all SEC Documents (as
defined in the Purchase Agreement) filed subsequent to the Closing, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all information reasonably requested
by any such representative, underwriter, attorney or accountant in connection
with such Registration Statement, provided that such parties agree to keep such
information confidential.
(f) Subject to Section 2(b) above, the Company may suspend
the use of any prospectus used in connection with the Registration Statement
only in the event, and for such period of time as, such a suspension is required
by the rules and regulations of the Commission. The Company will use its best
efforts to cause such suspension to terminate at the earliest possible date.
(g) The Company shall file a Registration Statement with
respect to any newly authorized and/or reserved Registrable Securities
consisting of Common Shares described in clause (i) of the definition of
Registrable Securities within five (5) business days of any stockholders meeting
authorizing same and shall use its best efforts to cause such Registration
Statement to become effective within sixty (60) days of such stockholders
meeting. If the Holders become entitled, pursuant to an event described in
clause (ii) and (iii) of the definition of Registrable Securities, to receive
any securities in respect of Registrable Securities that were already included
in a Registration Statement, subsequent to the date such Registration Statement
is declared effective, and the Company is unable under the securities laws to
add such securities to the then effective Registration Statement, the Company
shall promptly file, in accordance with the
<PAGE>
Page 12
procedures set forth herein, an additional Registration Statement with
respect to such newly Registrable Securities. The Company shall use its best
efforts to (i) cause any such additional Registration Statement, when filed,
to become effective under the Securities Act, and (ii) keep such additional
Registration Statement effective during the period described in Section 5
below and cause such Registration Statement to become effective within 45
days of that date that the need to file the Registration Statement arose. All
of the registration rights and remedies under this Agreement shall apply to
the registration of such newly reserved shares and such new Registrable
Securities, including without limitation the provisions providing for default
payments and mandatory redemptions contained herein.
3. EXPENSES OF REGISTRATION. All Registration Expenses in
connection with any registration, qualification or compliance with registration
pursuant to this Agreement shall be borne by the Company, and all Selling
Expenses of a Holder shall be borne by such Holder.
4. REGISTRATION ON FORM S-3. The Company shall use its
best efforts to remain qualified for registration on Form S-3 or any comparable
or successor form or forms, or in the event that the Company is ineligible to
use such form, such form as the Company is eligible to use under the Securities
Act.
5. REGISTRATION PERIOD. In the case of the registration
effected by the Company pursuant to this Agreement, the Company shall keep such
registration effective until the earlier of (a) the date on which all the
Holders have completed the sales or distribution of all Registrable Securities
described in the Registration Statement relating thereto, and (b) the sixth
(6th) anniversary of the Closing Date.
6. INDEMNIFICATION.
(a) COMPANY INDEMNITY. The Company will indemnify each
Holder, each of its officers, directors, agents and partners, and each person
controlling each of the foregoing, within the meaning of Section 15 of the
Securities Act and the rules and regulations thereunder with respect to which
registration, qualification or compliance has been effected pursuant to this
Agreement, and each underwriter, if any, and each person who controls, within
the meaning of Section 15 of the Securities Act and the rules and regulations
thereunder, any underwriter, against all claims, losses, damages and liabilities
(or actions in respect thereof) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances under which
they were made, or any violation by the Company of the Securities Act or any
state securities law or in either case, any rule or regulation thereunder
applicable to the Company and relating to action or inaction required of the
Company in connection with any such registration, qualification or compliance,
and will reimburse each Holder, each
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Page 13
of its officers, directors, agents and partners, and each person controlling
each of the foregoing, each such underwriter and each person who controls any
such underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating and defending any such claim, loss, damage,
liability or action, provided that the Company will not be liable in any such
case to a Holder to the extent that any such claim, loss, damage, liability
or expense arises out of or is based on any untrue statement or omission
based upon written information furnished to the Company by such Holder or the
underwriter (if any) therefor and stated to be specifically for use therein.
The indemnity agreement contained in this Section 6(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company
(which consent will not be unreasonably withheld).
(b) HOLDER INDEMNITY. Each Holder will, severally and not
jointly, if Registrable Securities held by it are included in the securities as
to which such registration, qualification or compliance is being effected,
indemnify the Company, each of its directors, officers, agents and partners, and
each underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such underwriter
within the meaning of Section 15 of the Securities Act and the rules and
regulations thereunder, each other Holder (if any), and each of their officers,
directors and partners, and each person controlling such other Holder(s) against
all claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any such registration statement, prospectus,
offering circular or other document, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statement therein not misleading in light of the circumstances under which
they were made, and will reimburse the Company and such other Holder(s) and
their directors, officers and partners, underwriters or control persons for any
legal or any other expenses reasonably incurred in connection with investigating
and defending any such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by such Holder
and stated to be specifically for use therein, and provided that the maximum
amount for which such Holder shall be liable under this indemnity shall not
exceed the net proceeds received by such Holder from the sale of the Registrable
Securities pursuant to the registration statement in question. The indemnity
agreement contained in this Section 6(b) shall not apply to amounts paid in
settlement of any such claims, losses, damages or liabilities if such settlement
is effected without the consent of such Holder (which consent shall not be
unreasonably withheld).
(c) PROCEDURE. Each party entitled to indemnification
under this Section 6 (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim in any litigation resulting
<PAGE>
Page 14
therefrom, provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or any litigation resulting therefrom,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld), and the Indemnified Party may participate in such
defense at its own expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 6 except to the
extent that the Indemnifying Party is materially and adversely affected by
such failure to provide notice. No Indemnifying Party, in the defense of any
such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which
does not include as an unconditional term thereof the giving by the claimant
or plaintiff to such Indemnified Party of a release from all liability in
respect to such claim or litigation. Each Indemnified Party shall furnish
such non-privileged information regarding itself or the claim in question as
an Indemnifying Party may reasonably request in writing and as shall be
reasonably required in connection with the defense of such claim and
litigation resulting therefrom.
7. CONTRIBUTION. If the indemnification provided for in
Section 6 herein is unavailable to the Indemnified Parties in respect of any
losses, claims, damages or liabilities referred to herein (other than by reason
of the exceptions provided therein), then each such Indemnifying Party, in lieu
of indemnifying such Indemnified Party, shall contribute to the amount paid or
payable by such Indemnified Party as a result of such losses, claims, damages or
liabilities as between the Company on the one hand and any Holder on the other,
in such proportion as is appropriate to reflect the relative fault of the
Company and of such Holder in connection with the statements or omissions which
resulted in such losses, claims, damages or liabilities, as well as any other
relevant equitable considerations. The relative fault of the Company on the one
hand and of any Holder on the other shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or omission or alleged omission to state a material fact relates to information
supplied by the Company or by such Holder.
In no event shall the obligation of any Indemnifying Party
to contribute under this Section 7 exceed the amount that such Indemnifying
Party would have been obligated to pay by way of indemnification if the
indemnification provided for under Section 6(a) or 6(b) hereof had been
available under the circumstances.
The Company and the Holders agree that it would not be just
and equitable if contribution pursuant to this Section 7 were determined by pro
rata allocation (even if the Holders or the underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in the immediately
preceding paragraphs. The amount paid or payable by an Indemnified Party as a
result of the losses, claims, damages and liabilities referred to in the
immediately preceding paragraphs shall be deemed to include, subject to the
limitations set forth above, any legal or other expenses reasonably incurred by
such Indemnified Party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this section, no Holder or
underwriter shall be required to contribute any amount in excess of the amount
by which (i) in the case of any Holder,
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Page 15
the net proceeds received by such Holder from the sale of Registrable
Securities pursuant to the registration statement in question or (ii) in the
case of an underwriter, the total price at which the Registrable Securities
purchased by it and distributed to the public were offered to the public
exceeds, in any such case, the amount of any damages that such Holder or
underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission or alleged omission. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
8. SURVIVAL. The indemnity and contribution agreements
contained in Sections 6 and 7 and the representations and warranties of the
Company referred to in Section 2(d)(i) shall remain operative and in full
force and effect regardless of (i) any termination of this Agreement or the
Purchase Agreement or any underwriting agreement, (ii) any investigation made
by or on behalf of any Indemnified Party or by or on behalf of the Company,
and (iii) the consummation of the sale or successive resales of the
Registrable Securities.
9. INFORMATION BY HOLDERS. Each Holder shall furnish to the
Company such information regarding such Holder and the distribution and/or
sale proposed by such Holder as the Company may reasonably request in writing
and as shall be reasonably required in connection with any registration,
qualification or compliance referred to in this Agreement. The intended
method or methods of disposition and/or sale (Plan of Distribution) of such
securities as so provided by such Investor shall be included without
alteration in the Registration Statement covering the Registrable Securities
and shall not be changed without written consent of such Holder.
10. REPLACEMENT CERTIFICATES. The certificate(s)
representing the Common Shares held by any Investor (or then Holder) may be
exchanged by such Investor (or such Holder) at any time and from time to time
for certificates with different denominations representing an equal aggregate
number of Common Shares, as reasonably requested by such Investor (or such
Holder) upon surrendering the same. No service charge will be made for such
registration or transfer or exchange. Upon receipt by the Corporation of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of any certificate representing the Preferred Shares, Options or the
Warrants, or the underlying Common Shares of any of the foregoing, and, in the
case of loss, theft or destruction, of indemnity reasonably satisfactory to it,
or upon surrender and cancellation of such certificate if mutilated, the
Corporation will make and deliver a new certificate of like tenor and dated as
of such cancellation at no charge to the holder.
11. TRANSFER OR ASSIGNMENT. Except as otherwise provided
herein, this Agreement shall be binding upon and inure to the benefit of the
parties and their successors and permitted assigns. The rights granted to the
Investors by the Company under this Agreement to cause the Company to
register Registrable Securities may be transferred or assigned (in whole or
in part) to a transferee or assignee of Preferred Shares, Options, Warrants
or Registrable Securities, and all other rights granted to the
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Page 16
Investors by the Company hereunder may be transferred or assigned to any
transferee or assignee of any Preferred Shares, Options, Warrants or
Registrable Securities; provided in each case that the Company must be given
written notice by the such Investor at the time of or within a reasonable
time after said transfer or assignment, stating the name and address of said
transferee or assignee and identifying the securities with respect to which
such registration rights are being transferred or assigned; and provided
further that the transferee or assignee of such rights agrees in writing to
be bound by the registration provisions of this Agreement.
12. MISCELLANEOUS.
(a) REMEDIES. The Company and the Investor acknowledge
and agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent or cure
breaches of the provisions of this Agreement and to enforce specifically the
terms and provisions hereof, this being in addition to any other remedy to
which any of them may be entitled by law or equity.
(b) JURISDICTION. Each of the Company and the Investor (i)
hereby irrevocably submits to the exclusive jurisdiction of the United States
District Court, the New York State courts and other courts of the United States
sitting in New York County, New York for the purposes of any suit, action or
proceeding arising out of or relating to this Agreement and (ii) hereby waives,
and agrees not to assert in any such suit action or proceeding, any claim that
it is not personally subject to the jurisdiction of such court, that the suit,
action or proceeding is brought in an inconvenient forum or that the venue of
the suit, action or proceeding is improper. The Company and the Investor consent
to process being served in any such suit, action or proceeding by mailing a copy
thereof to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing in this paragraph shall affect or
limit any right to serve process in any other manner permitted by law.
(c) NOTICES. Any notice or other communication required or
permitted to be given hereunder shall be in writing by facsimile, mail or
personal delivery and shall be effective upon actual receipt of such notice. The
addresses for such communications shall be:
to the Company:
Microware Systems Corporation
1500 N.W. 118th Street
Des Moines, Iowa 50325
Telephone: (515) 223-8000
Facsimile: (515) 224-1352
Attention: Mr. Kenneth B. Kaplan, President & CEO
<PAGE>
Page 17
With a copy to:
D'Ancona & Pflaum
111 East Wacker Drive
Suite 2800
Chicago, Illinois 60601
Telephone: (312) 602-2000
Facsimile: (312) 602-3048
Attention: Arthur Don, Esq.
to the Investor:
c/o Stonington Management Corporation
712 Fifth Avenue
New York, New York 10019
Telephone: 212-506-2999
Facsimile: 212-974-2093 and (212) 586-9467
Attention: Mr. Brett Cohen
WITH COPIES TO:
Kleinberg, Kaplan, Wolff & Cohen, P.C.
551 Fifth Avenue
New York, New York 10176
Telephone: (212) 986-6000
Facsimile: (212) 986-8866
Attention: Stephen M. Schultz, Esq.
Any party hereto may from time to time change its address for notices by giving
at least five days' written notice of such changed address to the other parties
hereto.
(d) INDEMNITY. Each party shall indemnify each other party
against any loss, cost or damages (including reasonable attorney's fees)
incurred as a result of such parties' breach of any representation, warranty,
covenant or agreement in this Agreement, including, without limitation, any
enforcement of this indemnity.
(e) WAIVERS. No waiver by any party of any default with
respect to any provision, condition or requirement of this Agreement shall be
deemed to be a continuing waiver in the future or a waiver of any other
provision, condition or requirement hereof, nor shall any delay or omission of
any party to exercise any right hereunder in any manner impair the exercise of
any such right accruing to it thereafter. The representations and warranties and
the agreements and covenants of the Company and each Investor contained herein
shall survive the Closing.
(f) EXECUTION IN COUNTERPART. This Agreement may be
executed in two or more counterparts, all of which shall be considered one and
the same agreement, it being understood that all parties need not sign the same
counterpart.
<PAGE>
Page 18
(g) SIGNATURES. Facsimile signatures shall be valid and
binding on each party submitting the same.
(h) ENTIRE AGREEMENT; AMENDMENT. This Agreement, together
with the Purchase Agreement, the Certificate, the Warrants, the Options and the
agreements and documents contemplated hereby and thereby, contains the entire
understanding and agreement of the parties, and may not be amended, modified or
terminated except by a written agreement signed by the Company plus the Holders
of two-thirds of the Preferred Shares issued under the Purchase Agreement to
that date; provided that for the purposes of this Section 12(h) the Holders of
Common Shares still entitled to registration rights under this Agreement will be
deemed to still be Holders of that number of Preferred Shares which were
converted into such number of Common Shares issued upon conversion which are
still held by them.
(i) GOVERNING LAW. This Agreement and the validity and
performance of the terms hereof shall be governed by and construed in accordance
with the laws of the State of New York applicable to contracts executed and to
be performed entirely within such state, except to the extent that the law of
the State of Iowa regulates the Company's issuance of securities.
(j) JURY TRIAL. EACH PARTY HERETO WAIVES THE RIGHT TO A
TRIAL BY JURY.
(k) TITLES. The titles used in this Agreement are used for
convenience only and are not to be considered in construing or interpreting this
Agreement.
(l) 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 rule of strict construction will be applied against
any party.
* * * *
[SIGNATURE PAGE FOLLOWS]
<PAGE>
Page 19
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the date first above written.
MICROWARE SYSTEMS CORPORATION
By:/s/ Kenneth B. Kaplan
Name: Kenneth B. Kaplan
Title: Chief Executive Officer
WESTGATE INTERNATIONAL, L.P.
By: MARTLEY INTERNATIONAL, INC., as
attorney-in-fact
By: /s/ Paul E. Singer
Name: Paul E. Singer
Title: President
ELLIOTT ASSOCIATES, L.P.
By: /s/ Paul E. Singer
Name: Paul E. Singer
Title: General Partner
<PAGE>
EXHIBIT 10.3
FORM OF OPTION AGREEMENT
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"). THIS OPTION SHALL NOT CONSTITUTE AN OFFER
TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE SECURITIES ARE
"RESTRICTED" AND MAY NOT BE RESOLD OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE
ACT PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
OPTION TO PURCHASE COMMON STOCK
OF
MICROWARE SYSTEMS CORPORATION
THIS CERTIFIES that, for value received, * (the "INVESTOR") is entitled,
upon the terms and subject to the conditions hereinafter set forth, at any time
and from time to time on or after the date hereof and on or prior to 8:00 p.m.
New York City Time on the Expiration Date (as defined below) (such period
hereinafter referred to as the "EXERCISE PERIOD"), to purchase from MICROWARE
SYSTEMS CORPORATION, an Iowa corporation (the "COMPANY") shares (the "OPTION
SHARES") of the Company's Common Stock, no par value ("COMMON STOCK"), for a
purchase price per share (as adjusted from time to time pursuant to the terms
hereof, the "EXERCISE PRICE") equal to 105% of the Closing Price (as defined in
Section 12(a) below) for an aggregate purchase price of up to One Million Five
Hundred Thousand U.S. Dollars ($1,500,000). The Exercise Price and the number of
shares for which the Option is exercisable shall be subject to adjustment as
provided herein. This Option is being issued in connection with the Securities
Purchase Agreement dated April 19, 2000 (the "PURCHASE AGREEMENT") entered into
between the Company, the Investor and Westgate International, L.P. Capitalized
terms used herein and not otherwise defined shall have the meaning ascribed
thereto in the Purchase Agreement. The "EXPIRATION DATE" shall mean the date
which is one year following the date on which the Registration Statement (as
defined in the Registration Rights Agreement) is declared effective by the SEC;
PROVIDED, HOWEVER, that such Expiration Date shall be deferred, at the sole
option of a holder hereof, for such number of days as is equal to 1.5 times the
number of days (A) there is a lack of Effective Registration (as defined below),
but not including the first 90 days
- ------------
* One option agreement was issued to Elliott Associates, L.P. and a second
identical agreement was issued to Westgate International, L.P.
<PAGE>
Page 2
after the Closing; (B) there is not a sufficient amount of Common Stock
available for conversion of all outstanding Preferred Shares and exercise of all
the Options and Warrants; (C) for any other reason the Corporation refuses or
announces its refusal to honor conversion of Preferred Shares or exercise of the
Options or Warrants; or (D) for any other reason there is a suspension,
restriction or limitation in the ability of holders of Preferred Shares, Options
or Warrants to sell Common Shares received upon conversion of Preferred Shares
or exercise of the Options or Warrants pursuant to the prospectus included in
the Registration Statement; PROVIDED, FURTHER, that such Expiration Date shall
be subject to the provisions of Section 3(c) below.
1. TITLE OF OPTION. Prior to the expiration hereof and subject to compliance
with applicable laws, this Option and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company
by the Holder hereof in person or by duly authorized attorney, upon
surrender of this Option together with (a) the Assignment Form annexed
hereto properly endorsed, and (b) any other documentation reasonably
necessary to satisfy the Company that such transfer is in compliance with
all applicable securities laws. The term "HOLDER" shall refer to the
Investor or any subsequent transferee of this Option.
2. AUTHORIZATION OF SHARES. The Company covenants that all shares of Common
Stock which may be issued upon the exercise of rights represented by this
Option will, upon exercise of the rights represented by this Option and
payment of the Exercise Price as set forth herein will be duly authorized,
validly issued, fully paid and nonassessable and free from all taxes, liens
and charges in respect of the issue thereof (other than taxes in respect of
any transfer occurring contemporaneously with such issue or otherwise
specified herein).
3. EXERCISE OF OPTION.
(a) MECHANICS OF EXERCISE. The Holder may exercise this Option, in whole or in
part, at any time and from time to time, by delivering to the offices of
the Company or any transfer agent for the Common Stock this Option,
together with a Notice of Exercise in the form annexed hereto specifying
the dollar amount and number of Option Shares with respect to which this
Option is being exercised, together with payment to the Company of the
Exercise Price therefor.
In the event that this Option is not exercised in full, the aggregate
purchase price hereunder shall be reduced by the dollar amount for which
this Option is exercised and/or surrendered, and the Company, at its
expense, shall within three (3) Trading Days (as defined below) issue and
deliver to the Holder a new Option of like tenor in the name of the Holder
or as the Holder (upon payment by Holder of any applicable transfer taxes)
may request, reflecting such adjusted Option.
Certificates for shares of Common Stock purchased hereunder shall be
delivered to the Holder hereof within two (2) Trading Days after the date
on which this Option shall have been exercised as aforesaid. The Holder may
withdraw its Notice of Exercise at any time
<PAGE>
Page 3
if the Company fails to timely deliver the relevant certificates to the
Holder as provided in this Agreement.
In lieu of delivering physical certificates representing the Option Shares
issuable upon conversion of this Option, provided the Company's transfer
agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer ("FAST") program, upon request of the Holder,
the Company shall use its best efforts to cause its transfer agent to
electronically transmit the Option Shares issuable upon exercise to the
Holder, by crediting the account of the Holder's prime broker with DTC
through its Deposit Withdrawal Agent Commission ("DWAC") system. The time
periods for delivery described above shall apply to the electronic
transmittals through the DWAC system. The Company agrees to coordinate with
DTC to accomplish this objective.
(b) CASHLESS EXERCISE. Notwithstanding the foregoing provision regarding
payment of the Exercise Price in cash, during any time that any of the
Option Shares are not subject to an effective Registration Statement in
accordance with the terms of the Registration Rights Agreement (as defined
in the Purchase Agreement) after 180 days following the Closing Date, the
Holder may elect to receive a reduced number of Option Shares in lieu of
tendering the Exercise Price in cash. In such case, the number of Option
Shares to be issued to the Holder shall be computed using the following
formula:
X = Y x (A-B)
---------
A
where: X = the number of Option Shares to be issued to the Holder;
Y = the number of Option Shares to be exercised under this Option;
A = the Market Value (defined below) of one share of Common Stock;
and
B = the Exercise Price.
As used herein, "MARKET VALUE" refers to the closing bid price of the
Common Stock (as reported by Bloomberg, L.P.) on the day before the Notice
of Exercise and this Option are duly surrendered to the Company for a full
or partial exercise hereof. Notwithstanding the foregoing definition, if
the Common Stock is not listed on a national securities exchange or quoted
in the Nasdaq System at the time said Notice of Exercise is submitted to
the Company in the foregoing manner, the Market Value of the Common Stock
shall be as reasonably determined in good faith by the Board of Directors
of the Company and such Holder, unless the Company shall become subject to
a merger, acquisition, or other consolidation pursuant to which the Company
is not the surviving entity, in which case the Market Value of the Common
Stock shall be deemed to be the value received by the Company's common
shareholders pursuant to the Company's acquisition (subject to Section 12
below).
The term "TRADING DAY" means (x) if the Common Stock is not listed on the
New York or American Stock Exchange but sale prices of the Common Stock are
reported on
<PAGE>
Page 4
Nasdaq National Market or another automated quotation system, a day on
which trading is reported on the principal automated quotation system on
which sales of the Common Stock are reported, (y) if the Common Stock is
listed on the New York Stock Exchange or the American Stock Exchange, a day
on which there is trading on such stock exchange, or (z) if the foregoing
provisions are inapplicable, a day on which quotations are reported by
National Quotation Bureau Incorporated.
(c) FORCED EXERCISE. During the Exercise Period, if the Option Shares have been
and continue to be registered with the SEC pursuant to the Registration
Rights Agreement and the requirements of subsection (d) below have been
met, the Company shall have the right, upon 10 Trading Days' prior written
notice (the "Termination Notice") and subject to the terms of this
subsection (c) and subsection (d) below, to notify the Investor that it
must exercise this Option within 10 Trading Days or this Option will
terminate at the end of such 10 Trading Day period ("Termination Date").
The right to issue a Termination Notice and to terminate this Option as
provided in the foregoing sentence will only be available if the closing
bid price (as reported by the Bloomberg financial network) of the Common
Stock recorded on the Principal Market exceeds 175% of the Exercise Price
for the 30 consecutive Trading Days (as defined in the Certificate)
immediately preceding delivery of the Termination Notice and at all times
thereafter through the Termination Date. In the event that the closing bid
price of the Common Stock recorded on the Principal Market falls below 175%
of the Exercise Price at any time before the Termination Date, any
Termination Notice in effect shall become null and void, and this Option
shall remain in full force and effect until the Expiration Date; PROVIDED,
HOWEVER, that the Company shall again have the right to deliver a
Termination Notice if the closing bid price of the Common Stock recorded on
the Principal Market thereafter exceeds 175% of the Exercise Price for 30
consecutive Trading Days pursuant to the terms of this Section 3(c) and
subject to Section 3(d) below.
(d) Notwithstanding anything contained in Section 3(c) above, the right of the
Company to terminate this Option pursuant to Section 3(c) above shall
terminate if any of the following shall occur or have occurred or be
continuing:
(A) there is a lack of Effective Registration (as defined below) during the
Exercise Period; (B) there is not a sufficient amount of Common Stock
available for conversion of all outstanding Preferred Shares, exercise of
all Warrants and issuance of all Option Shares; (C) for any other reason
the Corporation refuses or announces its refusal to honor conversion of
Preferred Shares, exercise of all Warrants and issuance of all Option
Shares; or (D) for any other reason there is a suspension or restriction in
the ability of holders of Preferred Shares, Warrants or Options to sell
Common Shares or Option Shares received upon conversion or exercise,
respectively, pursuant to the prospectus included in the Registration
Statement.
A lack of "Effective Registration" shall be deemed to have occurred at any
time the Common Shares or Option Shares issuable upon conversion of the
Preferred Shares,
<PAGE>
Page 5
exercise of the Warrants or exercise of this Option are not legally capable
of being sold on an Approved Market (as defined below) pursuant to an
effective registration statement and deliverable prospectus.
Notwithstanding the preceding provisions of this Section 3(d) or Section
3(c) above, the Company shall have no right to terminate this Option unless
each of the following conditions has been satisfied or exists at all times
during the 30 consecutive Trading Days immediately preceding delivery of
the Termination Notice and at all times thereafter through the Termination
Date, each of which shall be a condition precedent to any such termination:
(i) no material default or breach exists which has not been cured, and
no event shall have occurred which constitutes (or would constitute
with notice or the passage of time or both) a material default or
breach of this Option, the Purchase Agreement, the Registration Rights
Agreement, the Warrants or the Certificate, which has not been cured;
(ii) none of the events described in clauses (i) through (iv) of
Section 2(b) of the Registration Rights Agreement shall have occurred
and be continuing;
(iii) the Registration Statement is effective and holders have
received unlegended certificates representing Option Shares (to the
extent this Option has been exercised) and Common Shares with respect
to all conversions for which Conversion Notices have been given and
with respect to all exercises of the Warrants for which Notices of
Exercise have been given; and
(iv) the Company and its subsidiaries on a consolidated basis has
assets with a net realizable fair market value exceeding its
liabilities and is able to pay all its debts as they become due in the
ordinary course of business, and the Company is not subject to any
liquidation, dissolution or winding up of its affairs, or any
bankruptcy, insolvency or similar proceeding.
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Option. In lieu
of issuance of a fractional share upon any exercise hereunder, the Company
will either round up to nearest whole number of shares or pay the cash
value of that fractional share calculated on the basis of the Fair Market
Value (as defined below).
5. CHARGES, TAXES AND EXPENSES. Issuance of certificates for shares of Common
Stock upon the exercise of this Option shall be made without charge to the
Holder hereof for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and
expenses shall be paid by the Company, and such certificates shall be
issued in the name of the Holder of this Option or in such name or names as
may be directed by the Holder of this Option; PROVIDED, HOWEVER, that in
the event certificates for shares of Common Stock are to be issued in a
name other than the name of the Holder of this Option, this Option when
surrendered for exercise shall be
<PAGE>
Page 6
accompanied by the Assignment Form attached hereto duly executed by the
Holder hereof; and PROVIDED FURTHER, that the Company shall not be required
to pay any tax or taxes which may be payable in respect of any transfer
involved in the issuance of any Option certificates or any certificates for
the Option Shares other than the issuance of a Option Certificate to the
Holder in connection with the Holder's surrender of a Option Certificate
upon the exercise of all or less than all of the Options evidenced thereby.
6. CLOSING OF BOOKS. The Company will at no time close its shareholder books
or records in any manner which interferes with the timely exercise of this
Option.
7. NO RIGHTS AS SHAREHOLDER UNTIL EXERCISE. Subject to Section 12 of this
Option and the provisions of any other written agreement between the
Company and the Investor, the Investor shall not be entitled to vote or
receive dividends or be deemed the holder of Option Shares or any other
securities of the Company that may at any time be issuable on the exercise
hereof for any purpose, nor shall anything contained herein be construed to
confer upon the Investor, as such, any of the rights of a stockholder of
the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of
par value, or change of stock to no par value, consolidation, merger,
conveyance or otherwise) or to receive notice of meetings, or to receive
dividends or subscription rights or otherwise until the Option shall have
been exercised as provided herein. However, at the time of the exercise of
this Option pursuant to Section 3 hereof, the Option Shares so purchased
hereunder shall be deemed to be issued to such Holder as the record owner
of such shares as of the close of business on the date on which this Option
shall have been exercised.
8. ASSIGNMENT AND TRANSFER OF OPTION. This Option may be assigned by the
surrender of this Option and the Assignment Form annexed hereto duly
executed at the office of the Company (or such other office or agency of
the Company or its transfer agent as the Company may designate by notice in
writing to the registered Holder hereof at the address of such Holder
appearing on the books of the Company); PROVIDED, HOWEVER, that this Option
may not be resold or otherwise transferred except (i) in a transaction
registered under the Securities Act of 1933, as amended (the "ACT"), or
(ii) in a transaction pursuant to an exemption, if available, from
registration under the Act and whereby, if reasonably requested by the
Company, an opinion of counsel reasonably satisfactory to the Company is
obtained by the Holder of this Option to the effect that the transaction is
so exempt. If this Option is duly assigned in accordance with the terms
hereof, then the Company agrees, upon the request of the assignee, to amend
or supplement promptly any effective registration statement covering the
Option Shares so that the direct assignee of the original holder is added
as a selling stockholder thereunder.
9. LOSS, THEFT, DESTRUCTION OR MUTILATION OF OPTION; EXCHANGE. The Company
represents, warrants and covenants that (a) upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of any Option or stock
<PAGE>
Page 7
certificate representing the Option Shares, and in case of loss, theft or
destruction, of indemnity reasonably satisfactory to it, and (b) upon
surrender and cancellation of such Option or stock certificate, if
mutilated, the Company will make and deliver a new Option or stock
certificate of like tenor and dated as of such cancellation, in lieu of
this Option or stock certificate, without any charge therefor. This Option
is exchangeable at any time for an equal aggregate number of Options of
different denominations, as requested by the holder surrendering the same,
or in such denominations as may be requested by the Holder following
determination of the Exercise Price. No service charge will be made for
such registration or transfer, exchange or reissuance.
10. SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed day for the
taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may
be taken or such right may be exercised on the next succeeding day not a
legal holiday.
11. EFFECT OF CERTAIN EVENTS. If at any time while this Option or any portion
thereof is outstanding and unexpired there shall be a transaction (by
merger or otherwise) in which more than 50% of the voting power of the
Company is disposed of (collectively, a "SALE OR MERGER TRANSACTION"), the
Holder of this Option shall have the right thereafter to purchase, by
exercise of this Option and payment of the aggregate Exercise Price in
effect immediately prior to such action, the kind and amount of shares and
other securities and property which it would have owned or have been
entitled to receive after the happening of such transaction had this Option
been exercised immediately prior thereto, subject to further adjustment as
provided in Section 12.
12. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF OPTION SHARES. The number of
and kind of securities purchasable upon exercise of this Option and the
Exercise Price shall be subject to adjustment from time to time as set
forth in this Section 12.
(a) SUBDIVISIONS, COMBINATIONS, STOCK DIVIDENDS AND OTHER ISSUANCES. If the
Company shall, at any time while this Option is outstanding, (A) pay a
stock dividend or otherwise make a distribution or distributions on any
equity securities (including instruments or securities convertible into or
exchangeable for such equity securities) in shares of Common Stock, (B)
subdivide outstanding shares of Common Stock into a larger number of
shares, or (C) combine outstanding Common Stock into a smaller number of
shares, then each Affected Exercise Price (as defined below) shall be
multiplied by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding before such event and the denominator of
which shall be the number of shares of Common Stock outstanding after such
event. Any adjustment made pursuant to this Section 12(a) shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision or combination. As used herein, the Affected Exercise Prices
(each an "AFFECTED EXERCISE PRICE") shall refer to: (i) the
<PAGE>
Page 8
Exercise Price and (ii) each reported price for the Common Stock on the
Principal Market (as defined in the Purchase Agreement) occurring on any
Trading Day included in the period used for determining the Closing Price,
which Trading Day occurred before the record date in the case of events
referred to in clause (A) of this subparagraph 12(a) and the effective date
in the case of the events referred to in clauses (B) and (C) of this
subparagraph 12(a). "CLOSING PRICE" shall mean the average of the closing
bid prices of the Common Stock recorded on the Principal Market (as
reported by the Bloomberg Financial Network or any successor reporting
source) for the five (5) Trading Days immediately following the Closing
Date (as defined in the Purchase Agreement).
(b) OTHER DISTRIBUTIONS. If at any time after the date hereof the Company
distributes to holders of its Common Stock, other than as part of its
dissolution, liquidation or the winding up of its affairs, any shares of
its capital stock, any evidence of indebtedness or any of its assets (other
than Common Stock), then the Exercise Price shall be reduced to equal: (i)
the Exercise Price in effect immediately prior to such event, (ii)
multiplied by a fraction, (A) the numerator of which shall be the Fair
Market Value (as defined below) per share of Common Stock on the record
date for the dividend or distribution minus the amount allocable to one
share of Common Stock of the value (as jointly determined in good faith by
the Board of Directors of the Company and the Holder) of any and all such
evidences of indebtedness, shares of capital stock, other securities or
property, so distributed, and (B) the denominator of which shall be the
Fair Market Value per share of Common Stock on the record date for the
dividend or distribution. For purposes of this Option, "FAIR MARKET VALUE"
shall equal the average closing sale price of the Common Stock on the
Principal Market for the 5 Trading Days preceding the date of determination
or, if the Common Stock is not listed or admitted to trading on any
Principal Market, and the average price cannot be determined as
contemplated above, the Fair Market Value of the Common Stock shall be as
reasonably determined in good faith by the Company's Board of Directors and
the Holder.
(c) MERGER, ETC. If at any time after the date hereof there shall be a merger
or consolidation of the Company with or into or a transfer of all or
substantially all of the assets of the Company to another entity, then the
Holder shall be entitled to receive upon or after such transfer, merger or
consolidation becoming effective, and upon payment of the Exercise Price
then in effect, the number of shares or other securities or property of the
Company or of the successor corporation resulting from such merger or
consolidation, which would have been received by the Holder for the shares
of stock subject to this Option had this Option been exercised just prior
to such transfer, merger or consolidation becoming effective or to the
applicable record date thereof, as the case may be. The Company will not
merge or consolidate with or into any other corporation, or sell or
otherwise transfer its property, assets and business substantially as an
entirety to another corporation, unless the corporation resulting from such
merger or consolidation (if not the Company), or such transferee
corporation, as the case may be, shall expressly assume in writing the due
and punctual performance and observance of each and every covenant and
condition of this Option to be performed and observed by the Company.
<PAGE>
Page 9
(d) RECLASSIFICATION, ETC. If at any time after the date hereof there shall be
a reorganization or reclassification of the securities as to which purchase
rights under this Option exist into the same or a different number of
securities of any other class or classes, then the Holder shall thereafter
be entitled to receive upon exercise of this Option, during the period
specified herein and upon payment of the Exercise Price then in effect, the
number of shares or other securities or property resulting from such
reorganization or reclassification, which would have been received by the
Holder for the shares of stock subject to this Option had this Option at
such time been exercised.
(e) EXERCISE PRICE ADJUSTMENT. In the event that the Company issues or sells
any Common Stock or securities which are convertible into or exchangeable
for its Common Stock or any convertible securities, or any warrants or
other rights to subscribe for or to purchase or any options for the
purchase of its Common Stock or any such convertible securities (other than
shares or options issued or which may be issued pursuant to (i) the
Company's current employee option plans or shares issued upon exercise of
options, warrants or rights outstanding on the date of the Agreement and
listed in the Company's most recent periodic report filed under the
Exchange Act, or (ii) arrangements with the Investor) at an effective price
per share which is less than the greater of the Exercise Price then in
effect or the Fair Market Value (as described in Section 12(b) above) of
the Common Stock on the Trading Day next preceding such issue or sale, then
in each such case, the Exercise Price in effect immediately prior to such
issue or sale shall be reduced effective concurrently with such issue or
sale to an amount determined by multiplying the Exercise Price then in
effect by a fraction, (x) the numerator of which shall be the sum of (1)
the number of shares of Common Stock outstanding immediately prior to such
issue or sale, plus (2) the number of shares of Common Stock which the
aggregate consideration received by the Company for such additional shares
would purchase at such Fair Market Value or Exercise Price, whichever is
greater, then in effect; and (y) the denominator of which shall be the
number of shares of Common Stock of the Company outstanding immediately
after such issue or sale.
For the purposes of the foregoing adjustment, in the case of the issuance
of any convertible securities, warrants, options or other rights to
subscribe for or to purchase or exchange for, shares of Common Stock
("CONVERTIBLE SECURITIES"), the maximum number of shares of Common Stock
issuable upon exercise, exchange or conversion of such Convertible
Securities shall be deemed to be outstanding, provided that no further
adjustment shall be made upon the actual issuance of Common Stock upon
exercise, exchange or conversion of such Convertible Securities.
In the event of any such issuance for a consideration which is less than
such Fair Market Value and also less than the Exercise Price then in
effect, than there shall be only one such adjustment by reason of such
issuance, such adjustment to be that which results in the greatest
reduction of the Exercise Price computed as aforesaid.
(f) The terms of any reorganization, consolidation, merger, sale, transfer or
share exchange shall include such terms so as to continue to give to the
holder hereof the right to receive
<PAGE>
Page 10
the securities or property set forth in this Section 12 upon any exercise
following any such reclassification, consolidation, merger, sale, transfer
or share exchange.
13. VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may at its option, at any
time during the term of this Option, reduce but not increase the then
current Exercise Price to any amount and for any period of time deemed
appropriate by the Board of Directors of the Company.
14. NOTICE OF ADJUSTMENT; NOTICE OF EVENTS. (i) Whenever the number of Option
Shares or number or kind of securities or other property purchasable upon
the exercise of this Option or the Exercise Price is adjusted, the Company
shall promptly mail to the Holder of this Option a notice setting forth the
number of Option Shares (and other securities or property) purchasable upon
the exercise of this Option and the Exercise Price of such Option Shares
after such adjustment and setting forth the computation of such adjustment
and a brief statement of the facts requiring such adjustment. (ii) If: (A)
the Company shall declare a dividend (or any other distribution) on its
Common Stock; or (B) the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or (C) the Company shall
authorize the granting to all holders of the Common Stock rights or
warrants to subscribe for or purchase any shares of capital stock of any
class or of any rights; or (D) the approval of any stockholders of the
Company shall be required in connection with any reclassification of the
Common Stock of the Company, any consolidation or merger to which the
Company is a party, any sale or transfer of all or substantially all of the
assets of the Company, or any compulsory share exchange whereby the Common
Stock is converted into other securities, cash or property; or (E) the
Company shall authorize the voluntary dissolution, liquidation or winding
up of the affairs of the Company, then the Company shall cause to be mailed
to each Option holder at their last addresses as they shall appear upon the
Option register of the Company, at least 30 calendar days prior to the
applicable record or effective date hereinafter specified, a notice stating
(x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is
not to be taken, the date as of which the holders of Common Stock of record
to be entitled to such dividend, distributions, redemption, rights or
warrants are to be determined or (y) the date on which such
reclassification, consolidation, merger, sale, transfer or share exchange
is expected to become effective or close, and the date as of which it is
expected that holders of Common Stock of record shall be entitled to
exchange their shares of Common Stock for securities, cash or other
property deliverable upon such reclassification, consolidation, merger,
sale, transfer, share exchange, dissolution, liquidation or winding up.
15. AUTHORIZED SHARES. The Company covenants that during the Exercise Period it
will reserve from its authorized and unissued Common Stock a sufficient
number of shares to provide for the issuance of the Option Shares upon the
exercise of any and all purchase rights under this Option. The Company
further covenants that its issuance of this Option shall constitute full
authority to its officers who are charged with the duty of executing stock
certificates to execute and issue the necessary certificates for the Option
Shares
<PAGE>
Page 11
upon the exercise of the purchase rights under this Option. The Company
will take all such reasonable action as may be necessary to assure that
such Option Shares may be issued as provided herein without violation of
any applicable law, regulation, or rule of any applicable market or
exchange.
16. 9.99% LIMITATION.
(i) Notwithstanding anything to the contrary contained herein, the
number of shares of Common Stock that may be acquired by the holder upon
exercise pursuant to the terms hereof shall not exceed a number that, when
added to the total number of shares of Common Stock deemed beneficially
owned by such holder (other than by virtue of the ownership of securities
or rights to acquire securities that have limitations on the holder's right
to convert, exercise or purchase similar to the limitation set forth
herein), together with all shares of Common Stock deemed beneficially owned
by the holder's "affiliates" (as defined in Rule 144 of the Act)
("Aggregation Parties") that would be aggregated for purposes of
determining whether a group under Section 13(d) of the Securities Exchange
Act of 1934 as amended, exists, would exceed 9.99% of the total issued and
outstanding shares of the Common Stock (the "Restricted Ownership
Percentage"); PROVIDED that (w) each holder shall have the right at any
time and from time to time to reduce its Restricted Ownership Percentage
immediately upon notice to the Company and (x) each holder shall have the
right (subject to waiver) at any time and from time to time, to increase
its Restricted Ownership Percentage immediately in the event of the
announcement as pending or planned, of a transaction or event referred to
in Section 5(m) of the Certificate.
(ii) Each time (a "COVENANT TIME") the holder or an Aggregation Party
makes a Triggering Acquisition (as defined below) of shares of Common Stock
(the "TRIGGERING SHARES"), the holder will be deemed to covenant that it
will not, during the balance of the day on which such Triggering
Acquisition occurs, and during the 61-day period beginning immediately
after that day, acquire additional shares of Common Stock pursuant to
rights-to-acquire existing at that Covenant Time, if the aggregate amount
of such additional shares so acquired (without reducing that amount by any
dispositions) would exceed (x) 9.99% of the number of shares of Common
Stock outstanding at that Covenant Time (including the Triggering Shares)
minus (y) the number of shares of Common Stock actually owned by the holder
at that Covenant Time (regardless of how or when acquired, and including
the Triggering Shares). A "TRIGGERING ACQUISITION" means the giving of a
Notice of Exercise or any other acquisition of Common Stock by the holder
or an Aggregation Party; PROVIDED, however, that with respect to the giving
of such Notice of Exercise, if the associated issuance of shares of Common
Stock does not occur, such event shall cease to be a Triggering Acquisition
and the related covenant under this paragraph shall terminate. At each
Covenant Time, the holder shall be deemed to waive any right it would
otherwise have to acquire shares of Common Stock to the extent that such
acquisition would violate any covenant given by the holder under this
paragraph. Notwithstanding anything to the contrary in the Transaction
Documents, in the event of a conflict between any covenant given under this
paragraph and any obligation of the holder to exercise this Option pursuant
to the Transaction Documents,
<PAGE>
Page 12
the former shall supersede the latter, and the latter shall be reduced
accordingly. For the avoidance of doubt:
(A) The covenant to be given pursuant to this paragraph will be given
at every Covenant Time and shall be calculated based on the
circumstances then in effect. The making of a covenant at one
Covenant Time shall not terminate or modify any prior covenants.
(B) The holder may therefore from time to time be subject to multiple
such covenants, each one having been made at a different Covenant
Time, and some possibly being more restrictive than others. The
holder must comply with all such covenants then in effect.
17. COMPLIANCE WITH SECURITIES LAWS. (a) The Holder hereof acknowledges that
the Option Shares acquired upon the exercise of this Option, if not
registered (or if no exemption from registration exists), will have
restrictions upon resale imposed by state and federal securities laws. Each
certificate representing the Option Shares issued to the Holder upon
exercise (if not registered, for resale or otherwise, or if no exemption
from registration exists) will bear substantially the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED WITH
THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED, TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
(b) Without limiting the Investor's right to transfer, assign or otherwise
convey the Option or Option Shares in compliance with all applicable
securities laws, the Investor of this Option, by acceptance hereof,
acknowledges that this Option and the Option Shares to be issued upon
exercise hereof are being acquired solely for the Investor's own account
and not as a nominee for any other party, and that the Investor will not
offer, sell or otherwise dispose of this Option or any Option Shares to be
issued upon exercise hereof except under circumstances that will not result
in a violation of applicable federal and state securities laws.
18. MISCELLANEOUS.
(a) ISSUE DATE; CHOICE OF LAW; VENUE; JURISDICTION. THE PROVISIONS OF THIS
OPTION SHALL BE CONSTRUED AND SHALL BE GIVEN EFFECT IN ALL
<PAGE>
Page 13
RESPECTS AS IF IT HAD BEEN ISSUED AND DELIVERED BY THE COMPANY ON THE DATE
HEREOF. THIS OPTION SHALL BE BINDING UPON ANY SUCCESSORS OR ASSIGNS OF THE
COMPANY. THIS OPTION WILL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND
GOVERNED BY THE LAWS OF THE STATE OF NEW YORK, EXCEPT FOR MATTERS ARISING
UNDER THE ACT, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF
THE PARTIES CONSENTS TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE
COURTS SITTING IN THE COUNTY OF NEW YORK IN THE STATE OF NEW YORK IN
CONNECTION WITH ANY DISPUTE ARISING UNDER THIS OPTION AND HEREBY WAIVES, TO
THE MAXIMUM EXTENT PERMITTED BY LAW, ANY OBJECTION, INCLUDING ANY OBJECTION
BASED ON FORUM NON CONVENIENS OR VENUE, TO THE BRINGING OF ANY SUCH
PROCEEDING IN SUCH JURISDICTION. EACH PARTY HEREBY AGREES THAT IF THE OTHER
PARTY TO THIS OPTION OBTAINS A JUDGMENT AGAINST IT IN SUCH A PROCEEDING,
THE PARTY WHICH OBTAINED SUCH JUDGMENT MAY ENFORCE SAME BY SUMMARY JUDGMENT
IN THE COURTS OF ANY COUNTRY HAVING JURISDICTION OVER THE PARTY AGAINST
WHOM SUCH JUDGMENT WAS OBTAINED, AND EACH PARTY HEREBY WAIVES ANY DEFENSES
AVAILABLE TO IT UNDER LOCAL LAW AND AGREES TO THE ENFORCEMENT OF SUCH A
JUDGMENT. EACH PARTY TO THIS OPTION IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS IN ANY SUCH PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH PARTY AT ITS ADDRESS
IN ACCORDANCE WITH SECTION 18(C). NOTHING HEREIN SHALL AFFECT THE RIGHT OF
ANY PARTY TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
(b) MODIFICATION AND WAIVER. This Option and any provisions hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought. Any
amendment effected in accordance with this paragraph shall be binding upon
the Investor, each future holder of this Option and the Company. No waivers
of, or exceptions to, any term, condition or provision of this Option, in
any one or more instances, shall be deemed to be, or construed as, a
further or continuing waiver of any such term, condition or provision.
(c) NOTICES. Any notice, request or other document required or permitted to be
given or delivered to the Investor or future holders hereof or the Company
shall be personally delivered or shall be sent by certified or registered
mail, postage prepaid, to the Investor or each such holder at its address
as shown on the books of the Company or to the Company at the address set
forth in the Purchase Agreement. All notices under this Option shall be
deemed to have been given when received.
A party may from time to time change the address to which notices to it are
to be delivered or mailed hereunder by notice in accordance with the
provisions of this Section 18(c).
<PAGE>
Page 14
(d) SEVERABILITY. Whenever possible, each provision of this Option shall be
interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Option is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not
affect the validity, legality or enforceability of any other provision of
this Option in such jurisdiction or affect the validity, legality or
enforceability of any provision in any other jurisdiction, but this Option
shall be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained
herein.
(e) NO IMPAIRMENT. The Company will not, by amendment of its Restated and
Amended Articles of Incorporation or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities
or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Option, but will at all times in
good faith assist in the carrying out of all such terms and in the taking
of all such action as may be necessary or appropriate in order to protect
the rights of the Holder against impairment. Without limiting the
generality of the foregoing, the Company (a) will not increase the par
value of any Option Shares above the amount payable therefor on such
exercise, and (b) will take all such action as may be reasonably necessary
or appropriate in order that the Company may validly and legally issue
fully paid and nonassessable Option Shares on the exercise of this Option.
(f) SPECIFIC ENFORCEMENT. The Company and the Holder acknowledge and agree
that irreparable damage would occur in the event that any of the
provisions of this Option were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that
the parties shall he entitled to an injunction or injunctions to prevent
or cure breaches of the provisions of this Option and to enforce
specifically the terms and provisions hereof, this being in addition to
any other remedy to which either of them may be entitled by law or
equity.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
Page 15
IN WITNESS WHEREOF, the Company has caused this Option to be executed by its
officers thereunto duly authorized.
Dated: April 19, 2000
MICROWARE SYSTEMS CORPORATION
By: /s/ Kenneth B. Kaplan
Name: Kenneth B. Kaplan
Title: President and Chief Executive Officer
ATTEST:
- ------------------------------
Name:
<PAGE>
NOTICE OF EXERCISE
Microware Systems Corporation
1500 N.W. 118th Street
Des Moines, Iowa 50325
Telephone: (515) 223-8000
Facsimile: (515) 224-1352
Attention: Kenneth B. Kaplan
This undersigned hereby elects to exercise the right of purchase represented by
the within Option ("Option") for _______________ shares of Common Stock*
("Option Shares") provided for therein at an aggregate purchase of
$_______________, and to purchase such Option Shares by (CHECK AS APPLICABLE):
/ / payment by cash, wire transfer or certified check,
/ / exercise of the within Option by cashless exercise pursuant to
Section 3(b) thereof, resulting in ______ shares of Common Stock
issuable upon surrender of the Option,
and requests that certificates for the Option Shares be issued as follows:
-------------------------------
Name
--------------------------------
Address
--------------------------------
--------------------------------
and, if the number of Option Shares shall not be all the Option Shares
purchasable upon exercise of the Option, that a new Option for the balance of
the Option Shares be issued.
In lieu of delivering physical certificates representing the Option Shares
purchasable upon exercise of this Option, provided the Company's transfer agent
is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer ("FAST") program, upon request of the Holder, the Company
shall use its best efforts to cause its transfer agent to electronically
transmit the Option Shares issuable upon conversion or exercise to the
undersigned, by crediting the account of the undersigned's prime broker with DTC
through its Deposit Withdrawal Agent Commission ("DWAC") system.
Dated: Signature:
--------------- --------------------------------
--------------------------------
Name (please print)
--------------------------------
Address (please print)
--------------------------------
- ----------------
* NOTE: If conversion of the Option is made by surrender of the Option and
the number of shares indicated exceeds the maximum number of shares to
which a holder is entitled, the Company will issue such maximum number of
shares purchasable upon exercise of the Option registered in the name of
the undersigned Optionholder or the undersigned's Assignee as below
indicated and deliver same to the address stated below.
<PAGE>
ASSIGNMENT FORM
(To assign the foregoing Option, execute
this form and supply required information.
Do not use this form to exercise the Option.)
FOR VALUE RECEIVED, the foregoing Option and all rights evidenced thereby
are hereby assigned to
_______________________________________________ whose address is
___________________________________________________________________.
___________________________________________________________________
Dated: ______________,
Holder's Signature: _________________________________
Holder's Address:____________________________________
____________________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Option, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Option.
<PAGE>
EXHIBIT 10.4
EXHIBIT 10.4
FORM OF WARRANT AGREEMENT
THESE SECURITIES HAVE NOT BEEN REGISTERED WITH THE UNITED STATES SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN
EXEMPTION FROM REGISTRATION UNDER REGULATION D PROMULGATED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"). THIS WARRANT SHALL NOT CONSTITUTE AN OFFER
TO SELL NOR A SOLICITATION OF AN OFFER TO BUY THE SECURITIES IN ANY JURISDICTION
IN WHICH SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. THE SECURITIES ARE
"RESTRICTED" AND MAY NOT BE RESOLD OR TRANSFERRED EXCEPT AS PERMITTED UNDER THE
ACT PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM.
COMMON STOCK PURCHASE WARRANT
To Purchase Shares of No Par Value Common Stock ("Common Stock") of
MICROWARE SYSTEMS CORPORATION
THIS CERTIFIES that, for value received, * (the "INVESTOR") is entitled,
upon the terms and subject to the conditions hereinafter set forth, at any time
on or after the date hereof and on or prior to 8:00 p.m. New York City Time on
April 19, 2005 (the "TERMINATION DATE"), but not thereafter, to subscribe for
and purchase from MICROWARE SYSTEMS CORPORATION, an Iowa corporation (the
"COMPANY"), 43,750 shares of Common Stock (the "WARRANT SHARES") at an exercise
price (as adjusted from time to time pursuant to the terms hereof, the "EXERCISE
PRICE") equal to 115% of the Closing Price (as defined in Section 12(a) below).
The Exercise Price and the number of shares for which the Warrant is exercisable
shall be subject to adjustment as provided herein. This Warrant is being issued
in connection with the Securities Purchase Agreement dated April 19, 2000 (the
"PURCHASE AGREEMENT") entered into between the Company, the Investor and
Westgate International, L.P. Capitalized terms used herein and not otherwise
defined shall have the meaning ascribed thereto in the Purchase Agreement.
1. TITLE OF WARRANT. Prior to the expiration hereof and subject to compliance
with applicable laws, this Warrant and all rights hereunder are
transferable, in whole or in part, at the office or agency of the Company
by the Holder hereof in person or by duly authorized attorney, upon
surrender of this Warrant together with (a) the Assignment Form annexed
hereto properly endorsed, and (b) any other documentation reasonably
necessary to satisfy the Company that such transfer is in compliance with
all applicable securities laws. The term "HOLDER" shall refer to the
Investor or any subsequent transferee of this Warrant.
- -----------
* One warrant agreement was issued to Elliott Associates, L.P. and a second
identical agreement was issued to Westgate International, L.P.
<PAGE>
Page 2
2. AUTHORIZATION OF SHARES. The Company covenants that all shares of Common
Stock which may be issued upon the exercise of rights represented by this
Warrant will, upon exercise of the rights represented by this Warrant and
payment of the Exercise Price as set forth herein will be duly authorized,
validly issued, fully paid and nonassessable and free from all taxes, liens
and charges in respect of the issue thereof (other than taxes in respect of
any transfer occurring contemporaneously with such issue or otherwise
specified herein).
3. EXERCISE OF WARRANT.
(a) MECHANICS OF EXERCISE. The Holder may exercise this Warrant, in whole or in
part, at any time and from time to time, by delivering to the offices of
the Company or any transfer agent for the Common Stock this Warrant,
together with a Notice of Exercise in the form annexed hereto specifying
the number of Warrant Shares with respect to which this Warrant is being
exercised, together with payment to the Company of the Exercise Price
therefor.
In the event that the Warrant is not exercised in full, the number of
Warrant Shares shall be reduced by the number of such Warrant Shares for
which this Warrant is exercised and/or surrendered, and the Company, at its
expense, shall within three (3) Trading Days (as defined below) issue and
deliver to the Holder a new Warrant of like tenor in the name of the Holder
or as the Holder (upon payment by Holder of any applicable transfer taxes)
may request, reflecting such adjusted Warrant Shares.
Certificates for shares of Common Stock purchased hereunder shall be
delivered to the Holder hereof within two (2) Trading Days after the date
on which this Warrant shall have been exercised as aforesaid. The Holder
may withdraw its Notice of Exercise at any time if the Company fails to
timely deliver the relevant certificates to the Holder as provided in this
Agreement.
In lieu of delivering physical certificates representing the Warrant Shares
issuable upon conversion of this Warrant, provided the Company's transfer
agent is participating in the Depository Trust Company ("DTC") Fast
Automated Securities Transfer ("FAST") program, upon request of the Holder,
the Company shall use its best efforts to cause its transfer agent to
electronically transmit the Warrant Shares issuable upon exercise to the
Holder, by crediting the account of the Holder's prime broker with DTC
through its Deposit Withdrawal Agent Commission ("DWAC") system. The time
periods for delivery described above shall apply to the electronic
transmittals through the DWAC system. The Company agrees to coordinate with
DTC to accomplish this objective.
(b) CASHLESS EXERCISE. Notwithstanding the foregoing provision regarding
payment of the Exercise Price in cash, the Holder may elect to receive a
reduced number of Warrant Shares in lieu of tendering the Exercise Price in
cash. In such case, the number of Warrant Shares to be issued to the Holder
shall be computed using the following formula:
<PAGE>
Page 3
X = Y x (A-B)
-------------
A
where: X = the number of Warrant Shares to be issued to the Holder;
Y = the number of Warrant Shares to be exercised under this
Warrant Certificate;
A = the Market Value (defined below) of one share of Common
Stock; and
B = the Exercise Price.
As used herein, "MARKET VALUE" refers to the closing bid price of the
Common Stock (as reported by Bloomberg, L.P.) on the Trading Day before the
Notice of Exercise and this Warrant are duly surrendered to the Company for
a full or partial exercise hereof. Notwithstanding the foregoing
definition, if the Common Stock is not listed on a national securities
exchange or quoted in the Nasdaq System at the time said Notice of Exercise
is submitted to the Company in the foregoing manner, the Market Value of
the Common Stock shall be as reasonably determined in good faith by the
Board of Directors of the Company and such Holder, unless the Company shall
become subject to a merger, acquisition, or other consolidation pursuant to
which the Company is not the surviving entity, in which case the Market
Value of the Common Stock shall be deemed to be the value received by the
Company's common shareholders pursuant to the Company's acquisition
(subject to Section 12 below).
(c) The term "TRADING DAY" means (x) if the Common Stock is not listed on the
New York or American Stock Exchange but sale prices of the Common Stock are
reported on Nasdaq National Market or another automated quotation system, a
day on which trading is reported on the principal automated quotation
system on which sales of the Common Stock are reported, (y) if the Common
Stock is listed on the New York Stock Exchange or the American Stock
Exchange, a day on which there is trading on such stock exchange, or (z) if
the foregoing provisions are inapplicable, a day on which quotations are
reported by National Quotation Bureau Incorporated.
4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip representing
fractional shares shall be issued upon the exercise of this Warrant. In
lieu of issuance of a fractional share upon any exercise hereunder, the
Company at its option will either round up to nearest whole number of
shares or pay the cash value of that fractional share calculated on the
basis of the Fair Market Value (as defined below).
5. CHARGES, TAXES AND EXPENSES. Issuance of certificates for shares of Common
Stock upon the exercise of this Warrant shall be made without charge to the
Holder hereof for any issue or transfer tax or other incidental expense in
respect of the issuance of such certificate, all of which taxes and
expenses shall be paid by the Company, and such certificates shall be
issued in the name of the Holder of this Warrant or in such name or names
as may be directed by the Holder of this Warrant; PROVIDED, HOWEVER, that
in the event certificates for shares of Common Stock are to be issued in a
name other than the name of the Holder of this Warrant, this Warrant when
surrendered for exercise shall be accompanied by the Assignment Form
attached hereto duly executed by the Holder
<PAGE>
Page 4
hereof; and PROVIDED FURTHER, that the Company shall not be required to pay
any tax or taxes which may be payable in respect of any transfer involved
in the issuance of any Warrant certificates or any certificates for the
Warrant Shares other than the issuance of a Warrant Certificate to the
Holder in connection with the Holder's surrender of a Warrant Certificate
upon the exercise of all or less than all of the Warrants evidenced
thereby.
6. CLOSING OF BOOKS. The Company will at no time close its shareholder books
or records in any manner which interferes with the timely exercise of this
Warrant.
7. NO RIGHTS AS SHAREHOLDER UNTIL EXERCISE. Subject to Section 12 of this
Warrant and the provisions of any other written agreement between the
Company and the Investor, the Investor shall not be entitled to vote or
receive dividends or be deemed the holder of Warrant Shares or any other
securities of the Company that may at any time be issuable on the exercise
hereof for any purpose, nor shall anything contained herein be construed to
confer upon the Investor, as such, any of the rights of a stockholder of
the Company or any right to vote for the election of directors or upon any
matter submitted to stockholders at any meeting thereof, or to give or
withhold consent to any corporate action (whether upon any
recapitalization, issuance of stock, reclassification of stock, change of
par value, or change of stock to no par value, consolidation, merger,
conveyance or otherwise) or to receive notice of meetings, or to receive
dividends or subscription rights or otherwise until the Warrant shall have
been exercised as provided herein. However, at the time of the exercise of
this Warrant pursuant to Section 3 hereof, the Warrant Shares so purchased
hereunder shall be deemed to be issued to such Holder as the record owner
of such shares as of the close of business on the date on which this
Warrant shall have been exercised.
8. ASSIGNMENT AND TRANSFER OF WARRANT. This Warrant may be assigned by the
surrender of this Warrant and the Assignment Form annexed hereto duly
executed at the office of the Company (or such other office or agency of
the Company or its transfer agent as the Company may designate by notice in
writing to the registered Holder hereof at the address of such Holder
appearing on the books of the Company); PROVIDED, HOWEVER, that this
Warrant may not be resold or otherwise transferred except (i) in a
transaction registered under the Securities Act of 1933, as amended (the
"ACT"), or (ii) in a transaction pursuant to an exemption, if available,
from registration under the Act and whereby, if reasonably requested by the
Company, an opinion of counsel reasonably satisfactory to the Company is
obtained by the Holder of this Warrant to the effect that the transaction
is so exempt. If this Warrant is duly assigned in accordance with the terms
hereof, then the Company agrees, upon the request of the assignee, to amend
or supplement promptly any effective registration statement covering the
Warrant Shares so that the direct assignee of the original holder is added
as a selling stockholder thereunder.
9. LOSS, THEFT, DESTRUCTION OR MUTILATION OF WARRANT; EXCHANGE. The Company
represents warrants and covenants that (a) upon receipt by the Company of
evidence reasonably satisfactory to it of the loss, theft, destruction or
mutilation of any Warrant or stock certificate representing the Warrant
Shares, and in case of loss, theft or destruction, of
<PAGE>
Page 5
indemnity reasonably satisfactory to it, and (b) upon surrender and
cancellation of such Warrant or stock certificate, if mutilated, the
Company will make and deliver a new Warrant or stock certificate of like
tenor and dated as of such cancellation, in lieu of this Warrant or stock
certificate, without any charge therefor. This Warrant is exchangeable at
any time for an equal aggregate number of Warrants of different
denominations, as requested by the holder surrendering the same, or in such
denominations as may be requested by the Holder following determination of
the Exercise Price. No service charge will be made for such registration or
transfer, exchange or reissuance.
10. SATURDAYS, SUNDAYS, HOLIDAYS, ETC. If the last or appointed day for the
taking of any action or the expiration of any right required or granted
herein shall be a Saturday, Sunday or a legal holiday, then such action may
be taken or such right may be exercised on the next succeeding day not a
legal holiday.
11. EFFECT OF CERTAIN EVENTS. If at any time while this Warrant or any portion
thereof is outstanding and unexpired there shall be a transaction (by
merger or otherwise) in which more than 50% of the voting power of the
Company is disposed of (collectively, a "SALE OR MERGER TRANSACTION"), the
Holder of this Warrant shall have the right thereafter to purchase, by
exercise of this Warrant and payment of the aggregate Exercise Price in
effect immediately prior to such action, the kind and amount of shares and
other securities and property which it would have owned or have been
entitled to receive after the happening of such transaction had this
Warrant been exercised immediately prior thereto, subject to further
adjustment as provided in Section 12.
12. ADJUSTMENTS OF EXERCISE PRICE AND NUMBER OF WARRANT SHARES. The number of
and kind of securities purchasable upon exercise of this Warrant and the
Exercise Price shall be subject to adjustment from time to time as set
forth in this Section 12.
(a) SUBDIVISIONS, COMBINATIONS, STOCK DIVIDENDS AND OTHER ISSUANCES. If the
Company shall, at any time while this Warrant is outstanding, (A) pay a
stock dividend or otherwise make a distribution or distributions on any
equity securities (including instruments or securities convertible into or
exchangeable for such equity securities) in shares of Common Stock, (B)
subdivide outstanding shares of Common Stock into a larger number of
shares, or (C) combine outstanding Common Stock into a smaller number of
shares, then each Affected Exercise Price (as defined below) shall be
multiplied by a fraction, the numerator of which shall be the number of
shares of Common Stock outstanding before such event and the denominator of
which shall be the number of shares of Common Stock outstanding after such
event. Any adjustment made pursuant to this Section 12(a) shall become
effective immediately after the record date for the determination of
stockholders entitled to receive such dividend or distribution and shall
become effective immediately after the effective date in the case of a
subdivision or combination. As used herein, the Affected Exercise Prices
(each an "AFFECTED EXERCISE PRICE") shall refer to: (i) the Exercise Price
and (ii) each reported price for the Common Stock on the Principal Market
<PAGE>
Page 6
(as defined in the Purchase Agreement) occurring on any Trading Day
included in the period used for determining the Closing Price, which
Trading Day occurred before the record date in the case of events referred
to in clause (A) of this subparagraph 12(a) and the effective date in the
case of the events referred to in clauses (B) and (C) of this subparagraph
12(a). "CLOSING PRICE" shall mean the average of the closing bid prices of
the Common Stock recorded on the Principal Market (as reported by the
Bloomberg Financial Network or any successor reporting source) for the five
(5) Trading Days immediately following the Closing Date (as defined in the
Purchase Agreement). The number of shares which may be purchased hereunder
shall be increased proportionately to any reduction in Exercise Price
pursuant to this paragraph 12(a), so that after such adjustments the
aggregate Exercise Price payable hereunder for the increased number of
shares shall be the same as the aggregate Exercise Price in effect just
prior to such adjustments.
(b) OTHER DISTRIBUTIONS. If at any time after the date hereof the Company
distributes to holders of its Common Stock, other than as part of its
dissolution, liquidation or the winding up of its affairs, any shares of
its capital stock, any evidence of indebtedness or any of its assets (other
than Common Stock), then the number of Warrant Shares for which this
Warrant is exercisable shall be increased to equal: (i) the number of
Warrant Shares for which this Warrant is exercisable immediately prior to
such event, (ii) multiplied by a fraction, (A) the numerator of which shall
be the Fair Market Value (as defined below) per share of Common Stock on
the record date for the dividend or distribution, and (B) the denominator
of which shall be the Fair Market Value price per share of Common Stock on
the record date for the dividend or distribution minus the amount allocable
to one share of Common Stock of the value (as jointly determined in good
faith by the Board of Directors of the Company and the Holder) of any and
all such evidences of indebtedness, shares of capital stock,
other securities or property, so distributed. For purposes of this Warrant,
"FAIR MARKET VALUE" shall equal the 5 Trading Day average closing trading
price of the Common Stock on the Principal Market (as defined in the
Purchase Agreement) for the 5 Trading Days preceding the date of
determination or, if the Common Stock is not listed or admitted to trading
on any Principal Market, and the average price cannot be determined as
contemplated above, the Fair Market Value of the Common Stock shall be as
reasonably determined in good faith by the Company's Board of Directors and
the Holder. The Exercise Price shall be reduced to equal: (i) the Exercise
Price in effect immediately before the occurrence of any event (ii)
multiplied by a fraction, (A) the numerator of which is the number of
Warrant Shares for which this Warrant is exercisable immediately before the
adjustment, and (B) the denominator of which is the number of Warrant
Shares for which this Warrant is exercisable immediately after the
adjustment.
(c) MERGER, ETC. If at any time after the date hereof there shall be a merger
or consolidation of the Company with or into or a transfer of all or
substantially all of the assets of the Company to another entity, then the
Holder shall be entitled to receive upon or after such transfer, merger or
consolidation becoming effective, and upon payment of the Exercise Price
then in effect, the number of shares or other securities or property of the
Company
<PAGE>
Page 7
or of the successor corporation resulting from such merger or
consolidation, which would have been received by the Holder for the shares
of stock subject to this Warrant had this Warrant been exercised just prior
to such transfer, merger or consolidation becoming effective or to the
applicable record date thereof, as the case may be. The Company will not
merge or consolidate with or into any other corporation, or sell or
otherwise transfer its property, assets and business substantially as an
entirety to another corporation, unless the corporation resulting from such
merger or consolidation (if not the Company), or such transferee
corporation, as the case may be, shall expressly assume in writing the due
and punctual performance and observance of each and every covenant and
condition of this Warrant to be performed and observed by the Company.
(d) RECLASSIFICATION, ETC. If at any time after the date hereof there shall be
a reorganization or reclassification of the securities as to which purchase
rights under this Warrant exist into the same or a different number of
securities of any other class or classes, then the Holder shall thereafter
be entitled to receive upon exercise of this Warrant, during the period
specified herein and upon payment of the Exercise Price then in effect, the
number of shares or other securities or property resulting from such
reorganization or reclassification, which would have been received by the
Holder for the shares of stock subject to this Warrant had this Warrant at
such time been exercised.
(e) EXERCISE PRICE ADJUSTMENT. In the event that the Company issues or sells
any Common Stock or securities which are convertible into or exchangeable
for its Common Stock or any convertible securities, or any warrants or
other rights to subscribe for or to purchase or any options for the
purchase of its Common Stock or any such convertible securities (other than
shares or options issued or which may be issued pursuant to (i) the
Company's current employee option plans or shares issued upon exercise of
options, warrants or rights outstanding on the date of the Agreement and
listed in the Company's most recent periodic report filed under the
Exchange Act, or (ii) arrangements with the Investor) at an effective price
per share which is less than the greater of the Exercise Price then in
effect or the Fair Market Value (as described in Section 12(b) above) of
the Common Stock on the trading day next preceding such issue or sale, then
in each such case, the Exercise Price in effect immediately prior to such
issue or sale shall be reduced effective concurrently with such issue or
sale to an amount determined by multiplying the Exercise Price then in
effect by a fraction, (x) the numerator of which shall be the sum of (1)
the number of shares of Common Stock outstanding immediately prior to such
issue or sale, plus (2) the number of shares of Common Stock which the
aggregate consideration received by the Company for such additional shares
would purchase at such Fair Market Value or Exercise Price, whichever is
greater, then in effect; and (y) the denominator of which shall be the
number of shares of Common Stock of the Company outstanding immediately
after such issue or sale.
For the purposes of the foregoing adjustment, in the case of the issuance
of any convertible securities, warrants, options or other rights to
subscribe for or to purchase or exchange for, shares of Common Stock
("CONVERTIBLE SECURITIES"), the maximum number of shares of Common Stock
issuable upon exercise, exchange or conversion of
<PAGE>
Page 8
such Convertible Securities shall be deemed to be outstanding, provided
that no further adjustment shall be made upon the actual issuance of Common
Stock upon exercise, exchange or conversion of such Convertible Securities.
The number of shares which may be purchased hereunder shall be increased
proportionately to any reduction in Exercise Price pursuant to this
paragraph 12(e), so that after such adjustments the aggregate Exercise
Price payable hereunder for the increased number of shares shall be the
same as the aggregate Exercise Price in effect just prior to such
adjustments.
In the event of any such issuance for a consideration which is less than
such Fair Market Value and also less than the Exercise Price then in
effect, than there shall be only one such adjustment by reason of such
issuance, such adjustment to be that which results in the greatest
reduction of the Exercise Price computed as aforesaid.
(f) (i) The terms of any reorganization, consolidation, merger, sale, transfer
or share exchange shall include such terms so as to continue to give to the
holder hereof the right to receive the securities or property set forth in
this Section 12 upon any exercise following any such reclassification,
consolidation, merger, sale, transfer or share exchange.
(ii) In the event of any adjustment in the number of Warrant Shares
issuable hereunder upon exercise, the Exercise Price shall be inversely
proportionately increased or decreased as the case may be, such that
aggregate purchase price for Warrant Shares upon full exercise of this
Warrant shall remain the same. Similarly, in the event of any adjustment in
the Exercise Price, the number of Warrant Shares issuable hereunder upon
exercise shall be inversely proportionately increased or decreased as the
case may be, such that aggregate purchase price for Warrant Shares upon
full exercise of this Warrant shall remain the same.
13. VOLUNTARY ADJUSTMENT BY THE COMPANY. The Company may at its option, at any
time during the term of this Warrant, reduce but not increase the then
current Exercise Price to any amount and for any period of time deemed
appropriate by the Board of Directors of the Company.
14. NOTICE OF ADJUSTMENT; NOTICE OF EVENTS. (i) Whenever the number of Warrant
Shares or number or kind of securities or other property purchasable upon
the exercise of this Warrant or the Exercise Price is adjusted, the Company
shall promptly mail to the Holder of this Warrant a notice setting forth
the number of Warrant Shares (and other securities or property) purchasable
upon the exercise of this Warrant and the Exercise Price of such Warrant
Shares after such adjustment and setting forth the computation of such
adjustment and a brief statement of the facts requiring such adjustment.
(ii) If: (A) the Company shall declare a dividend (or any other
distribution) on its Common Stock; or (B) the Company shall declare a
special nonrecurring cash dividend on or a redemption of its Common Stock;
or (C) the Company shall authorize the granting to all holders of the
Common Stock rights or warrants to subscribe for or purchase any shares of
capital stock
<PAGE>
Page 9
of any class or of any rights; or (D) the approval of any
stockholders of the Company shall be required in connection with any
reclassification of the Common Stock of the Company, any consolidation or
merger to which the Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, or any compulsory share
exchange whereby the Common Stock is converted into other securities, cash
or property; or (E) the Company shall authorize the voluntary dissolution,
liquidation or winding up of the affairs of the Company, then the Company
shall cause to be mailed to each Warrant holder at their last addresses as
they shall appear upon the Warrant register of the Company, at least 30
calendar days prior to the applicable record or effective date hereinafter
specified, a notice stating (x) the date on which a record is to be taken
for the purpose of such dividend, distribution, redemption, rights or
warrants, or if a record is not to be taken, the date as of which the
holders of Common Stock of record to be entitled to such dividend,
distributions, redemption, rights or warrants are to be determined or (y)
the date on which such reclassification, consolidation, merger, sale,
transfer or share exchange is expected to become effective or close, and
the date as of which it is expected that holders of Common Stock of record
shall be entitled to exchange their shares of Common Stock for securities,
cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution,
liquidation or winding up.
15. AUTHORIZED SHARES. The Company covenants that during the period the Warrant
is outstanding and exercisable, it will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the
issuance of the Warrant Shares upon the exercise of any and all purchase
rights under this Warrant. The Company further covenants that its issuance
of this Warrant shall constitute full authority to its officers who are
charged with the duty of executing stock certificates to execute and issue
the necessary certificates for the Warrant Shares upon the exercise of the
purchase rights under this Warrant. The Company will take all such
reasonable action as may be necessary to assure that such Warrant Shares
may be issued as provided herein without violation of any applicable law,
regulation, or rule of any applicable market or exchange.
16. 9.99% LIMITATION.
(i) Notwithstanding anything to the contrary contained herein, the
number of shares of Common Stock that may be acquired by the holder upon
exercise pursuant to the terms hereof shall not exceed a number that, when
added to the total number of shares of Common Stock deemed beneficially
owned by such holder (other than by virtue of the ownership of securities
or rights to acquire securities that have limitations on the holder's right
to convert, exercise or purchase similar to the limitation set forth
herein), together with all shares of Common Stock deemed beneficially owned
by the holder's "affiliates" (as defined in Rule 144 of the Act)
("Aggregation Parties") that would be aggregated for purposes of
determining whether a group under Section 13(d) of the Securities Exchange
Act of 1934 as amended, exists, would exceed 9.99% of the total issued and
outstanding shares of the Common Stock (the "Restricted Ownership
Percentage"); PROVIDED that (w) each holder shall have the right at any
time and from time to time to reduce its Restricted
<PAGE>
Page 10
Ownership Percentage immediately upon notice to the Company and (x) each
holder shall have the right (subject to waiver) at any time and from time
to time, to increase its Restricted Ownership Percentage immediately in the
event of the announcement as pending or planned, of a transaction or event
referred to in Section 5(m) of the Certificate.
(ii) Each time (a "COVENANT TIME") the holder or an Aggregation Party
makes a Triggering Acquisition (as defined below) of shares of Common Stock
(the "TRIGGERING SHARES"), the holder will be deemed to covenant that it
will not, during the balance of the day on which such Triggering
Acquisition occurs, and during the 61-day period beginning immediately
after that day, acquire additional shares of Common Stock pursuant to
rights-to-acquire existing at that Covenant Time, if the aggregate amount
of such additional shares so acquired (without reducing that amount by any
dispositions) would exceed (x) 9.99% of the number of shares of Common
Stock outstanding at that Covenant Time (including the Triggering Shares)
minus (y) the number of shares of Common Stock actually owned by the holder
at that Covenant Time (regardless of how or when acquired, and including
the Triggering Shares). A "TRIGGERING ACQUISITION" means the giving of a
Notice of Exercise or any other acquisition of Common Stock by the holder
or an Aggregation Party; PROVIDED, however, that with respect to the giving
of such Notice of Exercise, if the associated issuance of shares of Common
Stock does not occur, such event shall cease to be a Triggering Acquisition
and the related covenant under this paragraph shall terminate. At each
Covenant Time, the holder shall be deemed to waive any right it would
otherwise have to acquire shares of Common Stock to the extent that such
acquisition would violate any covenant given by the holder under this
paragraph. Notwithstanding anything to the contrary in the Transaction
Documents, in the event of a conflict between any covenant given under this
paragraph and any obligation of the holder to exercise this Warrant
pursuant to the Transaction Documents, the former shall supersede the
latter, and the latter shall be reduced accordingly. For the avoidance of
doubt:
(A) The covenant to be given pursuant to this paragraph will be given
at every Covenant Time and shall be calculated based on the
circumstances then in effect. The making of a covenant at one
Covenant Time shall not terminate or modify any prior covenants.
(B) The holder may therefore from time to time be subject to multiple
such covenants, each one having been made at a different Covenant
Time, and some possibly being more restrictive than others. The
holder must comply with all such covenants then in effect.
17. COMPLIANCE WITH SECURITIES LAWS. (a) The Holder hereof acknowledges that
the Warrant Shares acquired upon the exercise of this Warrant, if not
registered (or if no exemption from registration exists), will have
restrictions upon resale imposed by state and federal securities laws. Each
certificate representing the Warrant Shares issued to the Holder
<PAGE>
Page 11
upon exercise (if not registered, for resale or otherwise, or if no
exemption from registration exists) will bear substantially the following
legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
WITH THE UNITED STATES SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES
COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND,
ACCORDINGLY, MAY NOT BE OFFERED, TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES
ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT
SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN
ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
(b) Without limiting the Investor's right to transfer, assign or otherwise
convey the Warrant or Warrant Shares in compliance with all applicable
securities laws, the Investor of this Warrant, by acceptance hereof,
acknowledges that this Warrant and the Warrant Shares to be issued upon
exercise hereof are being acquired solely for the Investor's own account
and not as a nominee for any other party, and that the Investor will not
offer, sell or otherwise dispose of this Warrant or any Warrant Shares to
be issued upon exercise hereof except under circumstances that will not
result in a violation of applicable federal and state securities laws.
18. MISCELLANEOUS.
(a) ISSUE DATE; CHOICE OF LAW; VENUE; JURISDICTION. THE PROVISIONS OF THIS
WARRANT SHALL BE CONSTRUED AND SHALL BE GIVEN EFFECT IN ALL RESPECTS AS IF
IT HAD BEEN ISSUED AND DELIVERED BY THE COMPANY ON THE DATE HEREOF. THIS
WARRANT SHALL BE BINDING UPON ANY SUCCESSORS OR ASSIGNS OF THE COMPANY.
THIS WARRANT WILL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH AND GOVERNED
BY THE LAWS OF THE STATE OF NEW YORK, EXCEPT FOR MATTERS ARISING UNDER THE
ACT, WITHOUT REFERENCE TO PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE
PARTIES CONSENTS TO THE EXCLUSIVE JURISDICTION OF THE FEDERAL AND STATE
COURTS SITTING IN THE COUNTY OF NEW YORK IN THE STATE OF NEW YORK IN
CONNECTION WITH ANY DISPUTE ARISING UNDER THIS WARRANT AND HEREBY WAIVES,
TO THE MAXIMUM EXTENT PERMITTED BY LAW, ANY OBJECTION, INCLUDING ANY
OBJECTION BASED ON FORUM NON CONVENIENS OR VENUE, TO THE BRINGING OF ANY
SUCH PROCEEDING IN SUCH JURISDICTION. EACH PARTY HEREBY AGREES THAT IF THE
OTHER PARTY TO THIS WARRANT OBTAINS A JUDGMENT AGAINST IT IN SUCH A
PROCEEDING, THE PARTY WHICH OBTAINED SUCH JUDGMENT MAY ENFORCE SAME BY
SUMMARY JUDGMENT IN THE COURTS OF ANY
<PAGE>
Page 12
COUNTRY HAVING JURISDICTION OVER THE PARTY AGAINST WHOM SUCH JUDGMENT WAS
OBTAINED, AND EACH PARTY HEREBY WAIVES ANY DEFENSES AVAILABLE TO IT UNDER
LOCAL LAW AND AGREES TO THE ENFORCEMENT OF SUCH A JUDGMENT. EACH PARTY TO
THIS WARRANT IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS IN ANY SUCH
PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED
MAIL, POSTAGE PREPAID, TO SUCH PARTY AT ITS ADDRESS IN ACCORDANCE WITH
SECTION 18(C). NOTHING HEREIN SHALL AFFECT THE RIGHT OF ANY PARTY TO SERVE
PROCESS IN ANY OTHER MANNER PERMITTED BY LAW.
(b) MODIFICATION AND WAIVER. This Warrant and any provisions hereof may be
changed, waived, discharged or terminated only by an instrument in writing
signed by the party against which enforcement of the same is sought. Any
amendment effected in accordance with this paragraph shall be binding upon
the Investor, each future holder of this Warrant and the Company. No
waivers of, or exceptions to, any term, condition or provision of this
Warrant, in any one or more instances, shall be deemed to be, or construed
as, a further or continuing waiver of any such term, condition or
provision.
(c) NOTICES. Any notice, request or other document required or permitted to be
given or delivered to the Investor or future holders hereof or the Company
shall be personally delivered or shall be sent by certified or registered
mail, postage prepaid, to the Investor or each such holder at its address
as shown on the books of the Company or to the Company at the address set
forth in the Purchase Agreement. All notices under this Warrant shall be
deemed to have been given when received.
A party may from time to time change the address to which notices to it are
to be delivered or mailed hereunder by notice in accordance with the
provisions of this Section 18(c).
(d) SEVERABILITY. Whenever possible, each provision of this Warrant shall be
interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Warrant is held to be invalid, illegal or
unenforceable in any respect under any applicable law or rule in any
jurisdiction, such invalidity, illegality or unenforceability shall not
affect the validity, legality or enforceability of any other provision of
this Warrant in such jurisdiction or affect the validity, legality or
enforceability of any provision in any other jurisdiction, but this Warrant
shall be reformed, construed and enforced in such jurisdiction as if such
invalid, illegal or unenforceable provision had never been contained
herein.
(e) NO IMPAIRMENT. The Company will not, by amendment of its Restated and
Amended Articles of Incorporation or through any reorganization, transfer
of assets, consolidation, merger, dissolution, issue or sale of securities
or any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking
of all such
<PAGE>
Page 13
action as may be necessary or appropriate in order to protect the rights of
the Holder against impairment. Without limiting the generality of the
foregoing, the Company (a) will not increase the par value of any Warrant
Shares above the amount payable therefor on such exercise, and (b) will
take all such action as may be reasonably necessary or appropriate in order
that the Company may validly and legally issue fully paid and nonassessable
Warrant Shares on the exercise of this Warrant.
(f) SPECIFIC ENFORCEMENT. The Company and the Holder acknowledge and agree that
irreparable damage would occur in the event that any of the provisions of
this Warrant were not performed in accordance with their specific terms or
were otherwise breached. It is accordingly agreed that the parties shall he
entitled to an injunction or injunctions to prevent or cure breaches of the
provisions of this Warrant and to enforce specifically the terms and
provisions hereof, this being in addition to any other remedy to which
either of them may be entitled by law or equity.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
Page 14
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by its
officers thereunto duly authorized.
Dated: April 19, 2000
MICROWARE SYSTEMS CORPORATION
By: /s/ Kenneth B. Kaplan
Name: Kenneth B. Kaplan
Title: President and Chief Executive Officer
ATTEST:
- ------------------------------
Name:
<PAGE>
NOTICE OF EXERCISE
MICROWARE SYSTEMS CORPORATION
1500 N.W. 118th Street
Des Moines, Iowa 50325
Telephone: (515) 223-8000
Facsimile: ___________________
Attention: ___________________
This undersigned hereby elects to exercise the right of purchase represented by
the within Warrant ("Warrant") for _______________ shares of Common Stock*
("Warrant Shares") provided for therein, and to purchase such Warrant Shares by
(CHECK AS APPLICABLE):
/ / payment by cash, wire transfer or certified check,
/ / exercise of the within Warrant by cashless exercise pursuant to
Section 3(b) thereof, resulting in ______ shares of Common Stock
issuable upon surrender of the Warrant,
and requests that certificates for the Warrant Shares be issued as follows:
-------------------------------
Name
--------------------------------
Address
--------------------------------
and, if the number of Warrant Shares shall not be all the Warrant Shares
purchasable upon exercise of the Warrant, that a new Warrant for the balance of
the Warrant Shares be issued.
In lieu of delivering physical certificates representing the Warrant Shares
purchasable upon exercise of this Warrant, provided the Company's transfer agent
is participating in the Depository Trust Company ("DTC") Fast Automated
Securities Transfer ("FAST") program, upon request of the Holder, the Company
shall use its best efforts to cause its transfer agent to electronically
transmit the Warrant Shares issuable upon conversion or exercise to the
undersigned, by crediting the account of the undersigned's prime broker with DTC
through its Deposit Withdrawal Agent Commission ("DWAC") system.
Dated:_______________________ Signature:______________________________
______________________________
Name (please print)
______________________________
- --------------
* NOTE: If conversion of the Warrant is made by surrender of the Warrant and
the number of shares indicated exceeds the maximum number of shares to which
a holder is entitled, the Company will issue such maximum number of shares
purchasable upon exercise of the Warrant registered in the name of the
undersigned Warrantholder or the undersigned's Assignee as below indicated
and deliver same to the address stated below.
<PAGE>
Address (please print)
______________________________
ASSIGNMENT FORM
(To assign the foregoing warrant, execute
this form and supply required information.
Do not use this form to exercise the
warrant.)
FOR VALUE RECEIVED, the foregoing Warrant and all rights evidenced thereby
are hereby assigned to
_______________________________________________ whose address is
__________________________________________________________________.
___________________________________________________________________
Dated: ______________,
Holder's Signature:_________________________
Holder's Address:___________________________
___________________________
Signature Guaranteed: ___________________________________________
NOTE: The signature to this Assignment Form must correspond with the name as it
appears on the face of the Warrant, without alteration or enlargement or any
change whatsoever, and must be guaranteed by a bank or trust company. Officers
of corporations and those acting in an fiduciary or other representative
capacity should file proper evidence of authority to assign the foregoing
Warrant.
<PAGE>
EXHIBIT 99.1
PRESS RELEASE
MICROWARE COMPLETES $3.5 MILLION PREFERRED STOCK TRANSACTION
DES MOINES, Iowa, April 19, 2000 - Microware Systems Corporation (NASDAQ:
MWAR) today announced the completion of a $3.5 million sale of Cumulative
Convertible Preferred Stock to private institutional investors. The financing
includes an option to purchase up to $3 million of additional Microware
common stock and warrants to purchase 87,500 shares of common stock in the
future.
"We believe the financing is attractive to the company and
beneficial to shareholders," stated Ken Kaplan, chief executive officer of
Microware. "We are pleased to complete this transaction and supplement our
working capital. Microware looks forward to using the proceeds to continue to
meet the challenges facing our industry and to take advantage of the
opportunities in the market place."
Microware has been a leading provider of embedded software solutions
for 22 years.
Houlihan Lokey Howard & Zukin Capital, an investment banking firm,
arranged the private placement transaction.
ABOUT MICROWARE SYSTEMS CORPORATION
Microware Systems Corporation (NASDAQ: MWAR) provides embedded
solutions for successful products. The solutions include development tools
such as integrated development environments, software components such as the
OS-9-Registered Tradmark- real-time operating system, and consulting
services. Microware software is used in internet appliances, consumer
electronics, wireless communication devices, industrial automation, office
automation, automotive control, digital television, telecommunications, and
multimedia devices, representing many of the fastest-growing areas in
worldwide technology. Founded in 1977, Microware is headquartered in Des
Moines, Iowa, with offices throughout the United States, Europe, and Japan.
For more information, visit www.microware.com, send e-mail to
[email protected], or call 1-800-475-9000 or 515-223-8000.
Cautionary note: This press release may contain certain statements of a
forward-looking nature relating to future events or future business
performance. Any such statements that refer to Microware's estimated or
anticipated future results, product performance or other non-historical facts
are forward looking and reflect Microware's current perspective of existing
trends and information. These statements involve risks and uncertainties that
cannot be predicted or quantified, and consequently, actual results may
differ materially from those expressed or implied by such forward-looking
statements.
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Such risks and uncertainties include, among other things, the historical
volatility in the Company's quarterly performance; the Company's recent
history of losses; the dilution and potential dilution relating to the
preferred stock, options and warrants; the growth of markets at which the
Company's products are targeted; the Company's dependence on its strategic
customers' successful deployment, marketing, and sales of new products
targeted at those markets; and other factors detailed in the Company's
filings with the Securities and Exchange Commission. These statements speak
as of the date of this release, and the Company undertakes no obligation to
update these statements in light of future events or otherwise.
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Microware, the Microware logo, and OS-9 are registered trademarks of
Microware Systems Corporation.
