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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Act of 1934
Date of Report: August 18, 1999
THE ASHTON TECHNOLOGY GROUP, INC.
(Exact name of registrant as specified in its charter)
1-11747
(Commission file number)
Delaware 22-6650372
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation)
1900 Market Street, Suite 701
Philadelphia, PA 19103
(Address of principal executive offices with zip code)
(215) 751-1900
(Registrant's telephone number, including area code)
Not applicable
(Former name or former address, if changed since last report)
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ITEM 5. OTHER ITEMS.
On August 18, 1999 (the "Issue Date"), the Ashton Technology Group, Inc. (the
"Company") completed the sale of 20,000 shares of its Series F Convertible
Preferred Stock ("Series F Preferred") with a stated value of $1,000 per share
("Stated Value"), and warrants to purchase an aggregate of 200,000 shares of the
Company's common stock (the "Warrants"), for gross proceeds of $20,000,000. The
shares were sold to RGC International Investors, LDC, an investment fund managed
by Rose Glen Capital Management, L.P ("Rose Glen"), in a private equity offering
pursuant to Regulation D of the Securities Act of 1933, as amended. The net
proceeds of the sale will be utilized for general working capital, including the
development of additional products and initiatives of the Company's
subsidiaries, eMC and NextExchange.
Each share of the Series F Preferred is convertible into a number of shares of
the Company's common stock equal to:
(i) the Stated Value plus a premium of 6% per annum of the Stated Value
from the Issue Date, divided by
(ii) the "Conversion Price"
The Conversion Price is defined as the lesser of:
(i) 100% of the average of the five low closing bid prices during the 22-
day trading period ending on the day prior to the date of
conversion, and
(ii) $10.79 (based on 110% of the "Closing Price", defined as the average
closing bid price of the Company's common stock during the ten
trading days ended August 17, 1999).
Prior to February 17, 2000, if any conversions take place on days where the
common stock trades below 80% of the Closing Price, or $7.85 (the "Floor
Price"), then the Conversion Price will equal the Floor Price. Beginning on
February 18, 2000, if the closing sale price of the common stock is below 75% of
the Closing Price, or $7.35 on the conversion date, the Company will have the
right to redeem the Series F Preferred shares submitted for conversion at an
amount equal to the number of shares that would have otherwise been issued,
multiplied by the closing sale price on the conversion date.
The Warrants are exercisable for five years at an exercise price equal to 125%
of the Closing Price, or $12.26 per share.
The Company has agreed to file a registration statement with the Securities and
Exchange Commission under the Securities Act of 1933 within 30 days of the Issue
Date to register the shares of its common stock issuable in connection with the
conversion of the Series F Preferred shares and the exercise of the Warrants.
In addition, the Company agreed to pay Rose Glen an expense allowance of $40,000
for expenses incurred by Rose Glen in connection with the negotiation of the
agreement, the review of the registration statement, and other matters to be
executed in connection with the agreement, including without limitation,
attorneys' and consultants' fees and travel expenses.
The Company's press release announcing the sale of the Series F Preferred Stock,
the Certificate of Designations, Preferences and Rights, the Securities Purchase
Agreement, the Registration Rights Agreement, and the Stock Purchase Warrant are
filed as exhibits to this Current Report on Form 8-K. This summary description
of the transaction is qualified in its entirety by reference to the documents
filed as exhibits hereto.
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ITEM 7. FINANCIAL STATEMENTS, PRO FORMA FINANCIAL INFORMATION AND EXHIBITS
(c) EXHIBITS
The following are filed as exhibits to this Current Report on Form 8-K:
4.1 Certificate of Designations, Preferences, and Rights of Series F
Convertible Preferred Stock
4.2 Stock Purchase Warrant
10.1 Securities Purchase Agreement dated as of August 18, 1999 between
Ashton Technology Group, Inc. and RGC International Investors, LDC
10.2 Registration Rights Agreement dated as of August 18, 1999 between
Ashton Technology Group, Inc. and RGC International Investors, LDC
99.1 Press Release dated August 19, 1999
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: August 24, 1999 /s/ Arthur J. Bacci
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Arthur J. Bacci
President and Chief Financial Officer
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EXHIBIT 4.1
CERTIFICATE OF
DESIGNATIONS, PREFERENCES, AND RIGHTS
of
SERIES F CONVERTIBLE PREFERRED STOCK
of
THE ASHTON TECHNOLOGY GROUP, INC.
(Pursuant to Section 151 of the
Delaware General Corporation Law)
The Ashton Technology Group, Inc., a corporation organized and
existing under the Delaware General Corporation Law (the "Corporation"), hereby
certifies that the following resolutions were adopted by the Board of Directors
of the Corporation on August 5, 1999 pursuant to authority of the Board of
Directors as required by Section 151(g) of the Delaware General Corporation Law:
RESOLVED, that pursuant to the authority granted to and vested in the
Board of Directors of this Corporation (the "Board of Directors" or the "Board")
in accordance with the provisions of its Certificate of Incorporation, the Board
of Directors hereby authorizes a series of the Corporation's previously
authorized Preferred Stock, par value $.01 per share (the "Preferred Stock"),
and hereby states the designation and number of shares, and fixes the relative
rights, preferences, privileges, powers and restrictions thereof as follows:
Series F Convertible Preferred Stock:
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I. DESIGNATION AND AMOUNT
----------------------
The designation of this series, which consists of 20,000 shares of
Preferred Stock, is Series F Convertible Preferred Stock (the "Series F
Preferred Stock") and the stated value shall be One Thousand Dollars ($1,000)
per share (the "Stated Value").
II. RANK
----
The Series F Preferred Stock shall rank (i) prior to the Corporation's
common stock, par value $.01 per share (the "Common Stock"); (ii) prior to the
Corporation's Series B Convertible Preferred Stock, par value $.01 per share
(the "Series B Preferred Stock"); (iii) prior to any class or series of capital
stock of the Corporation hereafter created (unless, with the consent of the
holders of Series F Preferred Stock obtained in accordance with Article IX
hereof, such class or series of capital stock specifically, by its terms, ranks
senior to or pari passu with the Series F Preferred Stock) (collectively, with
---- -----
the Common Stock and the Series B Preferred Stock, "Junior Securities"); (iv)
pari passu with any class or series of capital stock of the Corporation
- ---- -----
hereafter created (with the consent of the holders of Series F Preferred Stock
obtained in accordance with Article IX hereof) specifically ranking, by its
terms, on parity with the Series F Preferred Stock ("Pari Passu Securities");
---- -----
and (v) junior to any class or series of capital stock of the Corporation
hereafter created (with the consent of the holders of Series F Preferred Stock
obtained in accordance with Article IX hereof) specifically ranking, by its
terms, senior to the Series F Preferred Stock ("Senior Securities"), in each
case as to distribution of assets upon liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary.
III. DIVIDENDS
---------
The Series F Preferred Stock shall not bear any dividends. Subject to
the rights of the holders of Series B Preferred Stock and so long as any Series
F Preferred Stock shall remain outstanding, no dividend whatsoever shall be
declared or paid upon, nor shall any distribution be made upon, any Junior
Securities (excluding Series B Preferred Stock pursuant to the terms thereof),
nor shall any shares of Junior Securities be purchased or redeemed by the
Corporation nor shall any moneys be paid to or made available for a sinking fund
for the purchase or redemption of any Junior Securities (other than a
distribution of Junior Securities), without, in each such case, the written
consent of the holders of a majority of the outstanding shares of Series F
Preferred Stock, voting together as a class. The repurchase by the Corporation
of its Redeemable Common Stock Purchase Warrants registered pursuant to Section
12(g) of the Securities Exchange Act of 1934, as amended (the "Registered
Warrants"), pursuant to the call provisions contained in the Registered Warrants
shall not be deemed to violate this Article III.
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IV. LIQUIDATION PREFERENCE
----------------------
A. Liquidation Event. If the Corporation shall commence a voluntary
-----------------
case under the Federal bankruptcy laws or any other applicable Federal or State
bankruptcy, insolvency or similar law, or consent to the entry of an order for
relief in an involuntary case under any law or to the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or of any substantial part of its property, or make
an assignment for the benefit of its creditors, or admit in writing its
inability to pay its debts generally as they become due, or if a decree or order
for relief in respect of the Corporation shall be entered by a court having
jurisdiction in the premises in an involuntary case under the Federal bankruptcy
laws or any other applicable Federal or state bankruptcy, insolvency or similar
law resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of thirty (30) consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up (each such event being considered a
"Liquidation Event"), no distribution shall be made to the holders of any shares
of capital stock of the Corporation (other than Senior Securities) upon
liquidation, dissolution or winding up unless prior thereto, the holders of
shares of Series F Preferred Stock, subject to Article VI, shall have received
the Liquidation Preference (as defined in Article IV.C) with respect to each
share. If upon the occurrence of a Liquidation Event, the assets and funds
available for distribution among the holders of the Series F Preferred Stock and
holders of Pari Passu Securities (including any dividends or distribution paid
---- -----
on any Pari Passu Securities after the date of filing of this Certificate of
---- -----
Designation) shall be insufficient to permit the payment to such holders of the
preferential amounts payable thereon, then the entire assets and funds of the
Corporation legally available for distribution to the Series F Preferred Stock
and the Pari Passu Securities shall be distributed ratably among such shares in
---- -----
proportion to the ratio that the Liquidation Preference payable on each such
share bears to the aggregate liquidation preference payable on all such shares.
B. Certain Acts Deemed Liquidation Event. At the option of any
-------------------------------------
holder of Series F Preferred Stock, the sale, conveyance or disposition of all
or substantially all of the assets of the Corporation, the effectuation by the
Corporation of a transaction or series of related transactions in which more
than 50% of the voting power of the Corporation is disposed of, or the
consolidation, merger or other business combination of the Corporation with or
into any other Person (as defined below) or Persons when the Corporation is not
the survivor shall either: (i) be deemed to be a liquidation, dissolution or
winding up of the Corporation pursuant to which the Corporation shall be
required to distribute upon consummation of and as a condition to such
transaction an amount equal to 120% of the Liquidation Preference with respect
to each outstanding share of Series F Preferred Stock or (ii) be treated
pursuant to Article VI.C(b) hereof. "Person" shall mean any individual,
corporation, limited liability company, partnership, association, trust or other
entity or organization. The option to treat any such transaction as a
liquidation, dissolution or winding up of the Corporation pursuant to clause (i)
of the preceding sentence shall be exercised by a holder of
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Series F Preferred Stock no later than thirty (30) days after the consummation
of the transaction giving rise to such option.
C. Liquidation Preference. For purposes hereof, the "Liquidation
----------------------
Preference" with respect to a share of the Series F Preferred Stock shall mean
an amount equal to the sum of (i) the Stated Value thereof plus (ii) the Premium
Amount (as defined in Article VI.A(a)) of such Stated Value for the period
beginning on the date of issuance of the Series F Preferred Stock (the "Issue
Date") and ending on the date of final distribution to the holder thereof
(prorated for any portion of such period) plus (iii) all Conversion Default
Payments (as defined in Article VI.E below), Delivery Default Payments (as
defined in Article VI.D below) and any other amounts owed to such holder
pursuant to Section 2(c) of the Registration Rights Agreement. The liquidation
preference with respect to any Junior Securities or Pari Passu Securities shall
---- -----
be as set forth in the Certificate of Designation filed in respect thereof.
V. REDEMPTION
----------
A. Mandatory Redemption. If any of the following events (each, a
--------------------
"Mandatory Redemption Event") shall occur:
(i) The Corporation fails to issue shares of Common Stock to the
holders of Series F Preferred Stock upon exercise by the holders of their
conversion rights in accordance with the terms of this Certificate of
Designation (for a period of at least sixty (60) days if such failure is solely
as a result of the circumstances governed by the second paragraph of Article
VI.E below and the Corporation is using its best efforts to authorize a
sufficient number of shares of Common Stock as soon as practicable), fails to
transfer or to cause its transfer agent to transfer (electronically or in
certificated form) any certificate for shares of Common Stock issued to the
holders upon conversion of the Series F Preferred Stock as and when required by
this Certificate of Designation or the Registration Rights Agreement, dated as
of August 18, 1999, by and among the Corporation and the other signatories
thereto (the "Registration Rights Agreement"), fails to remove any restrictive
legend (or to withdraw any stop transfer instructions in respect thereof) on any
certificate or any shares of Common Stock issued to the holders of Series F
Preferred Stock upon conversion of the Series F Preferred Stock as and when
required by this Certificate of Designation, the Securities Purchase Agreement
dated as of August 18, 1999, by and between the Corporation and the other
signatories thereto (the "Purchase Agreement") or the Registration Rights
Agreement, or fails to fulfill its obligations pursuant to Sections 4(c), 4(e),
4(h), 4(i), 4(j) or 5 of the Purchase Agreement or breaches any of the
provisions of Article III of this Certificate of Designation (or makes any
announcement, statement or threat that it does not intend to honor the
obligations or intends to breach the provisions described in this paragraph) and
any such failure shall continue uncured (or any announcement, statement or
threat not to honor its obligations or to breach the provisions shall not be
rescinded in writing) for ten (10) days after the Corporation shall have been
notified thereof in writing by any holder of Series F Preferred Stock;
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(ii) The Corporation fails to obtain effectiveness with the
Securities and Exchange Commission (the "SEC"), prior to February 18, 2000 of
the Registration Statement (as defined in the Registration Rights Agreement)
required to be filed pursuant to Section 2(a) of the Registration Rights
Agreement, or fails to obtain the effectiveness of any additional Registration
Statement (required to be filed pursuant to Section 3(b) of the Registration
Rights Agreement) within sixty (60) days after the Registration Trigger Date (as
defined in the Registration Rights Agreement), or any such Registration
Statement, after its initial effectiveness and during the Registration Period
(as defined in the Registration Rights Agreement), lapses in effect or sales of
all of the Registrable Securities (as defined in the Registration Rights
Agreement, the "Registrable Securities") otherwise cannot be made thereunder
(whether by reason of the Corporation's failure to amend or supplement the
prospectus included therein in accordance with the Registration Rights
Agreement, the Corporation's failure to file and obtain effectiveness with the
SEC of an additional Registration Statement required to be filed pursuant to
Section 3(b) of the Registration Rights Agreement or otherwise) for more than
thirty (30) consecutive days or more than sixty (60) days in any twelve (12)
month period after such Registration Statement becomes effective;
(iii) The Corporation or any "significant subsidiary" (as defined in
Section 210.1-02(w) of Regulation S-X promulgated under the Securities Act of
1933, as amended (the "1933 Act")) of the Corporation shall make an assignment
for the benefit of creditors, or apply for or consent to the appointment of a
receiver or trustee for it or for all or substantially all of its property or
business; or such a receiver or trustee shall otherwise be appointed;
(iv) Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Corporation or
any "significant subsidiary" (as defined in Section 210.1-02(w) of Regulation S-
X promulgated under the 1933 Act) of the Corporation and any such proceeding, to
the extent instituted against the Corporation or any "significant subsidiary" of
the Corporation, shall continue for a period of twenty (20) days undismissed or
undischarged;
(v) The Corporation shall fail to maintain the listing of the Common
Stock on the Nasdaq SmallCap Market ("Nasdaq"), the Nasdaq National Market
("NNM"), the New York Stock Exchange ("NYSE") or the American Stock Exchange
("AMEX"),
then, upon the occurrence and during the continuation of any Mandatory
Redemption Event specified in subparagraphs (i), (ii) or (v), at the option of
the holders of at least 66 2/3% of the then outstanding shares of Series F
Preferred Stock exercisable by delivery of written notice (the "Mandatory
Redemption Notice") to the Corporation of such Mandatory Redemption Event, or
upon the occurrence of any Mandatory Redemption Event specified in subparagraphs
(iii) or (iv), the then outstanding shares of Series F Preferred Stock shall
become immediately redeemable and the Corporation shall purchase each holder's
outstanding shares of Series F Preferred Stock for an amount per share equal to
the greater of (1) 105% multiplied by the sum of (a) the Stated Value of the
shares to be redeemed plus (b) the Premium Amount (as defined in Article
VI.A(a)) of such Stated Value for the period beginning on the Issue Date and
ending on the date of payment of the
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Mandatory Redemption Amount (the "Mandatory Redemption Date") plus (c) all
Conversion Default Payments (as defined in Article VI.E below), Delivery Default
Payments (as defined in Article VI.D below) and any other amounts owed to such
holder pursuant to Section 2(c) of the Registration Rights Agreement, and (2)
the "parity value" of the shares to be redeemed, where parity value means the
product of (a) the highest number of shares of Common Stock issuable upon
conversion of such shares of Series F Preferred Stock in accordance with Article
VI below (without giving any effect to any limitations on conversions of shares
contained herein, and treating the Trading Day (as defined in Article VI.B)
immediately preceding the Mandatory Redemption Date as the "Conversion Date" (as
defined in Article VI.B(a)) for purposes of determining the lowest applicable
Conversion Price, unless the Mandatory Redemption Event arises as a result of a
breach in respect of a specific Conversion Date in which case such Conversion
Date shall be the Conversion Date), multiplied by (b) the highest Closing Price
(as defined below) for the Common Stock during the period beginning on the date
of first occurrence of the Mandatory Redemption Event and ending one day prior
to the Mandatory Redemption Date (the greater of such amounts being referred to
as the "Mandatory Redemption Amount"). "Closing Price," as of any date, means
the last sale price of the Common Stock on the Nasdaq as reported by Bloomberg
Financial Markets or an equivalent reliable reporting service mutually
acceptable to and hereafter designated by the holders of a majority in interest
of the shares of Series F Preferred Stock and the Corporation ("Bloomberg") or,
if Nasdaq is not the principal trading market for such security, the last sale
price of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg, or if the
foregoing do not apply, the last sale price of such security in the over-the-
counter market on the electronic bulletin board for such security as reported by
Bloomberg, or, if no last sale price of such security is available in the over-
the-counter market on the electronic bulletin board for such security or in any
of the foregoing manners, the average of the bid prices of any market makers for
such security that are listed in the "pink sheets" by the National Quotation
Bureau, Inc. If the Closing Price cannot be calculated for such security on such
date in the manner provided above, the Closing Price shall be the fair market
value as mutually determined by the Corporation and the holders of a majority in
interest of shares of Series F Preferred Stock being converted for which the
calculation of the Closing Price is required in order to determine the
Conversion Price of such Series F Preferred Stock.
B. Trading Market Redemption. If the Series F Preferred Stock ceases
-------------------------
to be convertible by any holder as a result of the limitations described in
Article VI.A(b) below (a "Trading Market Redemption Event"), and the Corporation
has not, prior to, or within sixty (60) days of, the date that such Trading
Market Redemption Event arises, (i) obtained the Stockholder Approval (as
defined in Article VI.A(b)) or (ii) eliminated any prohibitions under
applicable law or the rules or regulations of any stock exchange, interdealer
quotation system or other self-regulatory organization with jurisdiction over
the Corporation or any of its securities on the Corporation's ability to issue
shares of Common Stock in excess of the Maximum Share Amount (as defined in
Article VI.A(b)), then the Corporation shall be obligated to redeem immediately
all of the then outstanding Series F Preferred Stock, in accordance with this
Article V.B. An irrevocable redemption notice (the "Trading Market Redemption
Notice") shall be delivered promptly to the holders of Series F Preferred Stock
at their registered address appearing on the records of the
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Corporation and shall state (i) that the Maximum Share Amount (as defined in
Article VI.A) has been issued upon exercise of the Series F Preferred Stock,
(ii) that the Corporation is obligated to redeem all of the outstanding Series F
Preferred Stock and (iii) the Mandatory Redemption Date, which shall be a date
within five (5) business days of the earlier of (a) the date of the Trading
Market Redemption Notice or (b) the date on which the holders of the Series F
Preferred Stock notify the Corporation of the occurrence of a Trading Market
Redemption Event. On the Mandatory Redemption Date, the Corporation shall make
payment of the Mandatory Redemption Amount (as defined in Article V.A above) in
cash.
C. Redemption In Lieu of Conversion. Notwithstanding anything to the
--------------------------------
contrary contained in this Article V and subject to the terms of this Article
V.C, and beginning on February 18, 2000, if the Closing Price (as defined below)
of the Common Stock is less than $7.3547 (as adjusted for stock splits, stock
dividends and similar events, the "Redemption Threshold") on any day a Notice of
Conversion (as defined in Article VI below) is given, the Corporation shall have
the option, in lieu of issuing shares of Common Stock to the holders upon
conversion in accordance with the terms of Article VI below, to redeem all or
any portion of the shares of Series F Preferred Stock submitted for conversion
for an amount in cash equal to (x) the number of shares of Common Stock that
would have otherwise been issued upon conversion of the Series F Preferred Stock
at the applicable Conversion Price (as defined in Article VI), multiplied by (y)
the Redemption Market Price (as defined herein) (the "Redemption In Lieu of
Conversion Amount"). "Redemption Market Price" shall be equal to the Closing
Price of the Common Stock on the Conversion Date. "Closing Price" means, for
any security as of any date, the closing sale price on Nasdaq as reported by
Bloomberg or, if Nasdaq is not the principal trading market for such security,
the closing sale price of such security on the principal securities exchange or
trading market where such security is listed or traded as reported by Bloomberg,
or if the foregoing do not apply, the closing sale price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no closing sale price of such security is
available in the over-the-counter market on the electronic bulletin board for
such security or in any of the foregoing manners, the average of the sale prices
of any market makers for such security that are listed in the "pink sheets" by
the National Quotation Bureau, Inc. If the Closing Price cannot be calculated
for such security on such date in the manner provided above, the Closing Price
shall be the fair market value as mutually determined by the Corporation and the
holders of a majority in interest of shares of Series F Preferred Stock being
converted for which the calculation of the Closing Price is required. Prior to
the first day of each calendar month following the Issue Date, the Corporation
shall notify the holders of the Series F Preferred Stock as to whether the
Corporation will issue shares of Common Stock, deliver cash in redemption or any
combination thereof (which combination in terms of the percentage of stock and
cash the Corporation shall issue shall be specified in such notice) in respect
of any shares of Series F Preferred Stock submitted for conversion pursuant to
Article VI on any Conversion Date during such month on which the Closing Price
is below the Redemption Threshold (any such notice which calls for the delivery
of cash (in whole or in part), shall be referred to herein as a "Redemption in
Lieu of Conversion Notice"). The Corporation will be bound by such notice for
the calendar month to which such notice relates (the "Term"). The Corporation
may elect to renew such notice within one (1) business day of the first day of
the next preceding calendar
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month. A failure to issue or renew a notice within one (1) business day of the
beginning of a calendar month shall be deemed to be an election to issue Common
Stock upon conversion of the Series F Preferred Stock during the subsequent
Term. Any redemption amounts payable hereunder shall be paid to the converting
holder within two (2) Trading Days of the Conversion Date.
D. Failure to Pay Redemption Amounts. In the case of a Mandatory
---------------------------------
Redemption Event or the delivery of a Redemption In Lieu of Conversion Notice,
if the Corporation fails to pay the Mandatory Redemption Amount or Redemption In
Lieu of Conversion Amount, as applicable, within ten (10) business days of
written notice that such amount is due and payable, then (assuming there are
sufficient authorized shares) in addition to all other available remedies, each
holder of Series F Preferred Stock shall have the right at any time, so long as
the Mandatory Redemption Event continues, or at any time after delivery of a
Redemption In Lieu of Conversion Notice, to require the Corporation, upon
written notice, to immediately issue (in accordance with and subject to the
terms of Article VI below), in lieu of the Mandatory Redemption Amount or
Redemption In Lieu of Conversion Amount, as applicable, the number of shares of
Common Stock of the Corporation equal to such applicable redemption amount
divided by any Conversion Price, as chosen in the sole discretion of the holder
of Series F Preferred Stock, in effect from the date of the Mandatory Redemption
Event (or the date of delivery of a Redemption In Lieu of Conversion Notice)
until the date such holder elects to exercise its rights pursuant to this
Article V.D.
VI. CONVERSION AT THE OPTION OF THE HOLDER
--------------------------------------
A. Optional Conversion
-------------------
(a) Conversion Amount. Each holder of shares of Series F
-----------------
Preferred Stock may, at its option at any time and from time to time, upon
surrender of the certificates therefor, convert any or all of its shares of
Series F Preferred Stock into Common Stock as set forth below (an "Optional
Conversion"). Each share of Series F Preferred Stock shall be convertible into
such number of fully paid and nonassessable shares of Common Stock as such
Common Stock exists on the Issue Date, or any other shares of capital stock or
other securities of the Corporation into which such Common Stock is thereafter
changed or reclassified, as is determined by dividing (1) the sum of (a) the
Stated Value thereof plus (b) the Premium Amount (as defined below) of such
Stated Value for the period beginning on the Issue Date and ending on and
including the Conversion Date, by (2) the then effective Conversion Price (as
defined below); provided, however, that in no event (other than pursuant to the
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Automatic Conversion (as defined in Article VII)) shall a holder of shares of
Series F Preferred Stock be entitled to convert any such shares in excess of
that number of shares upon conversion of which the sum of (x) the number of
shares of Common Stock beneficially owned by the holder and its affiliates
(other than shares of Common Stock which may be deemed beneficially owned
through the ownership of the unconverted portion of the shares of Series F
Preferred Stock or the unexercised or unconverted portion of any other
securities of the Corporation (including, without limitation, the warrants
issued by the Corporation pursuant to the Securities Purchase Agreement (the
"Warrants")) subject to a limitation on conversion or exercise analogous
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to the limitations contained herein) and (y) the number of shares of Common
Stock issuable upon the conversion of the shares of Series F Preferred Stock
with respect to which the determination of this proviso is being made, would
result in beneficial ownership by a holder and such holder's affiliates of more
than 4.9% of the outstanding shares of Common Stock. For purposes of the proviso
to the immediately preceding sentence, beneficial ownership shall be determined
in accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13D-G thereunder, except as otherwise provided in clause
(x) of such proviso. The "Premium Amount" means 6%; provided, however, that if,
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during the period beginning on the Issue Date and ending February 18, 2000, the
Common Stock's volume weighted average price is less than the Floor Price (as
defined below) for ten (10) consecutive Trading Days, the Premium Amount shall
equal 9% from the Issue Date and thereafter.
(b) Trading Market Limitation. Unless (i) permitted by the applicable
-------------------------
rules and regulations of the principal securities market on which the Common
Stock is listed or traded or (ii) the Corporation has obtained approval of the
issuance of the Common Stock upon conversion of the Series F Preferred Stock in
accordance with applicable law and the rules and regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Corporation or any of its securities (the
"Stockholder Approval"), in no event shall the total number of shares of Common
Stock issued upon conversion of the Series F Preferred Stock (including any
shares of capital stock or rights to acquire shares of capital stock issued by
the Corporation which are aggregated or integrated with the Common Stock issued
or issuable upon conversion of the Series F Preferred Stock for purposes of any
such rule or regulation) exceed the maximum number of shares of Common Stock
that the Corporation can so issue pursuant to any rule of the principal United
States securities market on which the Common Stock trades (including Rule
4460(i) of Nasdaq or any successor rule)(the "Maximum Share Amount") which, as
of the Issue Date, shall be 4,949,770 (19.99% of the total shares of Common
Stock outstanding on the Issue Date), subject to equitable adjustments from time
to time for stock splits, stock dividends, combinations, capital reorganizations
and similar events relating to the Common Stock occurring after the Issue Date.
With respect to each holder of Series F Preferred Stock, the Maximum Share
Amount shall refer to such holder's pro rata share thereof determined in
--- ----
accordance with Article X below. In the event that the sum of (x) the aggregate
number of shares of Common Stock actually issued upon conversion of the
outstanding Series F Preferred Stock plus (y) the aggregate number of shares of
----
Common Stock that remain issuable upon conversion of the Series F Preferred
Stock at the then effective Conversion Price, represents at least one hundred
percent (100%) of the Maximum Share Amount (the "Triggering Event"), the
Corporation will use its best efforts to seek and obtain Stockholder Approval
(or obtain such other relief as will allow conversions hereunder in excess of
the Maximum Share Amount) as soon as practicable following the Triggering Event.
B. Conversion Price.
----------------
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<PAGE>
(a) Calculation of Conversion Price. Subject to subparagraphs (b) and
-------------------------------
(c) below, the "Conversion Price" shall be the lesser of the Market Price (as
defined herein) and the Fixed Conversion Price (as defined herein). The
Conversion Price shall be subject to adjustments pursuant to the provisions of
Article VI.C below. "Market Price" shall mean the average of the Closing Bid
Prices for any five (5) Trading Days (the "Market Price Days") during the
twenty-two (22) consecutive Trading Day period ending one (1) Trading Day prior
to the date (the "Conversion Date") the Notice of Conversion (as defined in
Article VI.E) is sent by a holder to the Corporation via facsimile (the "Pricing
Period"). The Market Price Days shall be designated by the converting holder
(from among the days comprising the Pricing Period) in the Notice of Conversion.
"Fixed Conversion Price" shall mean $10.7869 (subject to adjustment for stock
splits, stock dividends and similar events); provided, however, that in the
-------- -------
event the Corporation exercises its right to call the Registered Warrants
pursuant to the call provisions contained therein, then, beginning on the
thirty-first (31st) Trading Day following the date notice is given to call such
Registered Warrants, the Fixed Conversion Price shall thereafter be the lesser
of (i) the Fixed Conversion Price then in effect and (ii) 110% of the average of
the Closing Bid Prices for any ten (10) consecutive Trading Days during the
thirty (30) consecutive Trading Day period beginning on the date notice is given
to call such Registered Warrants (subject to adjustment for stock splits, stock
dividends and similar events). "Closing Bid Price" means, for any security as
of any date, the closing bid price on Nasdaq as reported by Bloomberg or, if
Nasdaq is not the principal trading market for such security, the closing bid
price of such security on the principal securities exchange or trading market
where such security is listed or traded as reported by Bloomberg, or if the
foregoing do not apply, the closing bid price of such security in the over-the-
counter market on the electronic bulletin board for such security as reported by
Bloomberg, or, if no closing bid price of such security is available in the
over-the-counter market on the electronic bulletin board for such security or in
any of the foregoing manners, the average of the bid prices of any market makers
for such security that are listed in the "pink sheets" by the National Quotation
Bureau, Inc. If the Closing Bid Price cannot be calculated for such security on
such date in the manner provided above, the Closing Bid Price shall be the fair
market value as mutually determined by the Corporation and the holders of a
majority in interest of shares of Series F Preferred Stock being converted for
which the calculation of the Closing Bid Price is required in order to determine
the Conversion Price of such Series F Preferred Stock. "Trading Day" shall mean
any day on which the Common Stock is traded for any period on Nasdaq, or on the
principal securities exchange or other securities market on which the Common
Stock is then being traded.
(b) Conversion Restrictions. During the period beginning on the Issue
-----------------------
Date and ending February 17, 2000, the Conversion Price shall not be less than
the Floor Price on any Conversion Date on which the Trading Price (as such term
is defined in this Article VI.B.(b)) is less than the Floor Price; provided,
--------
however, that the restrictions on conversion set forth above shall not apply to
- -------
conversions taking place on any Conversion Date (i) occurring on or after the
date the Corporation makes a public announcement that it intends to merge or
consolidate with any other corporation or sell or transfer substantially all of
the assets of the Corporation or (ii) occurring on or after the date any person,
group or entity (including the Corporation) publicly announces a tender offer to
purchase 50% or more of the Corporation's Common Stock (or any other takeover
scheme)
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<PAGE>
or (iii) occurring on or after the date on which there is a material adverse
change in the business, operation, assets, financial condition or prospects of
the Corporation or its subsidiaries, taken as a whole, or (iv) occurring on or
after the occurrence of any Mandatory Redemption Event. "Floor Price" shall mean
$7.8450 (subject to adjustment for stock splits, stock dividends and similar
events); provided, however, that in the event the Corporation exercises its
-------- -------
right to call the Registered Warrants pursuant to the call provisions contained
therein, then, beginning on the thirty-first (31st) Trading Day following the
date notice is given to call such Registered Warrants, the Floor Price shall
thereafter be the lesser of (i) the Floor Price then in effect and (ii) 80% of
the average of the Closing Bid Prices for any ten (10) consecutive Trading Days
during the thirty (30) consecutive Trading Day period beginning on the date
notice is given to call such Registered Warrants (subject to adjustment for
stock splits, stock dividends and similar events). For the purposes of this
Article VI.B.(b), "Trading Price" means, for any security as of any date, the
highest reported sale price of the Common Stock on Nasdaq as reported by
Bloomberg or, if Nasdaq is not the principal trading market for such security,
the highest reported sale price of such security on the principal securities
exchange or trading market where such security is listed or traded as reported
by Bloomberg, or if the foregoing do not apply, the highest reported sale price
of such security in the over-the-counter market on the electronic bulletin board
for such security as reported by Bloomberg, or, if no sale price of such
security is available in the over-the-counter market on the electronic bulletin
board for such security or in any of the foregoing manners, the last reported
sale price of any market maker for such security that is listed in the "pink
sheet" by the National Quotation Bureau, Inc. If the Trading Price cannot be
calculated for such security on such date in the manner provided above, the
Trading Price shall be the fair market value as mutually determined by the
Corporation and the holders of a majority in interest of shares of Series F
Preferred Stock being converted for which the calculation of the Trading Price
is required in order to determine the Conversion Price of such Series F
Preferred Stock.
(c) Conversion Price During Major Announcements. Notwithstanding
-------------------------------------------
anything contained in subparagraph (a) of this Paragraph B to the contrary, in
the event the Corporation (i) makes a public announcement that it intends to
consolidate or merge with any other corporation (other than a merger in which
the Corporation is the surviving or continuing corporation and its capital stock
is unchanged) or sell or transfer all or substantially all of the assets of the
Corporation or (ii) any person, group or entity (including the Corporation)
publicly announces a tender offer to purchase 50% or more of the Corporation's
Common Stock (or any other takeover scheme) (the date of the announcement
referred to in clause (i) or (ii) is hereinafter referred to as the
"Announcement Date"), then the Conversion Price shall, effective upon the
Announcement Date and continuing through the Adjusted Conversion Price
Termination Date (as defined below), be equal, for each such date, to the lower
of (x) the Conversion Price which would have been applicable for an Optional
Conversion occurring on the Announcement Date and (y) the Conversion Price that
would otherwise be in effect. From and after the Adjusted Conversion Price
Termination Date, the Conversion Price shall be determined as set forth in
subparagraph (a) of this Article VI.B. For purposes hereof, "Adjusted
Conversion Price Termination Date" shall mean, with respect to any proposed
transaction or tender offer (or takeover scheme) for which a public announcement
as contemplated by this subparagraph (c) has been made, the date upon which the
Corporation (in the
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<PAGE>
case of clause (i) above) or the person, group or entity (in the case of clause
(ii) above) consummates or publicly announces the termination or abandonment of
the proposed transaction or tender offer (or takeover scheme) which caused this
subparagraph (c) to become operative.
C. Adjustments to Conversion Price. The Conversion Price shall be
-------------------------------
subject to adjustment from time to time as follows:
(a) Adjustment to Conversion Price Due to Stock Split, Stock Dividend,
------------------------------------------------------------------
Etc. If at any time when Series F Preferred Stock is issued and outstanding,
- ----
the number of outstanding shares of Common Stock is increased or decreased by a
stock split, stock dividend, combination, reclassification, rights offering
below the Trading Price (as defined in this Article VI.C.(a)) to all holders of
Common Stock or other similar event, which event shall have taken place during
the reference period for determination of the Conversion Price for any Optional
Conversion or Automatic Conversion of the Series F Preferred Stock, then the
Conversion Price shall be calculated giving appropriate effect to the stock
split, stock dividend, combination, reclassification or other similar event. In
such event, the Corporation shall notify the Transfer Agent of such change on or
before the effective date thereof. For the purposes of this Article VI.C.(a),
"Trading Price," which shall be measured as of the record date in respect of the
rights offering, means (i) the average of the last reported sale prices for the
shares of Common Stock on Nasdaq as reported by Bloomberg, as applicable, for
the five (5) Trading Days immediately preceding such date, or (ii) if Nasdaq is
not the principal trading market for the shares of Common Stock, the average of
the last reported sale prices on the principal trading market for the Common
Stock during the same period as reported by Bloomberg, or (iii) if market value
cannot be calculated as of such date on any of the foregoing bases, the Trading
Price shall be the fair market value as reasonably determined in good faith by
(a) the Board of Directors of the Corporation or, (b) at the option of a
majority-in-interest of the holders of the outstanding Series F Preferred Stock
by an independent investment bank of nationally recognized standing in the
valuation of businesses similar to the business of the Corporation.
(b) Adjustment Due to Merger, Consolidation, Etc. Subject to Article
---------------------------------------------
IV.B., if, at any time when Series F Preferred Stock is issued and outstanding
and prior to the conversion of all Series F Preferred Stock, there shall be any
merger, consolidation, exchange of shares, recapitalization, reorganization, or
other similar event, as a result of which shares of Common Stock of the
Corporation shall be changed into the same or a different number of shares of
another class or classes of stock or securities of the Corporation or another
entity, or in case of any sale or conveyance of all or substantially all of the
assets of the Corporation other than in connection with a plan of complete
liquidation of the Corporation (each, a "Change of Control Transaction"), then
the holders of Series F Preferred Stock shall thereafter have the right to
receive upon conversion of the Series F Preferred Stock, upon the basis and upon
the terms and conditions specified herein and in lieu of the shares of Common
Stock immediately theretofore issuable upon conversion, such stock, securities
or assets which the holders of Series F Preferred Stock would have been entitled
to receive in such transaction had the Series F Preferred Stock been converted
in full immediately prior to such transaction (without regard to any limitations
on conversion contained
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<PAGE>
herein), and in any such case appropriate provisions shall be made with respect
to the rights and interests of the holders of Series F Preferred Stock to the
end that the provisions hereof (including, without limitation, provisions for
adjustment of the Conversion Price and of the number of shares of Common Stock
issuable upon conversion of the Series F Preferred Stock) shall thereafter be
applicable, as nearly as may be practicable in relation to any securities or
assets thereafter deliverable upon the conversion of Series F Preferred Stock.
The Corporation shall not effect any transaction described in this subsection
(b) unless (a) it first gives, to the extent practical, thirty (30) days' prior
written notice (but in any event at least fifteen (15) business days prior
written notice) of the record date of the special meeting of stockholders to
approve, or if there is no such record date, the consummation of, such merger,
consolidation, exchange of shares, recapitalization, reorganization or other
similar event or sale of assets (during which time the holders of Series F
Preferred Stock shall be entitled to convert the Series F Preferred Stock) and
(b) the resulting successor or acquiring entity (if not the Corporation) and, if
an entity different from the successor or acquiring entity, the entity whose
capital stock or assets the holders of the Common Stock are entitled to receive
as a result of such Change of Control Transaction, assumes by written instrument
the obligations of this Certificate of Designation including this Article
VI.C(b). The above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers or share exchanges.
(c) [Intentionally Omitted]
(d) Adjustment Due to Distribution. Subject to Article III, if the
------------------------------
Corporation shall declare or make any distribution of its assets (or rights to
acquire its assets) to holders of Common Stock as a dividend, stock repurchase,
by way of return of capital or otherwise (including any dividend or distribution
to the Corporation's shareholders in cash or shares (or rights to acquire
shares) of capital stock of a subsidiary (i.e., a spin-off)) (a "Distribution"),
then the holders of Series F Preferred Stock shall be entitled, upon any
conversion of shares of Series F Preferred Stock after the date of record for
determining shareholders entitled to such Distribution, to receive the amount of
such assets which would have been payable to the holder with respect to the
shares of Common Stock issuable upon such conversion had such holder been the
holder of such shares of Common Stock on the record date for the determination
of shareholders entitled to such Distribution.
(e) Purchase Rights. Subject to Article III, if at any time when any
---------------
Series F Preferred Stock is issued and outstanding, the Corporation issues any
convertible securities or rights to purchase stock, warrants, securities or
other property (the "Purchase Rights") pro rata to the record holders of any
class of Common Stock, then the holders of Series F Preferred Stock will be
entitled to acquire, upon the terms applicable to such Purchase Rights, the
aggregate Purchase Rights which such holder could have acquired if such holder
had held the number of shares of Common Stock acquirable upon complete
conversion of the Series F Preferred Stock (without regard to any limitations on
conversion contained herein) immediately before the date on which a record is
taken for the grant, issuance or sale of such Purchase Rights, or, if no such
record is taken, the date as of which the record holders of Common Stock are to
be determined for the grant, issue or sale of such Purchase Rights.
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<PAGE>
(f) Adjustment for Restricted Periods. In the event that (i) the
---------------------------------
Corporation fails to obtain effectiveness with the SEC of any Registration
Statement (as defined in the Registration Rights Agreement) required to be filed
pursuant to the Registration Rights Agreement on or prior to the date on which
such Registration Statement is required to become effective pursuant to the
terms of the Registration Rights Agreement, or (ii) any such Registration
Statement after its initial effectiveness and during the Registration Period (as
defined in the Registration Rights Agreement) lapses in effect, or sales of all
the Registrable Securities otherwise cannot be made thereunder, whether by
reason of the Corporation's failure or inability to amend or supplement the
prospectus (the "Prospectus") included therein in accordance with the
Registration Rights Agreement or otherwise, after such Registration Statement
becomes effective (including, without limitation, during an Allowed Delay (as
defined in Section 3(f) of the Registration Rights Agreement)), then, at the
election of each holder of Series F Preferred Stock, the Pricing Period shall be
comprised of, (x) in the case of an event described in clause (i), the twenty-
two (22) Trading Days preceding the date on which such Registration Statement is
required to become effective pursuant to the terms of the Registration Rights
Agreement, plus all Trading Days through and including the third (3rd) Trading
Day following the date of actual effectiveness of such Registration Statement;
and (y) in the case of an event described in clause (ii), the twenty-two (22)
Trading Days preceding the date on which the holder of the Series F Preferred
Stock is first notified that sales may not be made under the Prospectus, plus
all Trading Days through and including the third (3rd) Trading Day following the
date on which the Holder is first notified that such sales may again be made
under the Prospectus. If a holder of Series F Preferred Stock determines that
sales may not be made pursuant to the Prospectus (whether by reason of the
Corporation's failure or inability to amend or supplement the Prospectus or
otherwise) it shall so notify the Corporation in writing and, unless the
Corporation provides such holder with a written opinion of the Corporation's
counsel to the contrary, such determination shall be binding for purposes of
this paragraph.
(g) Notice of Adjustments. Upon the occurrence of each adjustment or
---------------------
readjustment of the Conversion Price pursuant to this Article VI.C, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment and prepare and furnish to each holder of Series F Preferred Stock
a certificate or letter setting forth such adjustment or readjustment and
showing in detail the facts upon which such adjustment or readjustment is based.
The Corporation shall, upon the written request at any time of any holder of
Series F Preferred Stock, furnish to such holder a like certificate setting
forth (i) such adjustment or readjustment, (ii) the Conversion Price at the time
in effect and (iii) the number of shares of Common Stock and the amount, if any,
of other securities or property which at the time would be received upon
conversion of a share of Series F Preferred Stock.
D. Mechanics of Conversion. In order to convert Series F Preferred
-----------------------
Stock into full shares of Common Stock, a holder of Series F Preferred Stock
shall: (i) submit a copy of the fully executed notice of conversion in the form
attached hereto as Exhibit A ("Notice of Conversion") to the Corporation by
facsimile dispatched prior to Midnight, New York City time (the "Conversion
Notice Deadline") on the date specified therein as the Conversion Date (or by
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<PAGE>
other means resulting in, or reasonably expected to result in, notice to the
Corporation on the Conversion Date) to the office of the Corporation or its
designated Transfer Agent for the Series F Preferred Stock, which notice shall
specify the number of shares of Series F Preferred Stock to be converted, the
applicable Conversion Price and a calculation of the number of shares of Common
Stock issuable upon such conversion (together with a copy of the first page of
each certificate to be converted); and (ii) surrender the original certificates
representing the Series F Preferred Stock being converted (the "Preferred Stock
Certificates"), duly endorsed, along with a copy of the Notice of Conversion to
the office of the Corporation or the Transfer Agent for the Series F Preferred
Stock as soon as practicable thereafter. The Corporation shall not be obligated
to issue certificates evidencing the shares of Common Stock issuable upon such
conversion, unless either the Preferred Stock Certificates are delivered to the
Corporation or its Transfer Agent as provided above, or the holder notifies the
Corporation or its Transfer Agent that such certificates have been lost, stolen
or destroyed (subject to the requirements of subparagraph (a) below). In the
case of a dispute as to the calculation of the Conversion Price, the Corporation
shall promptly issue such number of shares of Common Stock that are not disputed
in accordance with subparagraph (b) below. The Corporation shall submit the
disputed calculations to its outside accountant via facsimile within two (2)
business days of receipt of the Notice of Conversion. The accountant shall
audit the calculations and notify the Corporation and the holder of the results
no later than 48 hours from the time it receives the disputed calculations. The
accountant's calculation shall be deemed conclusive absent manifest error.
(a) Lost or Stolen Certificates. Upon receipt by the Corporation of
----------------------------
evidence of the loss, theft, destruction or mutilation of any Preferred Stock
Certificates representing shares of Series F Preferred Stock, and (in the case
of loss, theft or destruction) of indemnity reasonably satisfactory to the
Corporation, and upon surrender and cancellation of the Preferred Stock
Certificate(s), if mutilated, the Corporation shall execute and deliver new
Preferred Stock Certificate(s) of like tenor and date.
(b) Delivery of Common Stock Upon Conversion. Upon the surrender of
-----------------------------------------
certificates as described above together with a Notice of Conversion, the
Corporation shall issue and, within three (3) business days after such surrender
(or, in the case of lost, stolen or destroyed certificates, after provision of
agreement and indemnification pursuant to subparagraph (a) above) (the "Delivery
Period"), deliver (or cause its Transfer Agent to so issue and deliver) in
accordance with the terms hereof and the Purchase Agreement (including, without
limitation, in accordance with the requirements of Section 2(g) of the Purchase
Agreement) to or upon the order of the holder (i) that number of shares of
Common Stock for the portion of the shares of Series F Preferred Stock converted
as shall be determined in accordance herewith and (ii) a certificate
representing the balance of the shares of Series F Preferred Stock not
converted, if any. In addition to any other remedies available to the holder,
including actual damages and/or equitable relief, the Corporation shall pay to a
holder $2,000 per day in cash for each day beyond a three (3) day grace period
following the Delivery Period that the Corporation fails to deliver Common Stock
(a "Delivery Default") issuable upon surrender of shares of Series F Preferred
Stock with a Notice of Conversion until such time as the Corporation has
delivered all such Common Stock (the "Delivery Default Payments"). Such
Delivery Default Payments shall be paid to such holder by the fifth day of the
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<PAGE>
month following the month in which it has accrued or, at the option of the
holder (by written notice to the Corporation by the first day of the month
following the month in which it has accrued), shall be convertible into Common
Stock in accordance with the terms of this Article VI.
In lieu of delivering physical certificates representing the Common Stock
issuable upon conversion, 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 and its compliance with
the provisions contained in Article VI.A and in this Article VI.D, the
Corporation shall use its best efforts to cause its Transfer Agent to
electronically transmit the Common Stock issuable upon conversion to the holder
by crediting the account of holder's Prime Broker with DTC through its Deposit
Withdrawal Agent Commission ("DWAC") system. The time periods for delivery and
penalties described in the immediately preceding paragraph shall apply to the
electronic transmittals described herein.
(c) No Fractional Shares. If any conversion of Series F Preferred
---------------------
Stock would result in a fractional share of Common Stock or the right to acquire
a fractional share of Common Stock, such fractional share shall be disregarded
and the number of shares of Common Stock issuable upon Conversion of the Series
F Preferred Stock shall be the next higher number of shares.
(d) Conversion Date. The "Conversion Date" shall be the date
----------------
specified in the Notice of Conversion, provided that the Notice of Conversion is
submitted by facsimile (or by other means resulting in, or reasonably expected
to result in, notice) to the Corporation or its Transfer Agent before Midnight,
New York City time, on the date so specified, otherwise the Conversion Date
shall be the first business day after the date so specified on which the Notice
of Conversion is actually received by the Corporation or its Transfer Agent.
The person or persons entitled to receive the shares of Common Stock issuable
upon conversion shall be treated for all purposes as the record holder or
holders of such securities as of the Conversion Date and all rights with respect
to the shares of Series F Preferred Stock surrendered shall forthwith terminate
except the right to receive the shares of Common Stock or other securities or
property issuable on such conversion and except that the holders preferential
rights as a holder of Series F Preferred Stock shall survive to the extent the
Corporation fails to deliver such securities.
E. Reservation of Shares. A number of shares of the authorized but
---------------------
unissued Common Stock sufficient to provide for the conversion of the Series F
Preferred Stock outstanding (based on the lesser of the then current Market
Price and the Fixed Conversion Price) shall at all times be reserved by the
Corporation, free from preemptive rights, for such conversion or exercise. As of
the date of issuance of the Series F Preferred Stock, 4,079,000 authorized and
unissued shares of Common Stock have been duly reserved for issuance upon
conversion of the Series F Preferred Stock (the "Reserved Amount"). The
Reserved Amount shall be increased from time to time in accordance with the
Corporation's obligations pursuant to Section 4(h) of the Purchase Agreement.
In addition, if the Corporation shall issue any securities or make any change in
its capital structure which would change the number of shares of Common Stock
into which each share of the Series F Preferred Stock shall be convertible, the
Corporation shall at the same time also make proper
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<PAGE>
provision so that thereafter there shall be a sufficient number of shares of
Common Stock authorized and reserved, free from preemptive rights, for
conversion of the outstanding Series F Preferred Stock.
If at any time a holder of shares of Series F Preferred Stock submits
a Notice of Conversion, and the Corporation does not have sufficient authorized
but unissued shares of Common Stock available to effect such conversion in
accordance with the provisions of this Article VI (a "Conversion Default"),
subject to Article X, the Corporation shall issue to the holder all of the
shares of Common Stock which are available to effect such conversion. The
number of shares of Series F Preferred Stock included in the Notice of
Conversion which exceeds the amount which is then convertible into available
shares of Common Stock (the "Excess Amount") shall, notwithstanding anything to
the contrary contained herein, not be convertible into Common Stock in
accordance with the terms hereof until (and at the holder's option at any time
after) the date additional shares of Common Stock are authorized by the
Corporation to permit such conversion, at which time the Conversion Price in
respect thereof shall be the lesser of (i) the Conversion Price on the
Conversion Default Date (as defined below) and (ii) the Conversion Price on the
Conversion Date elected by the holder in respect thereof. The Corporation shall
use its best efforts to effect an increase in the authorized number of shares of
Common Stock as soon as possible following the earlier of (i) such time that a
holder of Series F Preferred Stock notifies the Corporation or that the
Corporation otherwise becomes aware that there are or likely will be
insufficient authorized and unissued shares to allow full conversion thereof and
(ii) a Conversion Default. In addition, the Corporation shall pay to the holder
payments ("Conversion Default Payments") for a Conversion Default in the amount
of (a) .24, multiplied by (b) the sum of the Stated Value plus the Premium
Amount per share of Series F Preferred Stock held by such holder through the
Authorization Date (as defined below), multiplied by (c) (N/365), where N = the
number of days from the day the holder submits a Notice of Conversion giving
rise to a Conversion Default (the "Conversion Default Date") to the date (the
"Authorization Date") that the Corporation authorizes a sufficient number of
shares of Common Stock to effect conversion of the full number of shares of
Series F Preferred Stock. The Corporation shall send notice to the holder of
the authorization of additional shares of Common Stock, the Authorization Date
and the amount of holder's accrued Conversion Default Payments. The accrued
Conversion Default Payment for each calendar month shall be paid in cash or
shall be convertible into Common Stock at the applicable Conversion Price, at
the holder's option, as follows:
(a) In the event the holder elects to take such payment in cash, cash
payment shall be made to holder by the fifth (5th) day of the month following
the month in which it has accrued; and
(b) In the event the holder elects to take such payment in Common
Stock, the holder may convert such payment amount into Common Stock at the
Conversion Price (as in effect at the time of Conversion) at any time after the
fifth (5th) day of the month following the month in which it has accrued in
accordance with the terms of this Article VI (so long as there is then a
sufficient number of authorized shares of Common Stock).
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<PAGE>
The holder's election shall be made in writing to the Corporation at
any time prior to 9:00 p.m, New York City Time, on the third (3rd) day of the
month following the month in which Conversion Default payments have accrued. If
no election is made, the holder shall be deemed to have elected to receive cash.
Nothing herein shall limit the holder's right to pursue actual damages (to the
extent in excess of the Conversion Default Payments) for the Corporation's
failure to maintain a sufficient number of authorized shares of Common Stock,
and each holder shall have the right to pursue all remedies available at law or
in equity (including a decree of specific performance and/or injunctive relief).
F. Notice of Conversion Price Adjustments. Upon the occurrence of
--------------------------------------
each adjustment or readjustment of the Conversion Price pursuant to this Article
VI, the Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series F Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series F Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (i) such adjustment or
readjustment, (ii) the Conversion Price at the time in effect and (iii) the
number of shares of Common Stock and the amount, if any, of other securities or
property which at the time would be received upon conversion of a share of
Series F Preferred Stock.
G. Status as Stockholders. Upon submission of a Notice of Conversion
----------------------
by a holder of Series F Preferred Stock, (i) the shares covered thereby (other
than the shares, if any, which cannot be issued because their issuance would
exceed such holder's allocated portion of the Reserved Amount or Maximum Share
Amount) shall be deemed converted into shares of Common Stock and (ii) the
holder's rights as a holder of such converted shares of Series F Preferred Stock
shall cease and terminate, excepting only the right to receive certificates for
such shares of Common Stock and to any remedies provided herein or otherwise
available at law or in equity to such holder because of a failure by the
Corporation to comply with the terms of this Certificate of Designation.
Notwithstanding the foregoing, if a holder has not received certificates for all
shares of Common Stock prior to the tenth (10th) business day after the
expiration of the Delivery Period with respect to a conversion of shares of
Series F Preferred Stock for any reason, then (unless the holder otherwise
elects to retain its status as a holder of Common Stock by so notifying the
Corporation) the holder shall regain the rights of a holder of such shares of
Series F Preferred Stock with respect to such unconverted shares of Series F
Preferred Stock and the Corporation shall, as soon as practicable, return such
unconverted shares of Series F Preferred Stock to the holder or, if such shares
of Series F Preferred Stock have not been surrendered, adjust its records to
reflect that such shares of Series F Preferred Stock have not been converted.
In all cases, the holder shall retain all of its rights and remedies (including,
without limitation, (i) the right to receive Delivery Default Payments pursuant
to Article VI.E to the extent required thereby for such Delivery Default and any
subsequent Delivery Default and (ii) the right to have the Conversion Price with
respect to subsequent conversions determined in accordance with Article VI.E.)
for the Corporation's failure to convert the Series F Preferred Stock.
-18-
<PAGE>
VII AUTOMATIC CONVERSION
--------------------
Subject to the limitations on conversion set forth in Article VI.A(b)
and so long as (i) all of the shares of Common Stock issuable upon conversion of
all outstanding shares of Series F Preferred Stock are then (x) authorized and
reserved for issuance, (y) registered for re-sale under the 1933 Act by the
holders of the Series F Preferred Stock (or may otherwise be resold publicly
without restriction) and (z) eligible to be traded on Nasdaq, the NNM, the NYSE
or the AMEX and (ii) there is not then a continuing Mandatory Redemption Event
or Trading Market Redemption Event, each share of Series F Preferred Stock
issued and outstanding on August 18, 2003 (the "Automatic Conversion Date"),
automatically shall be converted into shares of Common Stock on such date at the
then effective Conversion Price in accordance with, and subject to, the
provisions of Article VI hereof (the "Automatic Conversion"). The Automatic
Conversion Date shall be delayed by one (1) Trading Day for each Trading Day
occurring prior thereto and prior to the full conversion of the Series F
Preferred Stock that (i) any Registration Statement required to be filed and to
be effective pursuant to the Registration Rights Agreement is not effective or
sales of all of the Registrable Securities otherwise cannot be made thereunder
during the Registration Period (as defined in the Registration Rights Agreement)
(whether by reason of the Corporation's failure to properly supplement or amend
the prospectus included therein in accordance with the terms of the Registration
Rights Agreement or otherwise, including during any Allowed Delays (as defined
in Section 3(f) of the Registration Rights Agreement)), (ii) any Mandatory
Redemption Event (as defined in Article V.A) or Trading Market Redemption Event
exists, without regard to whether any cure periods shall have run or (iii) that
the Corporation is in breach of any of its obligations pursuant to Section 4(h)
of the Purchase Agreement. The Automatic Conversion Date shall be the
Conversion Date for purposes of determining the Conversion Price and the time
within which certificates representing the Common Stock must be delivered to the
holder.
VIII VOTING RIGHTS
-------------
The holders of the Series F Preferred Stock have no voting power
whatsoever, except as otherwise provided by the Delaware General Corporation Law
("DGCL"), in this Article VIII, and in Article IX below.
Notwithstanding the above, the Corporation shall provide each holder
of Series F Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed sale, lease or conveyance
of all or substantially all of the assets of the Corporation, or any proposed
liquidation, dissolution or winding up of the Corporation, the Corporation shall
mail a notice to each holder, at least ten (10) days prior to the record date
specified therein (or thirty (30) days prior to the consummation of the
-19-
<PAGE>
transaction or event, whichever is earlier), of the date on which any such
record is to be taken for the purpose of such dividend, distribution, right or
other event, and a brief statement regarding the amount and character of such
dividend, distribution, right or other event to the extent known at such time.
To the extent that under the DGCL the vote of the holders of the Series F
Preferred Stock, voting separately as a class or series as applicable, is
required to authorize a given action of the Corporation, the affirmative vote or
consent of the holders of at least a majority of the shares of the Series F
Preferred Stock represented at a duly held meeting at which a quorum is present
or by written consent of a majority of the shares of Series F Preferred Stock
(except as otherwise may be required under the DGCL) shall constitute the
approval of such action by the class. To the extent that under the DGCL holders
of the Series F Preferred Stock are entitled to vote on a matter with holders of
Common Stock, voting together as one class, each share of Series F Preferred
Stock shall be entitled to a number of votes equal to the number of shares of
Common Stock into which it is then convertible using the record date for the
taking of such vote of shareholders as the date as of which the Conversion Price
is calculated. Holders of the Series F Preferred Stock shall be entitled to
notice of all shareholder meetings or written consents (and copies of proxy
materials and other information sent to shareholders) with respect to which they
would be entitled to vote, which notice would be provided pursuant to the
Corporation's bylaws and the DGCL.
IX PROTECTIVE PROVISIONS
---------------------
So long as shares of Series F Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the DGCL) of the holders of at least a majority of the
then outstanding shares of Series F Preferred Stock:
(a) alter, amend or repeal (whether by merger, consolidation or
otherwise) the rights, preferences or privileges of the Series F Preferred
Stock or any capital stock of the Corporation so as to affect adversely the
Series F Preferred Stock;
(b) create any new class or series of capital stock having a
preference over the Series F Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as previously defined
in Article II hereof, "Senior Securities");
(c) create any new class or series of capital stock ranking pari passu
---- -----
with the Series F Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation (as previously defined in Article
II hereof, "Pari Passu Securities");
---- -----
(d) increase the authorized number of shares of Series F Preferred
Stock;
(e) issue any Senior Securities or Pari Passu Securities;
---- -----
(f) increase the par value of the Common Stock, or
-20-
<PAGE>
(g) do any act or thing not authorized or contemplated by this
Certificate of Designation which would result in taxation of the holders of
shares of the Series F Preferred Stock under Section 305 of the Internal Revenue
Code of 1986, as amended (or any comparable provision of the Internal Revenue
Code as hereafter from time to time amended).
In the event holders of at least a majority of the then outstanding
shares of Series F Preferred Stock agree to allow the Corporation to alter or
change the rights, preferences or privileges of the shares of Series F Preferred
Stock, pursuant to subsection (a) above, so as to affect the Series F Preferred
Stock, then the Corporation will deliver notice of such approved change to the
holders of the Series F Preferred Stock that did not agree to such alteration or
change (the "Dissenting Holders") and Dissenting Holders shall have the right
for a period of thirty (30) days to convert pursuant to the terms of this
Certificate of Designation as they exist prior to such alteration or change or
continue to hold their shares of Series F Preferred Stock.
X PRO RATA ALLOCATIONS
--------------------
The Maximum Share Amount and the Reserved Amount (including any
increases thereto) shall be allocated by the Corporation pro rata among the
holders of Series F Preferred Stock based on the number of shares of Series F
Preferred Stock issued to each holder. Each increase to the Maximum Share
Amount and the Reserved Amount shall be allocated pro rata among the holders of
Series F Preferred Stock based on the number of shares of Series F Preferred
Stock held by each holder at the time of the increase in the Maximum Share
Amount or Reserved Amount. In the event a holder shall sell or otherwise
transfer any of such holder's shares of Series F Preferred Stock, each
transferee shall be allocated a pro rata portion of such transferor's Maximum
Share Amount and Reserved Amount. Any portion of the Maximum Share Amount or
Reserved Amount which remains allocated to any person or entity which does not
hold any Series F Preferred Stock shall be allocated to the remaining holders of
shares of Series F Preferred Stock, pro rata based on the number of shares of
Series F Preferred Stock then held by such holders.
-21-
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation this 18th day of August, 1999.
THE ASHTON TECHNOLOGY GROUP, INC.
By: /s/ Arthur J. Bacci
------------------------------
Arthur J. Bacci
President
-22-
<PAGE>
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series F Preferred Stock)
The undersigned hereby irrevocably elects to convert ______ shares of
Series F Preferred Stock, represented by stock certificate No(s). __________
(the "Preferred Stock Certificates") into shares of common stock ("Common
Stock") of The Ashton Technology Group, Inc., a ________ corporation (the
"Corporation") according to the conditions of the Certificate of Designation of
Series F Preferred Stock, as of the date written below. If securities are to be
issued in the name of a person other than the undersigned, the undersigned will
pay all transfer taxes payable with respect thereto and is delivering herewith
such certificates. No fee will be charged to the Holder for any conversion,
except for transfer taxes, if any. A copy of each Preferred Stock Certificate
is attached hereto (or evidence of loss, theft or destruction thereof).
The undersigned hereby irrevocably elects to convert $___________ in
Conversion Default Payments, $__________ in Delivery Default Payments and/or
$___________ in payments pursuant to Section 2(c) of the Registration Rights
Agreement at the Applicable Conversion Price set forth below.
The Corporation shall electronically transmit the Common Stock issuable
pursuant to this Notice of Conversion to the account of the undersigned or its
nominee with DTC through its Deposit Withdrawal Agent Commission system ("DWAC
----
Transfer").
- --------
Name of DTC Prime Broker:_______________________________
Account Number:_________________________________________
[ ] In lieu of receiving shares of Common Stock issuable pursuant to this
Notice of Conversion by way of a DWAC Transfer, the undersigned hereby
requests that the Corporation issue a certificate or certificates for the
number of shares of Common Stock set forth above (which numbers are based
on the Holder's calculation attached hereto) in the name(s) specified
immediately below or, if additional space is necessary, on an attachment
hereto:
Name:_________________________________________________
Address:______________________________________________
______________________________________________
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
Series F Preferred Stock shall be made pursuant to registration of the
securities under the Securities Act of 1933, as amended (the "Act"), or pursuant
to an exemption from registration under the Act.
Date of Conversion:_________________________________
Market Price Days:__________________________________
Applicable Conversion Price:________________________
Number of Shares of
Common Stock to be Issued pursuant to:
(i) Conversion of Series F Preferred Stock:
----------------------------------------------------
<PAGE>
(ii) Conversion of Conversion Default Payments, Delivery Default
Payments and/or payments pursuant to Section 2(c) of the
Registration Rights Agreement:
---------------------------------------------------------------
Signature:_____________________________________________________
Name:__________________________________________________________
Address:_______________________________________________________
_________________________________________________________________
*The Corporation is not required to issue shares of Common Stock until the
original Series F Preferred Stock Certificate(s) (or evidence of loss, theft or
destruction thereof) to be converted are received by the Corporation or its
Transfer Agent. The Corporation shall issue and deliver shares of Common Stock
to an overnight courier not later than two (2) business days following receipt
of the original Preferred Stock Certificate(s) to be converted, and shall make
payments pursuant to the Certificate of Designation for the number of business
days such issuance and delivery is late.
<PAGE>
EXHIBIT 4.2
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED. EXCEPT
AS OTHERWISE SET FORTH HEREIN OR IN A SECURITIES PURCHASE AGREEMENT DATED
AS OF AUGUST 18, 1999, NEITHER THIS WARRANT NOR ANY OF SUCH SHARES MAY BE
SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SECURITIES UNDER SAID ACT OR, AN OPINION OF COUNSEL, IN
FORM, SUBSTANCE AND SCOPE, CUSTOMARY FOR OPINIONS OF COUNSEL IN COMPARABLE
TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED UNDER SUCH ACT OR UNLESS
SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.
Right to
Purchase
200,000
Shares of
Common Stock,
par value $.01
per share
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, RGC International Investors, LDC
or its registered assigns, is entitled to purchase from The Ashton Technology
Group, Inc., a Delaware corporation (the "Company"), at any time or from time to
time during the period specified in Paragraph 2 hereof, Two Hundred Thousand
(200,000) fully paid and nonassessable shares of the Company's Common Stock, par
value $.01 per share (the "Common Stock"), at an exercise price of $12.2579 per
share (the "Exercise Price"); provided, however, that in the event the Company
exercises its right to call the Company's Redeemable Common Stock Purchase
Warrants registered pursuant to Section 12(g) of the Securities Exchange Act of
1934, as amended (the "Registered Warrants"), pursuant to the call provisions
contained therein, then, beginning on the 31st Trading Day following the date
notice is given to call such Registered Warrants, the Exercise Price shall
thereafter be the lesser of (i) the Exercise Price then in effect and (ii) 125%
of the average of the Closing Bid Prices for any ten (10) consecutive Trading
Days during the thirty (30) consecutive Trading Day period beginning on the date
notice is given to call such Registered Warrants (subject to adjustment for
stock splits, stock dividends and similar events). The term "Warrant Shares,"
as used herein, refers to the shares of Common Stock purchasable hereunder. The
Warrant Shares and the Exercise Price are subject to adjustment as provided in
Paragraph 4 hereof. The term Warrants means this Warrant and the other warrants
issued pursuant to that certain Securities Purchase Agreement, dated August 18,
1999, by and among the Company and the Buyers listed on the execution page
thereof (the "Securities Purchase Agreement"). "Trading Day" shall mean any day
<PAGE>
on which the Common Stock is traded for any period on the Nasdaq SmallCap Market
(the "Nasdaq"), or on the principal securities exchange or other securities
market on which the Common Stock is then being traded.
This Warrant is subject to the following terms, provisions, and conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
----------------------------------------------------------------
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "Exercise
Agreement"), to the Company by 5:00 p.m., New York city time on any business day
at the Company's principal executive offices (or such other office or agency of
the Company as it may designate by notice to the holder hereof), and upon (i)
payment to the Company in cash, by certified or official bank check or by wire
transfer for the account of the Company of the Exercise Price for the Warrant
Shares specified in the Exercise Agreement or (ii) if the resale of the Warrant
Shares by the holder is not then registered pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), delivery to the Company of a written notice of an election to
effect a "Cashless Exercise" (as defined in Section 11(c) below) for the Warrant
Shares specified in the Exercise Agreement. The Warrant Shares so purchased
shall be deemed to be issued to the holder hereof or such holder's designee, as
the record owner of such shares, as of the close of business on the date on
which this Warrant shall have been surrendered, the completed Exercise Agreement
shall have been delivered, and payment shall have been made for such shares (or
an election to effect a Cashless Exercise has been made) as set forth above.
Certificates for the Warrant Shares so purchased, representing the aggregate
number of shares specified in the Exercise Agreement, shall be delivered to the
holder hereof within a reasonable time, not exceeding two (2) business days,
after this Warrant shall have been so exercised. The certificates so delivered
shall be in such denominations as may be requested by the holder hereof and
shall be registered in the name of such holder or such other name as shall be
designated by such holder. If this Warrant shall have been exercised only in
part, then, unless this Warrant has expired, the Company shall, at its expense,
at the time of delivery of such certificates, deliver to the holder a new
Warrant representing the number of shares with respect to which this Warrant
shall not then have been exercised.
Notwithstanding anything in this Warrant to the contrary, in no event
shall the Holder of this Warrant be entitled to exercise a number of Warrants
(or portions thereof) in excess of the number of Warrants (or portions thereof)
upon exercise of which the sum of (i) the number of shares of Common Stock
beneficially owned by the Holder and its affiliates (other than shares of Common
Stock which may be deemed beneficially owned through the ownership of the
unexercised Warrants and the unexercised or unconverted portion of any other
securities of the Company (including shares of Series F Preferred Stock (as
defined in the Securities Purchase Agreement)) subject to a limitation on
conversion or exercise analogous to the limitation contained herein) and (ii)
the number of shares of Common Stock issuable upon exercise of the Warrants (or
portions thereof) with respect to which the determination described herein is
being made, would result in beneficial ownership by the Holder and its
affiliates of more than 4.9% of the outstanding shares of
-2-
<PAGE>
Common Stock. For purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13D-G thereunder, except as
otherwise provided in clause (i) hereof.
2. Period of Exercise. This Warrant is exercisable at any time or from
------------------
time to time on or after the date on which this Warrant is issued and delivered
pursuant to the terms of the Securities Purchase Agreement (the "Issued Date")
and before 5:00 p.m., New York City time on the fifth (5th) anniversary of the
Issue Date (the "Exercise Period").
3. Certain Agreements of the Company. The Company hereby covenants and
---------------------------------
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon issuance
-----------------------
in accordance with the terms of this Warrant, be validly issued, fully paid, and
nonassessable and free from all taxes, liens, and charges with respect to the
issue thereof.
(b) Reservation of Shares. During the Exercise Period, the Company
---------------------
shall at all times have authorized, and reserved for the purpose of issuance
upon exercise of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.
(c) Listing. The Company shall promptly secure the listing of the
-------
shares of Common Stock issuable upon exercise of the Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant; and the Company shall
so list on each national securities exchange or automated quotation system, as
the case may be, and shall maintain such listing of, any other shares of capital
stock of the Company issuable upon the exercise of this Warrant if and so long
as any shares of the same class shall be listed on such national securities
exchange or automated quotation system.
(d) Certain Actions Prohibited. The Company will not, by amendment,
--------------------------
of its charter 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 to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of Common Stock receivable upon
the exercise of this Warrant above the Exercise Price then in effect, and (ii)
will take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.
-3-
<PAGE>
(e) Successors and Assigns. This Warrant will be binding upon any
----------------------
entity succeeding to the Company by merger, consolidation, or acquisition of all
or substantially all the Company's assets.
4. Antidilution Provisions. During the Exercise Period, the Exercise
-----------------------
Price and the number of Warrant Shares shall be subject to adjustment from time
to time as provided in this Paragraph 4.
In the event that any adjustment of the Exercise Price as required herein
results in a fraction of a cent, such Exercise Price shall be rounded up to the
nearest cent.
(a) Adjustment of Exercise Price and Number of Shares upon Issuance
---------------------------------------------------------------
of Common Stock. Except as otherwise provided in Paragraphs 4(c) and 4(e)
- ---------------
hereof, if and whenever on or after the Issue Date of this Warrant, the Company
issues or sells, or in accordance with Paragraph 4(b) hereof is deemed to have
issued or sold, any shares of Common Stock for no consideration or for a
consideration per share (before deduction of reasonable expenses or commissions
or underwriting discounts or allowances in connection therewith) less than the
Market Price (as hereinafter defined) on the date of issuance (or deemed
issuance) of such Common Stock (a "Dilutive Issuance"), then immediately upon
the Dilutive Issuance, the Exercise Price will be reduced to a price determined
by multiplying the Exercise Price in effect immediately prior to the Dilutive
Issuance by a fraction, (i) the numerator of which is an amount equal to the sum
of (x) the number of shares of Common Stock actually outstanding immediately
prior to the Dilutive Issuance, plus (y) the quotient of the aggregate
consideration, calculated as set forth in Paragraph 4(b) hereof, received by the
Company upon such Dilutive Issuance divided by the Market Price in effect
immediately prior to the Dilutive Issuance, and (ii) the denominator of which is
the total number of shares of Common Stock Deemed Outstanding (as defined below)
immediately after the Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes of
------------------------------------------
determining the adjusted Exercise Price under Paragraph 4(a) hereof, the
following will be applicable:
(i) Issuance of Rights or Options. If the Company in any
-----------------------------
manner issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock or other
securities convertible into or exchangeable for Common Stock ("Convertible
Securities") (such warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as "Options") and the price
per share for which Common Stock is issuable upon the exercise of such Options
is less than the Market Price on the date of issuance or grant of such Options,
then the maximum total number of shares of Common Stock issuable upon the
exercise of all such Options will, as of the date of the issuance or grant of
such Options, be deemed to be outstanding and to have been issued and sold by
the Company for such price per share. For purposes of the preceding sentence,
the "price per share for which Common Stock is issuable upon the exercise of
such Options" is determined by dividing (i) the total amount, if any, received
or receivable by the Company as consideration for the issuance or granting
-4-
<PAGE>
of all such Options, plus the minimum aggregate amount of additional
consideration, if any, payable to the Company upon the exercise of all such
Options, plus, in the case of Convertible Securities issuable upon the exercise
of such Options, the minimum aggregate amount of additional consideration
payable upon the conversion or exchange thereof at the time such Convertible
Securities first become convertible or exchangeable, by (ii) the maximum total
number of shares of Common Stock issuable upon the exercise of all such Options
(assuming full conversion of Convertible Securities, if applicable). No further
adjustment to the Exercise Price will be made upon the actual issuance of such
Common Stock upon the exercise of such Options or upon the conversion or
exchange of Convertible Securities issuable upon exercise of such Options.
(ii) Issuance of Convertible Securities. If the Company in any
----------------------------------
manner issues or sells any Convertible Securities, whether or not immediately
convertible (other than where the same are issuable upon the exercise of
Options) and the price per share for which Common Stock is issuable upon such
conversion or exchange is less than the Market Price on the date of issuance of
such Convertible Securities, then the maximum total number of shares of Common
Stock issuable upon the conversion or exchange of all such Convertible
Securities will, as of the date of the issuance of such Convertible Securities,
be deemed to be outstanding and to have been issued and sold by the Company for
such price per share. For the purposes of the preceding sentence, the "price
per share for which Common Stock is issuable upon such conversion or exchange"
is determined by dividing (i) the total amount, if any, received or receivable
by the Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the conversion or exchange thereof at the time
such Convertible Securities first become convertible or exchangeable, by (ii)
the maximum total number of shares of Common Stock issuable upon the conversion
or exchange of all such Convertible Securities. No further adjustment to the
Exercise Price will be made upon the actual issuance of such Common Stock upon
conversion or exchange of such Convertible Securities.
(iii) Change in Option Price or Conversion Rate. If there is a
-----------------------------------------
change at any time in (i) the amount of additional consideration payable to the
Company upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Company upon the conversion or exchange of
any Convertible Securities; or (iii) the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock (other than
under or by reason of provisions designed to protect against dilution), the
Exercise Price in effect at the time of such change will be readjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold.
(iv) Treatment of Expired Options and Unexercised Convertible
--------------------------------------------------------
Securities. If, in any case, the total number of shares of Common Stock
- ----------
issuable upon exercise of any Option or upon conversion or exchange of any
Convertible Securities is not, in fact, issued and the rights to exercise such
Option or to convert or exchange such Convertible Securities shall have expired
or terminated, the Exercise Price then in effect will be readjusted to the
Exercise Price which
-5-
<PAGE>
would have been in effect at the time of such expiration or termination had such
Option or Convertible Securities, to the extent outstanding immediately prior to
such expiration or termination (other than in respect of the actual number of
shares of Common Stock issued upon exercise or conversion thereof), never been
issued.
(v) Calculation of Consideration Received. If any Common
-------------------------------------
Stock, Options or Convertible Securities are issued, granted or sold for cash,
the consideration received therefor for purposes of this Warrant will be the
amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance, grant or sale.
In case any Common Stock, Options or Convertible Securities are issued or sold
for a consideration part or all of which shall be other than cash, the amount of
the consideration other than cash received by the Company will be the fair value
of such consideration, except where such consideration consists of securities,
in which case the amount of consideration received by the Company will be the
Market Price thereof as of the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued in connection with any acquisition,
merger or consolidation in which the Company is the surviving corporation, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving corporation as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined in good faith by the Board of Directors of the Company.
(vi) Exceptions to Adjustment of Exercise Price. No adjustment
------------------------------------------
to the Exercise Price will be made (i) upon the exercise of any warrants,
options or convertible securities granted, issued and outstanding on the date of
issuance of this Warrant; (ii) upon the grant or exercise of any stock or
options which may hereafter be granted or exercised under any employee benefit
plan of the Company now existing or to be implemented in the future, so long as
the issuance of such stock or options is approved by a majority of the
independent members of the Board of Directors of the Company or a majority of
the members of a committee of independent directors established for such
purpose; or (iii) upon the exercise of the Warrants.
(c) Subdivision or Combination of Common Stock. If the Company at
------------------------------------------
any time subdivides (by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a greater number of shares, then, after the date of
record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company at
any time combines (by reverse stock split, recapitalization, reorganization,
reclassification or otherwise) the shares of Common Stock acquirable hereunder
into a smaller number of shares, then, after the date of record for effecting
such combination, the Exercise Price in effect immediately prior to such
combination will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment of the
------------------------------
Exercise Price pursuant to the provisions of this Paragraph 4, the number of
shares of Common Stock issuable
-6-
<PAGE>
upon exercise of this Warrant shall be adjusted by multiplying a number equal to
the Exercise Price in effect immediately prior to such adjustment by the number
of shares of Common Stock issuable upon exercise of this Warrant immediately
prior to such adjustment and dividing the product so obtained by the adjusted
Exercise Price.
(e) Consolidation, Merger or Sale. In case of any consolidation of
-----------------------------
the Company with, or merger of the Company into any other corporation, or in
case of any sale or conveyance of all or substantially all of the assets of the
Company other than in connection with a plan of complete liquidation of the
Company, then as a condition of such consolidation, merger or sale or
conveyance, adequate provision will be made whereby the holder of this Warrant
will have the right to acquire and receive upon exercise of this Warrant in lieu
of the shares of Common Stock immediately theretofore acquirable upon the
exercise of this Warrant, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for the number of shares of
Common Stock immediately theretofore acquirable and receivable upon exercise of
this Warrant had such consolidation, merger or sale or conveyance not taken
place. In any such case, the Company will make appropriate provision to insure
that the provisions of this Paragraph 4 hereof will thereafter be applicable as
nearly as may be in relation to any shares of stock or securities thereafter
deliverable upon the exercise of this Warrant. The Company will not effect any
consolidation, merger or sale or conveyance unless prior to the consummation
thereof, the successor or acquiring entity (if other than the Company) and, if
an entity different from the successor or acquiring entity, the entity whose
capital stock or assets the holders of the Common Stock of the Company are
entitled to receive as a result of such consolidation, merger or sale or
conveyance assumes by written instrument the obligations under this Paragraph 4
and the obligations to deliver to the holder of this Warrant such shares of
stock, securities or assets as, in accordance with the foregoing provisions, the
holder may be entitled to acquire.
(f) Distribution of Assets. In case the Company shall declare or
----------------------
make any distribution of its assets (including cash) to holders of Common Stock
as a partial liquidating dividend, by way of return of capital or otherwise,
then, after the date of record for determining stockholders entitled to such
distribution, but prior to the date of distribution, the holder of this Warrant
shall be entitled upon exercise of this Warrant for the purchase of any or all
of the shares of Common Stock subject hereto, to receive the amount of such
assets which would have been payable to the holder had such holder been the
holder of such shares of Common Stock on the record date for the determination
of stockholders entitled to such distribution.
(g) Notice of Adjustment. Upon the occurrence of any event which
--------------------
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the holder of this Warrant, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Company.
-7-
<PAGE>
(h) Minimum Adjustment of Exercise Price. No adjustment of the
------------------------------------
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(i) No Fractional Shares. No fractional shares of Common Stock are
--------------------
to be issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Market Price of a share of Common
Stock on the date of such exercise.
(j) Other Notices. In case at any time:
-------------
(i) the Company shall declare any dividend upon the Common
Stock payable in shares of stock of any class or make any other distribution
(including dividends or distributions payable in cash out of retained earnings)
to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization of the Company,
or reclassification of the Common Stock, or consolidation or merger of the
Company with or into, or sale of all or substantially all its assets to, another
corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the
date on which the holders of Common Stock shall be entitled to receive such
dividend, distribution, or subscription rights or to exchange their Common Stock
for stock or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto. Failure to give any such notice or any defect therein shall
not affect the validity of the proceedings referred to in clauses (i), (ii),
(iii) and (iv) above.
-8-
<PAGE>
(k) Certain Events. If any event occurs of the type contemplated by
--------------
the adjustment provisions of this Paragraph 4 but not expressly provided for by
such provisions, the Company will give notice of such event as provided in
Paragraph 4(g) hereof, and the Company's Board of Directors will make an
appropriate adjustment in the Exercise Price and the number of shares of Common
Stock acquirable upon exercise of this Warrant so that the rights of the Holder
shall be neither enhanced nor diminished by such event.
(l) Certain Definitions.
-------------------
(i) "Common Stock Deemed Outstanding" shall mean the number of
-------------------------------
shares of Common Stock actually outstanding (not including shares of Common
Stock held in the treasury of the Company), plus (x) pursuant to Paragraph
4(b)(i) hereof, the maximum total number of shares of Common Stock issuable upon
the exercise of Options, as of the date of such issuance or grant of such
Options, if any, and (y) pursuant to Paragraph 4(b)(ii) hereof, the maximum
total number of shares of Common Stock issuable upon conversion or exchange of
Convertible Securities, as of the date of issuance of such Convertible
Securities, if any.
(ii) "Market Price," as of any date, (i) means the average of
------------
the last reported sale prices for the shares of Common Stock on Nasdaq for the
five (5) trading days immediately preceding such date as reported by Bloomberg
Financial Markets or an equivalent reliable reporting service mutually
acceptable to and hereafter designated by the holder of this Warrant and the
Company ("Bloomberg"), or (ii) if Nasdaq is not the principal trading market for
the shares of Common Stock, the average of the last reported sale prices on the
principal trading market for the Common Stock during the same period as reported
by Bloomberg, or (iii) if market value cannot be calculated as of such date on
any of the foregoing bases, the Market Price shall be the fair market value as
reasonably determined in good faith by (a) the Board of Directors of the
Corporation or (b) at the option of a majority-in-interest of the holders of the
outstanding Warrants by an independent investment bank of nationally recognized
standing in the valuation of businesses similar to the business of the
corporation. The manner of determining the Market Price of the Common Stock set
forth in the foregoing definition shall apply with respect to any other security
in respect of which a determination as to market value must be made hereunder.
(iii) "Common Stock," for purposes of this Paragraph 4, includes
------------
the Common Stock, par value $.01 per share, and any additional class of stock of
the Company having no preference as to dividends or distributions on
liquidation, provided that the shares purchasable pursuant to this Warrant shall
include only shares of Common Stock, par value $.01 per share, in respect of
which this Warrant is exercisable, or shares resulting from any subdivision or
combination of such Common Stock, or in the case of any reorganization,
reclassification, consolidation, merger, or sale of the character referred to in
Paragraph 4(e) hereof, the stock or other securities or property provided for in
such Paragraph.
5. Issue Tax. The issuance of certificates for Warrant Shares upon the
---------
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance
-9-
<PAGE>
tax or other costs in respect thereof, provided that the Company shall not be
required to pay any tax which may be payable in respect of any transfer involved
in the issuance and delivery of any certificate in a name other than the holder
of this Warrant.
6. No Rights or Liabilities as a Stockholder. This Warrant shall not
-----------------------------------------
entitle the holder hereof to any voting rights or other rights as a stockholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
7. Transfer, Exchange, and Replacement of Warrant.
----------------------------------------------
(a) Restriction on Transfer. This Warrant and the rights granted to
-----------------------
the holder hereof are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the form attached
hereto, at the office or agency of the Company referred to in Paragraph 7(e)
below; provided, however, that any transfer or assignment shall be subject to,
-------- -------
and shall not be made in the absence of compliance with, the conditions set
forth in Paragraph 7(f) hereof and to the applicable provisions of the
Securities Purchase Agreement, and provided, further, that the holder shall not
-------- -------
knowingly transfer this Warrant to a direct business competitor of the Company
or its Subsidiaries without the prior written consent of the Company. Until due
presentment for registration of transfer on the books of the Company, the
Company may treat the registered holder hereof as the owner and holder hereof
for all purposes, and the Company shall not be affected by any notice to the
contrary. Notwithstanding anything to the contrary contained herein, the
registration rights described in Paragraph 8 are assignable only in accordance
with the provisions of that certain Registration Rights Agreement, dated as of
August 18, 1999, by and among the Company and the other signatories thereto (the
"Registration Rights Agreement").
(b) Warrant Exchangeable for Different Denominations. This Warrant
------------------------------------------------
is exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in Paragraph 7(e) below, for new Warrants of
like tenor representing in the aggregate the right to purchase the number of
shares of Common Stock which may be purchased hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by the holder hereof at the time of such surrender.
(c) Replacement of Warrant. Upon receipt of evidence reasonably
----------------------
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
-10-
<PAGE>
(d) Cancellation; Payment of Expenses. Upon the surrender of this
---------------------------------
Warrant in connection with any transfer, exchange, or replacement as provided in
this Paragraph 7, this Warrant shall be promptly canceled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses (other than legal expenses, if any, incurred by the Holder or
transferees) and charges payable in connection with the preparation, execution,
and delivery of Warrants pursuant to this Paragraph 7.
(e) Register. The Company shall maintain, at its principal executive
--------
offices (or such other office or agency of the Company as it may designate by
notice to the holder hereof), a register for this Warrant, in which the Company
shall record the name and address of the person in whose name this Warrant has
been issued, as well as the name and address of each transferee and each prior
owner of this Warrant.
(f) Exercise or Transfer Without Registration. If, at the time of
-----------------------------------------
the surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act and under applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such exercise, transfer, or exchange, (i)
that the holder or transferee of this Warrant, as the case may be, furnish to
the Company a written opinion of counsel, which opinion and counsel are
acceptable to the Company, to the effect that such exercise, transfer, or
exchange may be made without registration under said Act and under applicable
state securities or blue sky laws, (ii) that the holder or transferee execute
and deliver to the Company an investment letter in form and substance acceptable
to the Company and (iii) that the transferee be an "accredited investor" as
defined in Rule 501(a) promulgated under the Securities Act; provided that no
such opinion, letter or status as an "accredited investor" shall be required in
connection with a transfer pursuant to Rule 144 under the Securities Act. The
first holder of this Warrant, by taking and holding the same, represents to the
Company that such holder is acquiring this Warrant for investment and not with a
view to the distribution thereof.
8. Registration Rights. The initial holder of this Warrant (and certain
-------------------
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in Section 2 of the Registration
Rights Agreement.
9. Notices. All notices, requests, and other communications required or
-------
permitted to be given or delivered hereunder to the holder of this Warrant shall
be in writing, and shall be personally delivered, or shall be sent by certified
or registered mail or by recognized overnight mail courier, postage prepaid and
addressed, to such holder at the address shown for such holder on the books of
the Company, or at such other address as shall have been furnished to the
Company by notice from such holder. All notices, requests, and other
communications required or permitted to be given or delivered hereunder to the
Company shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to the office of the Company at 1900 Market Street, Suite
703, Philadelphia, Pennsylvania 19103, Attention: Chief Executive Officer, or at
such other address as
-11-
<PAGE>
shall have been furnished to the holder of this Warrant by notice from the
Company. Any such notice, request, or other communication may be sent by
facsimile, but shall in such case be subsequently confirmed by a writing
personally delivered or sent by certified or registered mail or by recognized
overnight mail courier as provided above. All notices, requests, and other
communications shall be deemed to have been given either at the time of the
receipt thereof by the person entitled to receive such notice at the address of
such person for purposes of this Paragraph 9, or, if mailed by registered or
certified mail or with a recognized overnight mail courier upon deposit with the
United States Post Office or such overnight mail courier, if postage is prepaid
and the mailing is properly addressed, as the case may be.
10. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
-------------
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED IN THE STATE OF DELAWARE (WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS). BOTH PARTIES IRREVOCABLY CONSENT TO THE JURISDICTION OF THE
UNITED STATES FEDERAL COURTS AND THE STATE COURTS LOCATED IN DELAWARE WITH
RESPECT TO ANY SUIT OR PROCEEDING BASED ON OR ARISING UNDER THIS AGREEMENT, THE
AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY AND IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH SUIT
OR PROCEEDING MAY BE DETERMINED IN SUCH COURTS. BOTH PARTIES IRREVOCABLY WAIVE
THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR
PROCEEDING. BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY
MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF
PROCESS UPON THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL
AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW. BOTH PARTIES AGREE THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT
OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER.
11. Miscellaneous.
-------------
(a) Amendments. This Warrant and any provision hereof may only be
----------
amended by an instrument in writing signed by the Company and the holder hereof.
(b) Descriptive Headings. The descriptive headings of the several
--------------------
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof.
(c) Cashless Exercise. Notwithstanding anything to the contrary
-----------------
contained in this Warrant, if the resale of the Warrant Shares by the holder is
not then registered pursuant to an effective registration statement under the
Securities Act, this Warrant may be exercised by
-12-
<PAGE>
presentation and surrender of this Warrant to the Company at its principal
executive offices with a written notice of the holder's intention to effect a
cashless exercise, including a calculation of the number of shares of Common
Stock to be issued upon such exercise in accordance with the terms hereof (a
"Cashless Exercise"). In the event of a Cashless Exercise, in lieu of paying the
Exercise Price in cash, the holder shall surrender this Warrant for that number
of shares of Common Stock determined by multiplying the number of Warrant Shares
to which it would otherwise be entitled by a fraction, the numerator of which
shall be the difference between the then current Market Price per share of the
Common Stock and the Exercise Price, and the denominator of which shall be the
then current Market Price per share of Common Stock.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-13-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its
duly authorized officer.
THE ASHTON TECHNOLOGY GROUP, INC.
By: /s/ Arthur J. Bacci
------------------------------
Arthur J. Bacci
President
Dated as of August 18, 1999
-14-
<PAGE>
FORM OF EXERCISE AGREEMENT
Dated: ________ __,199_
To: The Ashton Technology Group, Inc.
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ________ shares of Common Stock covered by
such Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant in cash or by certified or official bank check in the
amount of, or, if the resale of such Common Stock by the undersigned is not
currently registered pursuant to an effective registration statement under the
Securities Act of 1933, as amended, by surrender of securities issued by the
Company (including a portion of the Warrant) having a market value (in the case
of a portion of this Warrant, determined in accordance with Section 11(c) of the
Warrant) equal to $_________. Please issue a certificate or certificates for
such shares of Common Stock in the name of and pay any cash for any fractional
share to:
Name: ___________________________________
Signature: ________________________________
Address: ________________________________
________________________________
Note: The above signature should
correspond exactly with the name
on the face of the within
Warrant.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
Name of Assignee Address No of Shares
- ---------------- ------- ------------
, and hereby irrevocably constitutes and appoints _____________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Dated: ________ __, 199_
In the presence of:
_________________________
Name: ____________________________________
Signature: _______________________________
Title of Signing Officer or Agent (if any):
_______________________________
Address: _______________________________
_______________________________
Note: The above signature should
correspond exactly with the name
on the face of the within
Warrant.
<PAGE>
EXHIBIT 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of August 18,
1999, by and among The Ashton Technology Group, Inc., a Delaware corporation,
with headquarters located at 1900 Market Street, Suite 701, Philadelphia, PA
19103 ("Company"), and each of the purchasers set forth on the signature pages
hereto (the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Section
4(2) of the Securities Act of 1933, as amended (the "1933 Act"), and by Rule 506
under Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under 1933 Act;
B. The Company has authorized a new series of preferred stock, designated
as Series F Convertible Preferred Stock, par value $0.01 per share (the "Series
F Preferred Stock"), having the rights, preferences and privileges set forth in
the Certificate of Designations, Preferences and Rights attached hereto as
Exhibit "A" (the "Certificate of Designation");
C. The Series F Preferred Stock are convertible into shares of common
stock, $.01 par value per share, of the Company (the "Common Stock"), upon the
terms and subject to the limitations and conditions set forth in the Certificate
of Designation;
D. The Company has authorized the issuance to the Buyers of warrants, in
the form attached hereto as Exhibit "B", to purchase Two Hundred Thousand
(200,000) shares of Common Stock (the "Warrants");
E. The Buyers desire to purchase and the Company desires to issue and
sell, upon the terms and conditions set forth in this Agreement, (i) an
aggregate of Twenty Thousand (20,000) shares of Series F Preferred Stock (such
shares, together with any Series F Preferred Stock issued in replacement thereof
or as a dividend thereon or otherwise with respect thereto in accordance with
the terms thereof, being hereinafter collectively referred to as the "Preferred
Shares"), and (ii) Warrants to purchase Two Hundred Thousand (200,000) shares of
Common Stock, for an aggregate purchase price of Twenty Million Dollars
($20,000,000).
F. Each Buyer wishes to purchase, upon the terms and conditions stated in
this Agreement, the number of Preferred Shares and number of Warrants as is set
forth immediately below its name on the signature pages hereto;
<PAGE>
G. Contemporaneously with the execution and delivery of this Agreement,
the parties hereto are executing and delivering a Registration Rights Agreement,
in the form attached hereto as Exhibit "C" (the "Registration Rights
Agreement"), pursuant to which the Company has agreed to provide certain
registration rights under the 1933 Act and the rules and regulations promulgated
thereunder, and applicable state securities laws; and
NOW THEREFORE, the Company and each of the Buyers severally (and not
jointly) hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES
-------------------------------------
AND WARRANTS.
------------
a. Purchase of Preferred Shares and Warrants. On and subject to
-----------------------------------------
the terms and conditions set forth in this Agreement, at the Closing (as defined
below), the Company shall issue and sell to the Buyers, and the Buyers severally
agree to purchase from the Company, an aggregate of Twenty Thousand (20,000)
Preferred Shares and an aggregate of Two Hundred Thousand (200,000) Warrants for
an aggregate purchase price of Twenty Million Dollars ($20,000,000) (the
"Purchase Price"). Each Buyer severally agrees to purchase from the Company
such number of Preferred Shares and number of Warrants as is set forth
immediately below such Buyer's name on the signature pages hereto.
b. Form of Payment. On the Closing Date (as defined below), (i)
---------------
each Buyer shall pay the purchase price for the Preferred Shares and the
Warrants to be issued and sold to it at the Closing (as defined below) by wire
transfer of immediately available funds to the Company, in accordance with the
Company's written wiring instructions, against delivery of duly executed
certificates representing such number of Preferred Shares and Warrants which
such Buyer is purchasing and (ii) the Company shall deliver such certificates
and Warrants duly executed on behalf of the Company, to such Buyer, against
delivery of such Purchase Price.
c. Closing Date. Subject to the satisfaction (or waiver) of the
------------
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance and sale of the Preferred Shares and the Warrants pursuant to
this Agreement (the "Closing Date") shall be 12:00 noon Eastern Standard Time on
August 18, 1999 or such other mutually agreed upon time. The closing of the
transactions contemplated by this Agreement (the "Closing") shall occur on the
Closing Date at the offices of Morgan, Lewis & Bockius LLP, 1701 Market Street,
Philadelphia, PA 19103-2921 or at such other location as may be agreed to by the
parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer severally (and
--------------------------------------
not jointly) represents and warrants to the Company solely as to such Buyer
that:
-2-
<PAGE>
a. Investment Purpose. As of the date hereof, the Buyer is
------------------
purchasing the Preferred Shares and the shares of Common Stock issuable upon
conversion of or otherwise pursuant to the terms of the Preferred Shares and the
Certificate of Designation (including, without limitation, such additional
shares of Common Stock as are issuable as a result of the events described in
Articles V, VI.D.(b) or VI.E of the Certificate of Designation and Section 2(c)
of the Registration Rights Agreement) (such shares of Common Stock being
collectively referred to herein as the "Conversion Shares") and the Warrants and
the shares of Common Stock issuable upon exercise of or otherwise pursuant to
the Warrants (the "Warrant Shares" and, collectively with the Preferred Shares,
Warrants and Conversion Shares, the "Securities") for its own account and not
with a present view towards the public sale or distribution thereof, except
pursuant to sales registered or exempted from registration under the 1933 Act;
provided, however, that by making the representations herein, the Buyer does not
- -------- -------
agree to hold any of the Securities for any minimum or other specific term and
reserves the right to dispose of the Securities at any time in accordance with
or pursuant to a registration statement or an exemption under the 1933 Act.
b. Accredited Investor Status. The Buyer is an "accredited investor"
--------------------------
as that term is defined in Rule 501(a) of Regulation D (an "Accredited
Investor").
c. Reliance on Exemptions. The Buyer understands that the Securities
----------------------
are being offered and sold to it in reliance upon specific exemptions from the
registration requirements of United States federal and state securities laws and
that the Company is relying upon the truth and accuracy of, and the Buyer's
compliance with, the representations, warranties, agreements, acknowledgments
and understandings of the Buyer set forth herein in order to determine the
availability of such exemptions and the eligibility of the Buyer to acquire the
Securities.
d. Information. The Buyer and its advisors, if any, have been
-----------
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by the Buyer or its advisors or have obtained such
information from the SEC Documents (as defined below). The Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company and has received what the Buyer believes to be satisfactory answers to
such questions. Neither such inquiries nor any other due diligence
investigation conducted by Buyer or any of its advisors or representatives shall
modify, amend or affect Buyer's right to rely on the Company's representations
and warranties contained in Section 3 below. The Buyer has reviewed the Risk
Factors in the Company's Post-Effective Amendment No. 1 to Form SB-2 on Form S-3
filed with the SEC on June 3, 1999 and understands that its investment in the
Securities involves a significant degree of risk.
e. Governmental Review. The Buyer understands that no United States
-------------------
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Securities.
-3-
<PAGE>
f. Transfer or Re-sale. The Buyer understands that (i) except as
-------------------
provided in the Registration Rights Agreement, the sale or re-sale of the
Securities has not been and is not being registered under the 1933 Act or any
applicable state securities laws, and the Securities may not be transferred
unless (a) the Securities are sold pursuant to an effective registration
statement under the 1933 Act, (b) the Buyer shall have delivered to the Company
an opinion of counsel (which opinion shall be reasonably satisfactory to the
Company) to the effect that the Securities to be sold or transferred may be sold
or transferred pursuant to an exemption from such registration, (c) the
Securities are sold or transferred to an "affiliate" (as defined in Rule 144
promulgated under the 1933 Act (or a successor rule) ("Rule 144")) of the Buyer
who agrees to sell or otherwise transfer the Securities only in accordance with
this Section 2(f) and who is an Accredited Investor or (d) the Securities are
sold pursuant to Rule 144; (ii) any sale of such Securities made in reliance on
Rule 144 may be made only in accordance with the terms of said Rule and further,
if said Rule is not applicable, any re-sale of such Securities under
circumstances in which the seller (or the person through whom the sale is made)
may be deemed to be an underwriter (as that term is defined in the 1933 Act) may
require compliance with some other exemption under the 1933 Act or the rules and
regulations of the SEC thereunder; and (iii) neither the Company nor any other
person is under any obligation to register such Securities under the 1933 Act or
any state securities laws or to comply with the terms and conditions of any
exemption thereunder (in each case, other than pursuant to the Registration
Rights Agreement). Notwithstanding the foregoing or anything else contained
herein to the contrary, the Securities may be pledged as collateral in
connection with a bona fide margin account or other lending arrangement.
---- ----
g. Legends. The Buyer understands that the Preferred Shares and the
-------
Warrants and, until such time as the Conversion Shares and Warrant Shares have
been registered under the 1933 Act as contemplated by the Registration Rights
Agreement or otherwise may be sold pursuant to Rule 144 without any restriction
as to the number of securities as of a particular date that can then be
immediately sold, the Conversion Shares and Warrant Shares, may bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of the certificates for such Securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities may not be sold, transferred or assigned in the absence of
an effective registration statement for the securities under said Act,
or an opinion of counsel, reasonably satisfactory to the Company, that
registration is not required under said Act or unless sold pursuant to
Rule 144 under said Act."
The legend set forth above shall be removed and the Company shall
issue a certificate without such legend to the holder of any Security upon which
it is stamped, if, unless otherwise required by applicable state securities
laws, (a) such Security is registered for sale under an effective registration
statement filed under the 1933 Act or otherwise may be sold pursuant to
-4-
<PAGE>
Rule 144 without any restriction as to the number of securities as of a
particular date that can then be immediately sold, or (b) such holder provides
the Company with an opinion of counsel, reasonably satisfactory to the Company,
to the effect that a public sale or transfer of such Security may be made
without registration under the 1933 Act and such sale or transfer is effected or
(c) such holder provides the Company with reasonable assurances that such
Security can be sold pursuant to Rule 144. The Buyer agrees to sell all
Securities, including those represented by a certificate(s) from which the
legend has been removed, in compliance with applicable prospectus delivery
requirements, if any, or otherwise in compliance with the requirements for an
exemption from registration under the 1933 Act.
h. Authorization; Enforcement. This Agreement and the Registration
--------------------------
Rights Agreement have been duly and validly authorized. This Agreement has been
duly executed and delivered on behalf of the Buyer, and this Agreement
constitutes, and upon execution and delivery by the Buyer of the Registration
Rights Agreement, such agreement will constitute, valid and binding agreements
of the Buyer enforceable in accordance with their terms, subject to the effect
of any applicable bankruptcy, insolvency, reorganization, or moratorium or
similar laws affecting the rights of creditors generally and the application of
general principles of equity.
i. Residency. The Buyer is a resident of the jurisdiction set forth
---------
immediately below such Buyer's name on the signature pages hereto.
j. No General Solicitation. Neither the Buyers nor any person acting
-----------------------
on the Buyers' behalf (if any) has conducted any "general solicitation" as such
term is defined in Regulation D, with respect to any of the Securities offered
hereby.
k. No Brokers. The Buyer has taken no action which would give rise
----------
to any claim by any person for brokerage commissions, finder's fees or similar
payments relating to this Agreement or the transactions contemplated hereby,
except for dealings with International Corporate Development, Inc., WS Marketing
& Financial Services, Inc., Concorde Capital Corporation, Ltd. and AB Phoenix,
Inc., whose commissions and fees will be paid for by the Company.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
---------------------------------------------
represents and warrants to each Buyer with respect to itself and each of its
Subsidiaries (provided that, with regard to Gomez Advisers, Inc., any such
representations and warranties (other than the representations and warranties
contained in Sections 3(a), 3(c), 3(h), 3(i), 3(j) and 3(o) hereof) are made to
the best of the Company's knowledge) that:
a. Organization and Qualification. The Company and each of its
------------------------------
Subsidiaries (as defined below), if any, is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated, with full power and authority
-5-
<PAGE>
(corporate and other) to own, lease, use and operate its properties and to carry
on its business as and where now owned, leased, used, operated and conducted.
Schedule 3(a) sets forth a list of all of the Subsidiaries of the Company and
the jurisdiction in which each is incorporated. Except as set forth on Schedule
3(a), the Company and each of its Subsidiaries is duly qualified as a foreign
corporation to do business and is in good standing in every jurisdiction in
which its ownership or use of property or the nature of the business conducted
by it makes such qualification necessary except where the failure to be so
qualified or in good standing would not have a Material Adverse Effect.
"Material Adverse Effect" means any material adverse effect on (i) the
Securities, (ii) the business, operations, assets, financial condition or
prospects of the Company and its Subsidiaries, if any, taken as a whole, (iii)
on the transactions contemplated hereby or by the agreements or instruments to
be entered into in connection herewith or (iv) the authority or the ability of
the Company to perform its obligation under this Agreement, the Registration
Rights Agreement, the Certificate of Designation or the Warrants. "Subsidiaries"
means any corporation or other organization, whether incorporated or
unincorporated, in which the Company owns, directly or indirectly, any equity or
other ownership interest (but excluding E.Com International, Inc.).
b. Authorization; Enforcement. (i) The Company has all requisite
--------------------------
corporate power and authority to file and perform its obligations under the
Certificate of Designation and to enter into and perform this Agreement, the
Registration Rights Agreement and the Warrants and to consummate the
transactions contemplated hereby and thereby and to issue the Securities, in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
this Agreement, the Registration Rights Agreement and the Warrants by the
Company, the filing of the Certificate of Designation and the consummation by it
of the transactions contemplated hereby and thereby (including without
limitation, the issuance of the Preferred Shares and the Warrants and the
issuance and reservation for issuance of the Conversion Shares issuable upon
conversion of or otherwise pursuant to the Preferred Shares and the Warrant
Shares issuable upon exercise of or otherwise pursuant to the Warrants ) have
been duly authorized by the Company's Board of Directors and no further consent
or authorization of the Company, its Board of Directors, or its stockholders is
required, (iii) this Agreement has been duly executed and delivered by the
Company, and (iv) this Agreement constitutes, and upon execution and delivery by
the Company of the Registration Rights Agreement and the Warrants and upon
execution and filing of the Certificate of Designation, each of such agreements
and instruments will constitute, a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms, subject to
the effect of any applicable bankruptcy, insolvency, reorganization, or
moratorium or similar laws affecting the rights of creditors generally and the
application of general principles of equity.
c. Capitalization. As of the date hereof, the authorized capital
--------------
stock of the Company consists of (i) 60,000,000 shares of Common Stock of which
24,761,233 shares are issued and outstanding, 8,115,750 shares are reserved for
issuance pursuant to the Company's stock option plans, 5,563,086 shares are
reserved for issuance pursuant to securities (other than the Preferred Shares
and the Warrants) exercisable for, or convertible into or exchangeable for
shares of Common Stock and 4,479,000 (2x currently required) shares are reserved
for issuance upon
-6-
<PAGE>
conversion of the Preferred Shares and exercise of the Warrants (subject to
adjustment pursuant to the Company's covenant set forth in Section 4(h) below);
and (ii) 3,000,000 shares of preferred stock, 590,000 of which are designated as
Series B Convertible Preferred Stock, of which 152,700 shares are issued and
outstanding, and of which 20,000 are designated as the Preferred Shares. All of
such outstanding shares of capital stock are, or upon issuance against
consideration therefor will be, duly authorized, fully paid, nonassessable and,
except as set forth on Schedule 3(c), validly issued. No shares of capital stock
of the Company are subject to preemptive rights or any other similar rights of
the stockholders of the Company or any liens or encumbrances imposed through the
actions or failure to act of the Company. The authorized capital stock of each
Subsidiary, the number and type of shares of capital stock issued and
outstanding, and the number and type of shares of capital stock reserved for
issuance pursuant to stock option plans and pursuant to securities exercisable
for, convertible into or exchangeable for such shares of capital stock are set
forth on Schedule 3(c). Except as disclosed in Schedule 3(c), as of the
effective date of this Agreement, (i) there are no outstanding options,
warrants, scrip, rights to subscribe for, puts, calls, rights of first refusal,
agreements, understandings, claims or other commitments or rights of any
character whatsoever relating to, or securities or rights convertible into or
exchangeable for any shares of capital stock of the Company or any of its
Subsidiaries, or arrangements by which the Company or any of its Subsidiaries is
or may become bound to issue additional shares of capital stock of the Company
or any of its Subsidiaries, (ii) there are no agreements or arrangements under
which the Company or any of its Subsidiaries is obligated to register the sale
of any of its or their securities under the 1933 Act (except the Registration
Rights Agreement) and (iii) there are no anti-dilution or price adjustment
provisions contained in any security issued by the Company or its Subsidiaries
(or in any agreement providing rights to security holders) that will be
triggered by the issuance of the Preferred Shares, the Warrants, the Conversion
Shares or Warrant Shares. The Company has furnished to the Buyer true and
correct copies of the Company's Certificate of Incorporation as in effect on the
date hereof ("Certificate of Incorporation"), the Company's By-laws, as in
effect on the date hereof (the "By-laws"), and the terms of all securities
convertible into or exercisable for Common Stock of the Company and the material
rights of the holders thereof in respect thereto and has provided the Buyers
similar information with respect to each Subsidiary. The Company shall provide
the Buyer with a written update of this representation signed by the Company's
President on behalf of the Company as of the Closing Date.
d. Issuance of Shares. The Preferred Shares are duly authorized and,
------------------
upon issuance in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable, and free from all taxes, liens, claims
and encumbrances with respect to the issue thereof and shall not be subject to
preemptive rights or other similar rights of stockholders of the Company and
will not impose personal liability upon the holder thereof. The Conversion
Shares and Warrant Shares are duly authorized and reserved for issuance, and,
upon conversion of the Preferred Shares and exercise of the Warrants in
accordance with the terms thereof, will be validly issued, fully paid and non-
assessable, and free from all taxes, liens, claims and encumbrances and will not
be subject to preemptive rights or other similar rights of stockholders of the
Company and will not impose personal liability upon the holder thereof.
-7-
<PAGE>
e. Acknowledgment of Dilution. The Company understands and
--------------------------
acknowledges the potentially dilutive effect to the Common Stock upon the
issuance of the Conversion Shares upon conversion of or otherwise pursuant to
the Preferred Shares and upon issuance of the Warrant Shares upon exercise of or
otherwise pursuant to the Warrants. The Company's directors and executive
officers have studied and fully understand the nature of the Securities being
sold hereunder. The Company further acknowledges that its obligation to issue
Conversion Shares and Warrant Shares upon conversion of the Preferred Shares or
exercise of the Warrants in accordance with this Agreement, the Certificate of
Designation and the Warrants is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company. Taking the foregoing into account, the Company's
Board of Directors has determined, in its good faith business judgment, that the
issuance of the Securities hereunder and under the Certificate of Designation
and the Warrants and the consummation of the transactions contemplated hereby
and thereby are in the best interests of the Company and its Stockholders.
f. Series of Preferred Stock. The terms, designations, powers,
-------------------------
preferences and relative, participating and optional or special rights, and the
qualifications, limitations and restrictions of each series of preferred stock
of the Company (other than the Preferred Shares) are as stated in the
Certificate of Incorporation, filed on or prior to the date hereof, and the
Bylaws. The terms, designations, powers, preferences and relative,
participating and optional or special rights, and the qualifications,
limitations and restrictions of the Preferred Shares are as stated in the
Certificate of Designation.
g. No Conflicts. The execution, delivery and performance of this
------------
Agreement, the Registration Rights Agreement and the Warrants by the Company and
the consummation by the Company of the transactions contemplated hereby and
thereby (including, without limitation, the filing of the Certificate of
Designation and the issuance and reservation for issuance, as applicable, of the
Preferred Shares, Conversion Shares and Warrant Shares) will not (i) conflict
with or result in a violation of any provision of the Certificate of
Incorporation or By-laws or (ii) violate or conflict with, or result in a breach
of any provision of, or constitute a default (or an event which with notice or
lapse of time or both could become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, any material
agreement, indenture, patent, patent license or instrument to which the Company
or any of its Subsidiaries is a party, or (iii) result in a violation of any
law, rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations and regulations of any self-regulatory
organizations to which the Company or its securities are subject) applicable to
the Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected (except for such
conflicts, breaches, defaults, terminations, amendments, accelerations,
cancellations and violations as would not, individually or in the aggregate,
have a Material Adverse Effect). Neither the Company nor any of its
Subsidiaries is in violation of its Certificate of Incorporation, By-laws or its
respective other organizational documents and neither the Company nor any of its
Subsidiaries is in default (and no event has occurred which with notice or lapse
of time or both could
-8-
<PAGE>
put the Company or any of its Subsidiaries in default) under, and neither the
Company nor any of its Subsidiaries has taken any action or failed to take any
action that would give to others any rights of termination, amendment,
acceleration or cancellation of, any material agreement, indenture or instrument
to which the Company or any of its Subsidiaries is a party or by which any
property or assets of the Company or any of its Subsidiaries is bound or
affected, except for possible defaults as would not, individually or in the
aggregate, have a Material Adverse Effect. The businesses of the Company and its
Subsidiaries, if any, are not being conducted, and shall not be conducted so
long as a Buyer owns any of the Securities, in violation of any law, ordinance
or regulation of any governmental entity the failure to comply with which would,
individually or in the aggregate, have a Material Adverse Effect. Except as
specifically contemplated by this Agreement and as required under the 1933 Act
and any applicable state securities laws, the Company is not required to obtain
any consent, authorization or order of, or make any filing or registration with,
any court, governmental agency, regulatory agency, self regulatory organization
or stock market or any third party in order for it to execute, deliver or
perform any of its obligations under this Agreement, the Registration Rights
Agreement or the Warrants in accordance with the terms hereof or thereof or to
issue and sell the Preferred Shares and Warrants in accordance with the terms
hereof and to issue the Conversion Shares upon conversion of or otherwise
pursuant to the Preferred Shares and the Warrant Shares upon exercise of or
otherwise pursuant to the Warrants. Except as disclosed in Schedule 3(g), 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 is not in violation of the
listing requirements of The Nasdaq SmallCap Market ("Nasdaq") and does not
reasonably anticipate that the Common Stock will be delisted by the Nasdaq in
the foreseeable future. The Company and its Subsidiaries are unaware of any
facts or circumstances which might give rise to any of the foregoing.
h. SEC Documents; Financial Statements. Since March 31, 1997, the
-----------------------------------
Company has timely 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 (other than
exhibits to such documents) incorporated by reference therein, being hereinafter
referred to herein as the "SEC Documents"). The Company has made available to
each Buyer true and complete copies of the SEC Documents, except for such
exhibits and incorporated documents. As of their respective dates and except as
disclosed on Schedule 3(h) attached hereto, 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. None of the statements made in any such SEC Documents is, or has
been, required to be amended or updated under applicable law (except for such
statements as have been amended or updated in subsequent filings prior to the
date hereof). As of their respective dates, and except as disclosed on Schedule
3(h) attached hereto, 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. Except as disclosed on
-9-
<PAGE>
Schedule 3(h) attached hereto, such financial statements have been prepared in
accordance with United States 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 not include
footnotes or may be condensed or summary statements) and fairly present in all
material respects the consolidated financial position of the Company and its
consolidated Subsidiaries as of the dates thereof and the consolidated results
of their operations and cash flows for the periods then ended (subject, in the
case of unaudited statements, to normal year-end audit adjustments). Except as
set forth in the financial statements of the Company included in the SEC
Documents, the Company has no liabilities, contingent or otherwise, other than
(i) liabilities incurred in the ordinary course of business subsequent to March
31, 1999 and (ii) obligations under contracts and commitments incurred in the
ordinary course of business and not required under generally accepted accounting
principles to be reflected in such financial statements, which, individually or
in the aggregate, are not material to the financial condition or operating
results of the Company.
i. Absence of Certain Changes. Since March 31, 1999, there has been
--------------------------
no material adverse change and no material adverse development in the assets,
liabilities, business, properties, operations, financial condition, results of
operations or prospects of the Company or any of its Subsidiaries.
j. Absence of Litigation. There is no action, suit, claim,
---------------------
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 or any of its Subsidiaries, or their officers or directors
in their capacity as such, that could have a Material Adverse Effect. Schedule
3(j) contains a complete list and summary description of any pending or, to the
Company's knowledge, threatened proceeding against or affecting the Company or
any of its Subsidiaries, without regard to whether it would have a Material
Adverse Effect. The Company and its Subsidiaries are unaware of any facts or
circumstances which might give rise to any of the foregoing.
-10-
<PAGE>
k. Patents, Copyrights, etc.
------------------------
(i) The Company and each of its Subsidiaries owns or possesses
the requisite licenses or rights to use all patents, patent applications, patent
rights, inventions, know-how, trade secrets, trademarks, trademark applications,
service marks, service names, trade names and copyrights ("Intellectual
Property") necessary to enable it to conduct its business as now operated (and,
except as set forth in Schedule 3(k) hereof, to the best of the Company's
knowledge, as presently contemplated to be operated in the future); there is no
claim or action by any person pertaining to, or proceeding pending, or to the
Company's knowledge threatened, which challenges the right of the Company or of
a Subsidiary with respect to any Intellectual Property necessary to enable it to
conduct its business as now operated (and, except as set forth in Schedule 3(k)
hereof, to the best of the Company's knowledge, as presently contemplated to be
operated in the future); to the best of the Company's knowledge, the Company's
or its Subsidiaries' current and intended products, services and processes do
not infringe on any Intellectual Property or other rights held by any person;
and the Company is unaware of any facts or circumstances which might give rise
to any of the foregoing. The Company and each of its Subsidiaries have taken
reasonable security measures to protect the secrecy, confidentiality and value
of their Intellectual Property.
(ii) To the best of the Company's knowledge, all of the
Company's computer software and computer hardware, and other similar or related
items of automated, computerized or software systems that are used or relied on
by the Company in the conduct of its business or that were, or currently are
being, sold or licensed by the Company to customers (collectively, "Information
Technology"), are Year 2000 Complaint. For purposes of this Agreement, the term
"Year 2000 Compliant" means, with respect to the Company's Information
Technology, that the Information Technology is designed to be used prior to,
during and after the calendar Year 2000 A.D., and the Information Technology
used during each such time period will accurately receive, provide and process
date and time data (including, but not limited to, calculating, comparing and
sequencing) from, into and between the 20th and 21st centuries, including the
years 1999 and 2000, and leap-year calculations, and will not malfunction, cease
to function, or provide invalid or incorrect results that would have a Material
Adverse Effect as a result of the date or time data, to the extent that other
information technology, used in combination with the Information Technology,
properly exchanges date and time data with it.
l. No Materially Adverse Contracts, Etc. Neither the Company nor any
------------------------------------
of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is currently expected in the future to
have a Material Adverse Effect. Neither the Company nor any of its Subsidiaries
is a party to any contract or agreement which in the judgment of the Company's
officers has or is currently expected in the future to have a Material Adverse
Effect.
m. Tax Status. Except as set forth on Schedule 3(m), the Company and
----------
each of its Subsidiaries has made or filed all federal, state and foreign income
and all other tax
-11-
<PAGE>
returns, reports and declarations required by any jurisdiction to which it is
subject (unless and only to the extent that the Company and each of its
Subsidiaries has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith, and has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. There are no
unpaid taxes in any material amount claimed to be due by the taxing authority of
any jurisdiction, and the officers of the Company know of no basis for any such
claim. The Company has not executed a waiver with respect to the statute of
limitations relating to the assessment or collection of any foreign, federal,
state or local tax. Except as set forth on Schedule 3(m), none of the Company's
tax returns is presently being audited by any taxing authority.
n. Certain Transactions. Except as set forth in the SEC Documents
--------------------
and except for arm's length transactions pursuant to which the Company or any of
its Subsidiaries makes payments in the ordinary course of business upon terms no
less favorable than the Company or any of its Subsidiaries could obtain from
third parties and other than the grant of stock options disclosed on Schedule
3(c), none of the officers, directors, or employees of the Company is presently
a party to any transaction, with the Company or any of its Subsidiaries (other
than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner, in each case, which would be
required to be disclosed by the Company in its public filings under the 1934
Act.
o. Disclosure. All information relating to or concerning the Company
----------
or any of its Subsidiaries set forth in this Agreement and provided to the
Buyers pursuant to Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all material respects
and the Company has not omitted to state any material fact necessary in order to
make the statements made herein or therein, in light of the circumstances under
which they were made, not misleading. No event or circumstance has occurred or
exists with respect to the Company or any of its Subsidiaries or its or their
business, properties, prospects, operations or financial conditions, which has
not been publicly announced or disclosed but under applicable law, rule or
regulation, requires public disclosure or announcement by the Company (assuming
for this purpose that the Company's reports filed under the 1934 Act are being
incorporated into an effective registration statement filed by the Company under
the 1933 Act).
p. Acknowledgment Regarding Buyers' Purchase of Securities. The
-------------------------------------------------------
Company acknowledges and agrees that the Buyers are acting solely in the
capacity of arm's length purchasers with respect to this Agreement and the
transactions contemplated hereby. The Company
-12-
<PAGE>
further acknowledges that no Buyer is acting as a financial advisor or fiduciary
of the Company (or in any similar capacity) with respect to this Agreement and
the transactions contemplated hereby and that any statement made by any Buyer or
any of their respective representatives or agents in connection with this
Agreement and the transactions contemplated hereby is not advice or a
recommendation and is merely incidental to the Buyers' purchase of the
Securities and has not been relied upon by the Company, its officers or
directors in any way. The Company further represents to each Buyer that the
Company's decision to enter into this Agreement has been based solely on the
independent evaluation of the Company and its representatives.
q. No Integrated Offering. Neither the Company, nor any of its
----------------------
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would require registration under the
1933 Act of the issuance of the Securities to the Buyers. The issuance of the
Securities to the Buyers will not be integrated with any other issuance of the
Company's securities (past, current or future) for purposes of any stockholder
approval provisions applicable to the Company or its securities.
r. No Brokers. The Company has taken no action which would give rise
----------
to any claim by any person for brokerage commissions, finder's fees or similar
payments relating to this Agreement or the transactions contemplated hereby,
except for dealings with International Corporate Development, Inc., WS Marketing
& Financial Services, Inc., Concorde Capital Corporation, Ltd. and AB Phoenix,
Inc., whose commissions and fees will be paid for by the Company.
s. Permits; Compliance. The Company and each of its Subsidiaries is
-------------------
in possession of all franchises, grants, authorizations, licenses, permits,
easements, variances, exemptions, consents, certificates, approvals and orders
necessary to own, lease and operate its properties and to carry on its business
as it is now being conducted except those the failure of which to possess would
not, individually or in the aggregate, have a Material Adverse Effect
(collectively, the "Company Permits"), and there is no action pending or, to the
knowledge of the Company, threatened regarding suspension or cancellation of any
of the Company Permits. Neither the Company nor any of its Subsidiaries is in
conflict with, or in default or violation of, any of the Company Permits, except
for any such conflicts, defaults or violations which, individually or in the
aggregate, would not reasonably be expected to have a Material Adverse Effect.
Since March 31, 1999, neither the Company nor any of its Subsidiaries has
received any notification with respect to possible conflicts, defaults or
violations of applicable laws, except for notices relating to possible
conflicts, defaults or violations, which conflicts, defaults or violations would
not have a Material Adverse Effect.
t. Environmental Matters. Except as set forth in Schedule 3(t) and
---------------------
except with regard to such violations that would not, individually or in the
aggregate, have a Material Adverse Effect, there are, to the Company's
knowledge, with respect to the Company or any of its
-13-
<PAGE>
Subsidiaries or any predecessor of the Company, no past or present violations of
Environmental Laws (as defined below), releases of any material into the
environment, actions, activities, circumstances, conditions, events, incidents,
or contractual obligations which may give rise to any common law environmental
liability or any liability under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 or similar federal, state, local or
foreign laws and neither the Company nor any of its Subsidiaries has received
any notice with respect to any of the foregoing, nor is any action pending or,
to the Company's knowledge, threatened in connection with any of the foregoing.
The term "Environmental Laws" means all federal, state, local or foreign laws
relating to pollution or protection of human health or the environment
(including, without limitation, ambient air, surface water, groundwater, land
surface or subsurface strata), including, without limitation, laws relating to
emissions, discharges, releases or threatened releases of chemicals, pollutants
contaminants, or toxic or hazardous substances or wastes (collectively,
"Hazardous Materials") into the environment, or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials, as well as all authorizations,
codes, decrees, demands or demand letters, injunctions, judgments, licenses,
notices or notice letters, orders, permits, plans or regulations issued,
entered, promulgated or approved thereunder.
u. Title to Property. Neither the Company nor its Subsidiaries owns
-----------------
any real property. The Company and its Subsidiaries have good and marketable
title to all personal property owned by them which is material to the business
of the Company and its Subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(u) or such
as would not have a Material Adverse Effect. Any real property and facilities
held under lease by the Company and its Subsidiaries are held by them under
valid, subsisting and enforceable leases with such exceptions as would not have
a Material Adverse Effect.
v. 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 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 have a Material
Adverse Effect.
w. Internal Accounting Controls. The Company and each of its
----------------------------
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's board of directors, 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
-14-
<PAGE>
for assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
x. Foreign Corrupt Practices. Neither the Company, nor any of its
-------------------------
Subsidiaries, nor to the Company's knowledge, any director, officer, agent,
employee or other person acting on behalf of the Company or any Subsidiary has,
in the course of his actions for, or on behalf of, the Company, used any
corporate funds for any unlawful contribution, gift, entertainment or other
unlawful expenses relating to political activity; made any direct or indirect
unlawful payment to any foreign or domestic government official or employee from
corporate funds; violated or is in violation of any provision of the U.S.
Foreign Corrupt Practices Act of 1977; or made any bribe, rebate, payoff,
influence payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
y. Solvency. The Company (both before and after giving effect to the
--------
transactions contemplated by this Agreement) is solvent (i.e., its assets have a
----
fair market value in excess of the amount required to pay its probable
liabilities on its existing debts as they become absolute and matured) and
currently the Company has no information that would lead it to reasonably
conclude that the Company would not have the ability to, nor does it intend to
take any action that would impair its ability to, pay its debts from time to
time incurred in connection therewith as such debts mature. The Company did not
receive a qualified opinion from its auditors with respect to its most recent
fiscal year end and does not anticipate or know of any basis upon which its
auditors might issue a qualified opinion in respect of its current fiscal year.
z. No Investment Company. The Company is not, and upon the issuance
---------------------
and sale of the Securities as contemplated by this Agreement and the Certificate
of Designation will not be an "investment company" required to be registered
under the Investment Company Act of 1940 (an "Investment Company"). The Company
is not controlled by an Investment Company.
aa. No General Solicitation. Neither the Company nor any person
-----------------------
acting on the Company's behalf (if any) has conducted any "general solicitation"
as such term is defined in Regulation D, with respect to any of the Securities
being offered hereby.
4 COVENANTS.
---------
a. Best Efforts. The parties shall use their best efforts to satisfy
------------
timely each of the conditions described in Section 6 and 7 of this Agreement.
b. Form D; Blue Sky Laws. The Company agrees to file a Form D with
---------------------
respect to the Securities as required under Regulation D and to provide a copy
thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such
-15-
<PAGE>
action as the Company shall reasonably determine is necessary to qualify the
Securities for sale to the Buyers at the Closing pursuant to this Agreement
under applicable 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 each Buyer on or prior to the Closing
Date.
c. Reporting Status; Eligibility to Use Form S-3. The Company's
---------------------------------------------
Common Stock is registered under Section 12(g) of the 1934 Act. So long as any
Buyer beneficially owns any of the Securities, the Company shall timely file all
reports required to be filed with the SEC pursuant to the 1934 Act, and the
Company shall not terminate its status as an issuer required to file reports
under the 1934 Act even if the 1934 Act or the rules and regulations thereunder
would permit such termination. The Company currently meets, and will take all
necessary action to continue to meet, the "registrant eligibility" requirements
set forth in the general instructions to Form S-3.
d. Use of Proceeds. The Company shall use the proceeds from the sale
---------------
of the Preferred Shares and the Warrants in the manner set forth in Schedule
4(d) attached hereto and made a part hereof and shall not, directly or
indirectly, use such proceeds for any loan to or investment in any other
corporation, partnership, enterprise or other person (except in connection with
its currently existing direct or indirect Subsidiaries) or for the redemption or
repurchase of any of its, or its Subsidiaries', capital stock.
e. Additional Equity Capital; Right of First Refusal. Subject to the
-------------------------------------------------
exceptions described below, the Company will not, without the prior written
consent of a majority-in-interest of the Buyers, negotiate or contract with any
party to obtain additional equity financing (including debt financing with an
equity component) during the period (the "Lock-up Period") beginning on the
Closing Date and ending one-hundred and eighty (180) days from the date the
Registration Statement (as defined in the Registration Rights Agreement) is
declared effective (plus any days in which sales cannot be made thereunder). In
addition, subject to the exceptions described below, the Company will not
conduct any equity financing (including debt with an equity component) ("Future
Offerings") during the period beginning on the Closing Date and ending one-
hundred and eighty (180) days after the end of the Lock-up Period, unless it
shall have first delivered to each Buyer, at least fifteen (15) business days
prior to the closing of such Future Offering, written notice describing the
proposed Future Offering, including the terms and conditions thereof and
proposed definitive documentation to be entered into in connection therewith,
and providing each Buyer an option during the ten (10) day period following
delivery of such notice to purchase its pro rata share (based on the ratio that
the number of Preferred Shares purchased by it hereunder bears to the aggregate
number of Preferred Shares purchased hereunder) of the securities being offered
in the Future Offering on the same terms as contemplated by such Future Offering
(the limitations referred to in this sentence and the preceding sentence are
collectively referred to as the "Capital Raising Limitations"). In the event
the terms and conditions of a proposed Future Offering are amended in any
respect after delivery of the notice to the Buyers concerning the proposed
Future Offering, the Company shall deliver a new notice to each Buyer describing
the amended terms and
-16-
<PAGE>
conditions of the proposed Future Offering and each Buyer thereafter shall have
an option during the ten (10) day period following delivery of such new notice
to purchase its pro rata share of the securities being offered on the same terms
as contemplated by such proposed Future Offering, as amended. The foregoing
sentence shall apply to successive amendments to the terms and conditions of any
proposed Future Offering. The Capital Raising Limitations shall not apply to any
transaction involving (i) issuances of securities in a firm commitment
underwritten public offering (excluding a continuous offering pursuant to Rule
415 under the 1933 Act) or (ii) issuances of securities as consideration for a
merger, consolidation or purchase of assets, or in connection with any strategic
partnership or joint venture (the primary purpose of which is not to raise
equity capital), or in connection with the disposition or acquisition of a
business, product or license by the Company. The Capital Raising Limitations
also shall not apply to the issuance of securities upon exercise or conversion
of the Company's options, warrants or other convertible securities outstanding
as of the date hereof or to the grant of additional options or warrants, or the
issuance of additional securities, under any Company stock option or restricted
stock plan approved by a majority of disinterested directors of the Company. The
Capital Raising Limitations also shall not apply to the payment by the Company
for services rendered, in stock or any other stock compensation arrangement
approved by a majority of the disinterested members of the Board of Directors of
the Company.
f. Expenses. The Company shall pay Rose Glen Capital Management,
--------
L.P. ("Rose Glen") at the Closing, a non-accountable expense allowance equal to
Forty Thousand Dollars ($40,000) for all expenses incurred by Rose Glen in
connection with the negotiation, preparation, execution, delivery and
performance of this Agreement, the review of the Registration Statement and
other matters contemplated by the Registration Rights Agreement and the other
agreements to be executed in connection herewith, including, without limitation,
attorneys' and consultants' fees and expenses and travel expenses.
g. Financial Information. The Company agrees to send the following
---------------------
reports to each Buyer until such Buyer transfers, assigns, or sells all of the
Securities: (i) within ten (10) days after the filing with the SEC, a copy of
its Annual Report on Form 10-KSB or Form 10-K, its Quarterly Reports on Form 10-
QSB or Form 10-Q and any Current Reports on Form 8-K; (ii) within one (1) day
after release, copies of all press releases issued by the Company or any of its
Subsidiaries; and (iii) contemporaneously with the making available or giving to
the stockholders of the Company, copies of any notices or other information the
Company makes available or gives to such stockholders.
h. Reservation of Shares. The Company shall at all times have
---------------------
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the full conversion of the outstanding
Preferred Shares and issuance of the Conversion Shares in connection with the
Preferred Shares (based on the lesser of the Market Price in effect from time
to time and the Fixed Conversion Price in effect from time to time (each as
defined in the Certificate of Designation)) and as otherwise required by the
Certificate of Designation and the full exercise of the Warrants and issuance of
the Warrant Shares in connection therewith (based on the
-17-
<PAGE>
Exercise Price (as defined in the Warrants) of the Warrants in effect from time
to time). The Company shall not reduce the number of shares of Common Stock
reserved for issuance upon conversion of or otherwise pursuant to the Preferred
Shares and upon exercise of or otherwise pursuant to the Warrants without the
consent of each Buyer. The Company shall use its best efforts at all times to
maintain the number of shares of Common Stock so reserved for issuance at no
less than two (2) times the number that is then actually issuable upon full
conversion of the Preferred Shares and exercise of the Investment Options
thereunder (based on the lesser of the Market Price in effect from time to time
and the Fixed Conversion Price in effect from time to time (each as defined in
the Certificate of Designation)) and full exercise of the Warrants (based on the
Exercise Price (as defined in the Warrants) of the Warrants in effect from time
to time). If at any time the number of shares of Common Stock authorized and
reserved for issuance is below the number of Conversion Shares issued and
issuable upon conversion of or otherwise pursuant to the terms of the Preferred
Shares and the Certificate of Designation (based on the lesser of the Market
Price in effect from time to time and the Fixed Conversion Price in effect from
time to time (each as defined in the Certificate of Designation) and the
aggregate number of Warrant Shares issued and issuable upon exercise of the
Warrants (based on the Exercise Price (as defined in the Warrants) of the
Warrants in effect from time to time), the Company will promptly take all
corporate action necessary to authorize and reserve a sufficient number of
shares, including, without limitation, calling a special meeting of stockholders
to authorize additional shares to meet the Company's obligations under this
Section 4(h), in the case of an insufficient number of authorized shares, and
using its best efforts to obtain stockholder approval of an increase in such
authorized number of shares.
i. Listing. The Company shall promptly secure the listing of the
-------
Conversion Shares and Warrant Shares upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and, so long as any Buyer owns
any of the Securities, shall maintain, so long as any other shares of Common
Stock shall be so listed, such listing of all Conversion Shares and Warrant
Shares from time to time issuable upon conversion of or otherwise pursuant to
the terms of the Preferred Shares and the Certificate of Designation or upon
exercise of or otherwise pursuant to the Warrants. The Company will obtain and,
so long as any Buyer owns any of the Securities, maintain the listing and
trading of its Common Stock on Nasdaq, the Nasdaq National Market ("NNM"), the
New York Stock Exchange ("NYSE"), or the American Stock Exchange ("AMEX") and
will comply in all respects with the Company's reporting, filing and other
obligations under the bylaws or rules of the National Association of Securities
Dealers ("NASD") and such exchanges, as applicable. The Company shall promptly
provide to each Buyer copies of any notices it receives from Nasdaq and any
other exchanges or quotation systems on which the Common Stock is then listed
regarding the continued eligibility of the Common Stock for listing on such
exchanges and quotation systems; provided, however, that if the disclosure of
-------- -------
such information would make any Buyer an "insider," no such disclosure shall be
made unless such Buyer consents in writing to such disclosure.
-18-
<PAGE>
j. Corporate Existence. So long as a Buyer beneficially owns any
-------------------
Preferred Shares or Warrants, the Company shall maintain its corporate existence
and shall not sell all or substantially all of the Company's assets, except in
the event of a merger or consolidation or sale of all or substantially all of
the Company's assets, where the successor or acquiring entity and, if an entity
different from the successor or acquiring entity, the entity whose capital stock
or assets the holders of the Common Stock are entitled to receive as a result of
such transaction, in such transaction (i) assumes the Company's obligations
hereunder and under the agreements and instruments entered into in connection
herewith (including the Certificate of Designation) and (ii) is a publicly
traded corporation whose Common Stock is listed for trading on Nasdaq, NNM, NYSE
or AMEX.
k. No Integration. The Company shall not make any offers or sales of
--------------
any security (other than the Securities) under circumstances that would require
registration of the Securities being offered or sold hereunder under the 1933
Act or cause the offering of Securities to be integrated with any other offering
of securities by the Company for the purpose of any stockholder approval
provision applicable to the Company or its securities.
l. Trading in Common Stock. Buyers shall conduct sales of Common
-----------------------
Stock in compliance with all applicable federal and state securities laws and
rules or regulations promulgated thereunder. Buyers will not under any
circumstances create any daily low trading prices in the Common Stock or conduct
sales in a manner intended to manipulate the Common Stock price. Prior to the
Closing Date, the Buyer will not establish any long or short position in the
Common Stock.
5 TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
---------------------------
instructions to its transfer agent to issue certificates, registered in the name
of each Buyer or its nominee, for the Conversion Shares and Warrant Shares in
such amounts as specified from time to time by each Buyer to the Company upon
conversion of the Preferred Shares or exercise of the Warrants in accordance
with the terms thereof (the "Irrevocable Transfer Agent Instructions"). Prior
to registration of the Conversion Shares and Warrant Shares under the 1933 Act
or the date on which the Conversion Shares or Warrant Shares may be sold
pursuant to Rule 144 without any restriction as to the number of securities as
of a particular date that can then be immediately sold, all such certificates
shall bear the restrictive legend specified in Section 2(g) of this Agreement.
The Company warrants that no instruction other than the Irrevocable Transfer
Agent Instructions referred to in this Section 5, and stop transfer instructions
to give effect to Section 2(f) hereof (in the case of the Conversion Shares and
Warrant Shares, prior to registration of the Conversion Shares and Warrant
Shares under the 1933 Act or the date on which the Conversion Shares or Warrant
Shares may be sold pursuant to Rule 144 without any restriction as to the number
of securities as of a particular date that can then be immediately sold), will
be given by the Company to its transfer agent and that the Securities shall
otherwise be freely transferable on the books and records of the Company as and
to the extent provided in this Agreement and the Registration Rights
-19-
<PAGE>
Agreement. Nothing in this Section shall affect in any way the Buyer's
obligations and agreement set forth in Section 2(g) hereof to comply with all
applicable prospectus delivery requirements, if any, upon re-sale of the
Securities. If a Buyer provides the Company with (i) an opinion of counsel,
reasonably satisfactory to the Company, to the effect that a public sale or
transfer of such Securities may be made without registration under the 1933 Act
and such sale or transfer is effected or (ii) the Buyer provides reasonable
assurances that the Securities can be sold pursuant to Rule 144, the Company
shall permit the transfer, and, in the case of the Conversion Shares and Warrant
Shares, promptly instruct its transfer agent to issue one or more certificates,
free from any restrictive legend, in such name and in such denominations as
specified by such Buyer.
6 CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of
----------------------------------------------
the Company hereunder to issue and sell the Preferred Shares and Warrants to a
Buyer at the Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion:
a. The applicable Buyer shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Company.
b. The applicable Buyer shall have delivered the Purchase Price
in accordance with Section 1(b) above.
c. The Certificate of Designation shall have been accepted for filing
with the Secretary of State of the State of Delaware.
d. The representations and warranties of the applicable Buyer 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 that speak as of a specific date, which representations and
warranties shall be true and correct as of such date), and the applicable Buyer
shall have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the applicable Buyer at or prior to the Closing
Date.
e. No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by or in any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
-20-
<PAGE>
7 CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The obligation of
-------------------------------------------------
each Buyer hereunder to purchase the Preferred Shares and Warrants at the
Closing is subject to the satisfaction, at or before the Closing Date of each of
the following conditions, provided that these conditions are for such Buyer's
sole benefit and may be waived by such Buyer at any time in its sole discretion:
a. The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered the same to the Buyer.
-21-
<PAGE>
b. The Company shall have delivered to such Buyer duly executed
certificates (in such denominations as the Buyer shall request) representing the
Preferred Shares and Warrants in accordance with Section 1(b) above.
c. The Certificate of Designation shall have been accepted for filing
with the Secretary of State of the State of Delaware, and a copy thereof
certified by such Secretary of State shall have been delivered to such Buyer.
d. The Irrevocable Transfer Agent Instructions, in form and substance
satisfactory to a majority-in-interest of the Buyers, shall have been delivered
to and acknowledged in writing by the Company's Transfer Agent.
e. 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 such time (except for representations and
warranties that speak as of a specific date, which representations and
warranties shall be true and correct as of such date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. The Buyer
shall have received a certificate or certificates, executed by the President of
the Company, dated as of the Closing Date, to the foregoing effect and as to
such other matters as may be reasonably requested by such Buyer including, but
not limited to certificates with respect to the Company's Certificate of
Incorporation, By-laws and Board of Directors' resolutions relating to the
transactions contemplated hereby.
f. No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by or in any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions contemplated
by this Agreement.
g. Trading in the Common Stock on Nasdaq shall not have been
suspended by the SEC or Nasdaq.
h. The Buyer shall have received an opinion of the Company's counsel,
dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer and in substantially the same form as Exhibit "D"
attached hereto.
i. The Buyer shall have received an officer's certificate described
in Section 3(c) above, dated as of the Closing Date.
8 GOVERNING LAW; MISCELLANEOUS.
----------------------------
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<PAGE>
a. Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of Delaware applicable to agreements
made and to be performed in the State of Delaware (without regard to principles
of conflict of laws). Both parties irrevocably consent to the jurisdiction of
the United States federal courts and the state courts located in Delaware with
respect to any suit or proceeding based on or arising under this Agreement, the
agreements entered into in connection herewith or the transactions contemplated
hereby or thereby and irrevocably agree that all claims in respect of such suit
or proceeding may be determined in such courts. Both parties irrevocably waive
the defense of an inconvenient forum to the maintenance of such suit or
proceeding. Both parties further agree that service of process upon a party
mailed by first class mail shall be deemed in every respect effective service of
process upon the party in any such suit or proceeding. Nothing herein shall
affect either party's right to serve process in any other manner permitted by
law. Both parties agree that a final non-appealable judgment in any such suit
or proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on such judgment or in any other lawful manner.
b. Counterparts; Signatures by Facsimile. This Agreement may be
-------------------------------------
executed in one or more counterparts, all of which shall be considered one and
the same agreement and shall become effective when counterparts have been signed
by each party and delivered to the other party. This Agreement, once executed
by a party, may be delivered to the other party hereto by facsimile transmission
of a copy of this Agreement bearing the signature of the party so delivering
this Agreement.
c. Headings. The headings of this Agreement are for convenience of
--------
reference and shall not form part of, or affect the interpretation of, this
Agreement.
d. Severability. If any provision of this Agreement shall be invalid
------------
or unenforceable in any jurisdiction, such invalidity or unenforceability shall
not affect the validity or enforceability of the remainder of this Agreement or
the validity or enforceability of this Agreement in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the instruments
----------------------------
referenced herein contain the entire understanding of the parties with respect
to the matters covered herein and therein and, except as specifically set forth
herein or therein, neither the Company nor the Buyer makes any representation,
warranty, covenant or undertaking with respect to such matters. No provision of
this Agreement may be waived or amended other than by an instrument in writing
signed by the party to be charged with enforcement.
f. Notices. Any notices required or permitted to be given under the
-------
terms of this Agreement shall be sent by certified or registered mail (return
receipt requested) or delivered personally or by courier (including a recognized
overnight delivery service) or by facsimile and shall be effective five days
after being placed in the mail, if mailed by regular United States
-23-
<PAGE>
mail, or upon receipt, if delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile, in each case addressed
to a party. The addresses for such communications shall be:
If to the Company:
The Ashton Technology Group, Inc.
1900 Market Street
Philadelphia, Pennsylvania 19103
Attention: President
Facsimile: (215) 636-3560
With copy to:
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, Pennsylvania 19103
Attention: Justin P. Klein, Esquire
Facsimile: (215) 864-8999
If to a Buyer: To the address set forth immediately below such Buyer's
name on the signature pages hereto.
With copy to:
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103-2921
Attention: Keith S. Marlowe, Esquire
Facsimile: 215-963-5299
Each party shall provide notice to the other party of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the parties and their successors and assigns. Neither
the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, subject to Section 2(f), any Buyer may assign its
rights hereunder to any person that purchases Securities in a private
transaction (so long as the transferee is not a direct business competitor of
the Company or its Subsidiaries) from a Buyer or to any of its "affiliates," as
that term is defined under the 1934 Act, without the consent of the Company.
-24-
<PAGE>
h. Third Party Beneficiaries. This Agreement is intended for the
-------------------------
benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. Survival. All representations and warranties set forth in
--------
Sections 2 and 3 hereof shall survive the Closing until the later of (i) the
expiration of the applicable statute of limitations and (ii) the Automatic
Conversion Date (as defined in the Certificate of Designation) and the
agreements and covenants set forth in Sections 3, 4, 5 and 8 shall survive the
Closing hereunder notwithstanding any due diligence investigation conducted by
or on behalf of the Buyers. The Company agrees to indemnify and hold harmless
each of the Buyers and all their officers, directors, employees and agents for
loss or damage arising as a result of or related to any breach or alleged breach
by the Company of any of its representations, warranties and covenants set forth
in Sections 3 and 4 hereof or any of its covenants and obligations under this
Agreement or the Registration Rights Agreement, including advancement of
expenses as they are incurred.
j. Publicity. The Company and each of the Buyers shall have the
---------
right to review a reasonable period of time before issuance of any press
releases, filings with the SEC, NASD or any stock exchange or interdealer
quotation system, or any other public statements with respect to the
transactions contemplated hereby; provided, however, that the Company shall be
-------- -------
entitled, without the prior approval of each of the Buyers, to make any press
release or public filings with respect to such transactions as is required by
applicable law and regulations (although each of the Buyers shall be consulted
by the Company in connection with any such press release prior to its release
and shall be provided with a copy thereof and be given an opportunity to comment
thereon).
k. Further Assurances. Each party shall do and perform, or cause to
------------------
be done and performed, all such further acts and things, and shall execute and
deliver all such other agreements, certificates, instruments and documents, as
the other party may reasonably request in order to carry out the intent and
accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. 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.
m. Remedies. The Company acknowledges that a breach by it of its
--------
obligations hereunder will cause irreparable harm to each Buyer by vitiating the
intent and purpose of the transactions contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Agreement will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement, that each
Buyer shall be entitled, in addition to all other available remedies in law or
in equity, to an injunction or injunctions to prevent or cure any breaches of
the provisions of this Agreement and to enforce
-25-
<PAGE>
specifically the terms and provisions of this Agreement, without the necessity
of showing economic loss and without any bond or other security being required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
-26-
<PAGE>
IN WITNESS WHEREOF, the undersigned Buyers and the Company have caused
this Agreement to be duly executed as of the date first above written.
THE ASHTON TECHNOLOGY GROUP, INC.
By: /s/ Arthur J. Bacci
------------------------------------
Arthur J. Bacci
President
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P., Investment Manager
By: RGC General Partner Corp., as General Partner
By: /s/ Wayne D. Bloch
------------------------------------
Wayne D. Bloch
Managing Director
RESIDENCE: Cayman Islands
ADDRESS:
c/o Rose Glen Capital Management, L.P.
3 Bala Plaza East, Suite 200
251 St. Asaphs Road
Bala Cynwyd, PA 19004
Facsimile: (610) 617-0570
Telephone: (610) 617-5900
AGGREGATE SUBSCRIPTION AMOUNT:
Number of Preferred Shares: 20,000
Number of Warrants: 200,000
Aggregate Purchase Price: $20,000,000
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EXHIBIT 10.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of August 18,
1999, by and among The Ashton Technology Group, Inc., a Delaware corporation,
with its headquarters located at 1900 Market Street, Suite 701, Philadelphia,
Pennsylvania 19103 (the "Company"), and each of the undersigned (together with
their respective affiliates and any assignee or transferee of all of their
respective rights hereunder, the "Initial Investors").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among the
parties hereto of even date herewith (the "Securities Purchase Agreement"), the
Company has agreed, upon the terms and subject to the conditions contained
therein, to issue and sell to the Initial Investors (i) shares of its Series F
Convertible Preferred Stock (the "Preferred Stock") that are convertible into
shares of the Company's common stock, par value $.01 per share (the "Common
Stock"), upon the terms and subject to the limitations and conditions set forth
in the Certificate of Designations, Rights, Preferences, Privileges and
Restrictions with respect to the Preferred Stock (the "Certificate of
Designation"); and (ii) warrants (the "Warrants") to acquire 200,000 shares of
Common Stock, upon the terms and conditions and subject to the limitations and
conditions set forth in the Warrants dated August 18, 1999; and
B. To induce the Initial Investors to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"1933 Act"), and applicable state securities laws;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each of the
Initial Investors hereby agree as follows:
1. DEFINITIONS.
-----------
a. As used in this Agreement, the following terms shall have the
following meanings:
(i) "Investors" means the Initial Investors and any transferee or
assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(ii) "register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933
<PAGE>
Act or any successor rule providing for offering securities on a continuous
basis ("Rule 415"), and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and Exchange Commission
(the "SEC").
(iii) "Registrable Securities" means (A) the Conversion Shares
issued or issuable upon conversion or otherwise pursuant to the terms of the
Preferred Shares and the Certificate of Designation (including, without
limitation, any shares issued pursuant to Articles V, VI.D(b) and VI.E of the
Certificate of Designation and Section 2(c) herein); (B) the Warrant Shares
issued or issuable and any shares of capital stock issued or issuable upon
exercise of the Warrants; and (C) any shares of capital stock issued or issuable
as a dividend on or in exchange for or otherwise with respect to any of the
foregoing which are held by the Investors.
(iv) "Registration Statement(s)" means a registration
statement(s) of the Company under the 1933 Act.
b. Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Securities Purchase
Agreement.
2. REGISTRATION.
------------
a. Mandatory Registration. The Company shall prepare, and, on or
----------------------
prior to the date (the "Filing Date") which is thirty (30) days after the date
of the Closing under the Securities Purchase Agreement (the "Closing Date"),
file with the SEC a Registration Statement on Form S-3 (or, if Form S-3 is not
then available, on such form of Registration Statement as is then available to
effect a registration of the Registrable Securities, subject to the consent of
the Initial Investors, which consent will not be unreasonably withheld) covering
the resale of the Registrable Securities, which Registration Statement, to the
extent allowable under the 1933 Act and the rules and regulations 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 and exercise of the
Warrants (i) to prevent dilution resulting from stock splits, stock dividends or
similar transactions or (ii) by reason of changes in the Conversion Price of the
Preferred Shares in accordance with the terms thereof or the exercise price of
the Warrants in accordance with the terms thereof. The number of shares of
Common Stock initially included in such Registration Statement shall be no less
than two (2) times the number of Conversion Shares and Warrant Shares that are
then issuable upon conversion of the Preferred Shares (based on the lesser of
the Market Price as would then be in effect and the Fixed Conversion Price then
in effect (each as defined in the Certificate of Designation)) and the exercise
of the Warrants, without regard to any limitation on the Investor's ability to
convert the Preferred Shares or exercise the Warrants. The Company acknowledges
that the number of shares initially included in the Registration Statement
represents a good faith estimate of the maximum number of shares issuable upon
conversion of the Preferred Shares and exercise of the Warrants. The
Registration Statement (and each amendment or supplement thereto, and each
request for
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<PAGE>
acceleration of effectiveness thereof) shall be provided to (and subject to the
approval of) the Initial Investors and their counsel prior to its filing or
other submission.
b. Underwritten Offering. [Intentionally Omitted.]
---------------------
c. Payments by the Company. The Company shall use its best efforts
-----------------------
to obtain effectiveness of the Registration Statement as soon as practicable,
but in any event not later than the one hundred fifth (105th) day after the
Closing Date (the "Registration Deadline"). If (i) the Registration
Statement(s) covering the Registrable Securities required to be filed by the
Company pursuant to Section 2(a) hereof is not declared effective by the SEC by
the Registration Deadline, or (ii) after the Registration Statement has been
declared effective by the SEC, sales of all of the Registrable Securities cannot
be made pursuant to the Registration Statement, or (iii) the Common Stock is not
listed or included for quotation on the Nasdaq SmallCap Market ("Nasdaq"), the
Nasdaq National Market ("NNM"), the New York Stock Exchange (the "NYSE") or the
American Stock Exchange (the "AMEX") after being so listed or included for
quotation, then the Company will make payments to the Investors in such amounts
and at such times as shall be determined pursuant to this Section 2(c) as
partial relief for the damages to the Investors by reason of any such delay in
or reduction of their ability to sell the Registrable Securities (which remedy
shall not be exclusive of any other remedies available at law or in equity).
The Company shall pay to each holder of the Preferred Shares or Registrable
Securities an amount equal to the Stated Value (as defined in the Certificate
of Designation) of the Preferred Shares then outstanding (and, in the case of
holders of Registrable Securities, the stated value of Preferred Shares from
which such Registrable Securities were converted) ("Aggregate Share Price")
multiplied by the Applicable Percentage (as defined below) times the sum of:
(i) the number of months (prorated for partial months) after the Registration
Deadline and prior to the date the Registration Statement is declared effective
by the SEC, provided, however, that there shall be excluded from such period any
delays which are solely attributable to changes required by the Investors in the
Registration Statement with respect to information relating to the Investors,
including, without limitation, changes to the plan of distribution, or to the
failure of the Investors to conduct their review of the Registration Statement
pursuant to Section 3(h) below in a reasonably prompt manner; (ii) the number of
months (prorated for partial months) during the Registration Period (as defined
below) that sales of all of the Registrable Securities cannot be made pursuant
to the Registration Statement after the Registration Statement has been declared
effective (including, without limitation, when sales cannot be made by reason of
the Company's failure to properly supplement or amend the prospectus included
therein in accordance with the terms of this Agreement (including Section 3(b)
hereof or otherwise), but excluding any days during an Allowed Delay (as
defined in Section 3(f)); and (iii) the number of months (prorated for partial
months) that the Common Stock is not listed or included for quotation on the
Nasdaq, NNM, NYSE or AMEX or that trading thereon is halted after the
Registration Statement has been declared effective; provided, however, that the
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periods during which two of the conditions set forth in the second sentence of
this Section exist shall not be double counted. The term "Applicable
Percentage" means one and one-half hundredths (.015). (For example, if the
Registration Statement becomes effective one (1) month after the end the
Registration Deadline, the Company would pay $15,000 for each $1,000,000 of
Aggregate Share Price. If thereafter, sales
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<PAGE>
could not be made pursuant to the Registration Statement for an additional
period of one (1) month, the Company would pay an additional $15,000 for each
$1,000,000 of Aggregate Share Price.) Such amounts shall be paid in cash or, at
each Investor's option, may be convertible into Common Stock at the "Conversion
Price" (as defined in the Certificate of Designation) in accordance with the
terms of the Preferred Stock. Any shares of Common Stock issued upon conversion
of such amounts shall be Registrable Securities. If the Investor desires to
convert the amounts due hereunder into Registrable Securities, it shall so
notify the Company in writing within two (2) business days of the date on which
such amounts are first payable in cash and such amounts shall be so convertible
(pursuant to the mechanics set forth in the Certificate of Designation),
beginning on the last day upon which the cash amount would otherwise be due in
accordance with the following sentence. Payments of cash pursuant hereto shall
be made within five (5) days after the end of each period that gives rise to
such obligation, provided that, if any such period extends for more than thirty
(30) days, interim payments shall be made for each such thirty (30) day period.
d. Piggy-Back Registrations. Subject to the last sentence of this
------------------------
Section 2(d), if at any time prior to the expiration of the Registration Period
(as hereinafter defined) the Company shall determine to file with the SEC a
Registration Statement relating to an offering for its own account or the
account of others under the 1933 Act of any of its equity securities (other than
on Form S-4 or Form S-8 or their then equivalents relating to equity securities
to be issued solely in connection with any acquisition of any entity or business
or equity securities issuable in connection with stock option or other employee
benefit plans (including employee stock purchase plans)), the Company shall send
to each Investor who is entitled to registration rights under this Section 2(d)
written notice of such determination and, if within fifteen (15) days after the
effective date of such notice, such Investor shall so request in writing, the
Company shall include in such Registration Statement all or any part of the
Registrable Securities such Investor requests to be registered, except that if,
in connection with any underwritten public offering for the account of the
Company the managing underwriter(s) thereof shall impose a limitation on the
number of shares of Common Stock which may be included in the Registration
Statement because, in such underwriter(s)' judgment, marketing or other factors
dictate such limitation is necessary to facilitate public distribution
(including pricing acceptable to the Company), then the Company shall be
obligated to include in such Registration Statement only such limited portion of
the Registrable Securities with respect to which such Investor has requested
inclusion hereunder as the underwriter shall permit. Any exclusion of
Registrable Securities shall be made pro rata among the Investors seeking to
include Registrable Securities in proportion to the number of Registrable
Securities sought to be included by such Investors in the aggregate; provided,
--------
however, that the Company shall not exclude any Registrable Securities unless
- -------
the Company has first excluded all outstanding securities (other than those
offered by the Company), the holders of which are not entitled by contract to
inclusion of such securities in such Registration Statement or are not entitled
to pro rata inclusion with the Registrable Securities; and provided, further,
-------- -------
however, that, after giving effect to the immediately preceding proviso, any
- -------
exclusion of Registrable Securities shall be made pro rata with holders of other
securities having the contractual right to include such securities in the
Registration Statement other than holders of securities entitled to inclusion of
their securities in such Registration Statement by reason of demand registration
rights. No right to registration of Registrable Securities under this
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<PAGE>
Section 2(d) shall be construed to limit any registration required under Section
2(a) hereof. If an offering in connection with which an Investor is entitled to
registration under this Section 2(d) is an underwritten offering, then each
Investor whose Registrable Securities are included in such Registration
Statement shall, unless otherwise agreed by the Company, offer and sell such
Registrable Securities in an underwritten offering using the same underwriter or
underwriters and, subject to the provisions of this Agreement, on the same terms
and conditions as other shares of Common Stock included in such underwritten
offering (including customary indemnification provisions). Notwithstanding
anything to the contrary set forth herein, the registration rights of the
Investors pursuant to this Section 2(d) shall only be available to the Investors
in the event the Company fails to timely file, obtain effectiveness or maintain
effectiveness of any Registration Statement to be filed pursuant to Section 2(a)
in accordance with the terms of this Agreement.
e. Eligibility for Form S-3. The Company represents and warrants
------------------------
that it meets the registrant eligibility and transaction requirements for the
use of Form S-3 for registration of the sale by the Initial Investors and any
other Investors of the Registrable Securities and the Company shall file all
reports required to be filed by the Company with the SEC in a timely manner so
as to maintain such eligibility for the use of Form S-3.
3. OBLIGATIONS OF THE COMPANY.
--------------------------
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
a. The Company shall prepare promptly, and file with the SEC as soon
as practicable after the Closing Date (but in no event later than the Filing
Date), a Registration Statement with respect to the number of Registrable
Securities provided in Section 2(a), and thereafter use its best efforts to
cause such Registration Statement relating to Registrable Securities to become
effective as soon as possible after such filing (but in no event later the
Registration Deadline), and, subject to an Allowed Delay, keep the Registration
Statement effective pursuant to Rule 415 at all times until such date as is the
earlier of (i) the date on which all of the Registrable Securities have been
sold and (ii) the date on which the Registrable Securities (in the opinion of
counsel to the Initial Investors) may be immediately sold to the public without
registration or restriction (including without limitation as to volume by each
holder thereof) under the 1933 Act (the "Registration Period"), which
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein) shall not contain any untrue statement of a
material fact or omit to state a material fact required to be stated therein, or
necessary to make the statements therein not misleading.
b. Subject to an Allowed Delay, the Company shall prepare and file
with the SEC such amendments (including post-effective amendments) and
supplements to the Registration Statements and the prospectus used in connection
with the Registration Statements as may be necessary to keep the Registration
Statements effective at all times during the Registration Period, and, during
such period, comply with the provisions of the 1933 Act with respect to the
disposition
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<PAGE>
of all Registrable Securities of the Company covered by the Registration
Statements until such time as all of such Registrable Securities have been
disposed of in accordance with the intended methods of disposition by the seller
or sellers thereof as set forth in the Registration Statements. In the event
that on any Trading Day (as defined in the Certificate of Designation) (the
"Registration Trigger Date") the number of shares available under a Registration
Statement filed pursuant to this Agreement is insufficient to cover all of the
Registrable Securities issued or issuable upon conversion of or otherwise
pursuant to the Preferred Stock (based on the lesser of the Market Price and the
Fixed Conversion Price (each defined in the Certificate of Designation) then if
effect) and exercise of or otherwise pursuant to the Warrants, in each case
without giving effect to any limitations on the Investors' ability to convert
the Preferred Stock or exercise the Warrants, the Company shall amend the
Registration Statement, or file a new Registration Statement (on the short form
available therefore, if applicable), or both, so as to cover two hundred percent
(200%) of all of the Registrable Securities so issued or issuable (without
giving effect to any limitations on conversion or exercise contained in the
Certificate of Designation or Warrants, as applicable) as of the Registration
Trigger Date, in each case, as soon as practicable, but in any event within
twenty (20) business days after the necessity therefor arises (based on the
market price of the Common Stock and other relevant factors on which the Company
reasonably elects to rely). The Company shall use its best efforts to cause such
amendment and/or new Registration Statement to become effective as soon as
practicable following the filing thereof, but in any event within sixty (60)
days of the Registration Trigger Date. The provisions of Section 2(c) above
shall be applicable with respect to the Company's obligations under this Section
3(b).
c. The Company shall furnish to each Investor whose Registrable
Securities are included in a Registration Statement and its legal counsel (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one copy of each Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, and, in the case of the Registration Statement referred
to in Section 2(a), each letter written by or on behalf of the Company to the
SEC or the staff of the SEC, and each item of correspondence from the SEC or the
staff of the SEC, in each case relating to such Registration Statement (other
than any portion of any thereof which contains information for which the Company
has sought confidential treatment), and (ii) such number of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor. The Company will immediately notify each Investor by
facsimile of the effectiveness of each Registration Statement or any post-
effective amendment. The Company will promptly respond to any and all comments
received from the SEC, with a view towards causing each Registration Statement
or any amendment thereto to be declared effective by the SEC as soon as
practicable and shall file an acceleration request as soon as practicable
following the resolution or clearance of all SEC comments or, if applicable,
following notification by the SEC that any such Registration Statement or any
amendment thereto will not be subject to review.
d. The Company shall use reasonable efforts to (i) register and
qualify the Registrable Securities covered by the Registration Statements under
such other securities or "blue
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<PAGE>
sky" laws of such jurisdictions in the United States as the Investors who hold a
majority in interest of the Registrable Securities being offered reasonably
request, (ii) prepare and file in those jurisdictions such amendments (including
post-effective amendments) and supplements to such registrations and
qualifications as may be necessary to maintain the effectiveness thereof during
the Registration Period, (iii) take such other actions as may be necessary to
maintain such registrations and qualifications in effect at all times during the
Registration Period, and (iv) take all other actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
- -------- -------
therewith or as a condition thereto to (a) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (b) subject itself to general taxation in any such jurisdiction,
(c) file a general consent to service of process in any such jurisdiction, (d)
provide any undertakings that cause the Company undue expense or burden, or (e)
make any change in its charter or bylaws, which in each case the Board of
Directors of the Company determines to be contrary to the best interests of the
Company and its stockholders.
e. [INTENTIONALLY OMITTED.]
f. As promptly as practicable after becoming aware of such event, the
Company shall notify each Investor of the happening of any event, of which the
Company has knowledge, as a result of which the prospectus included in any
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein or
necessary to make the statements therein not misleading, and use its best
efforts promptly to prepare a supplement or amendment to any Registration
Statement to correct such untrue statement or omission, and deliver such number
of copies of such supplement or amendment to each Investor as such Investor may
reasonably request; provided that, for not more than twenty (20) consecutive
trading days (or a total of not more than forty-five (45) trading days in any
twelve (12) month period), the Company may delay the disclosure of material non-
public information concerning the Company (as well as prospectus or Registration
Statement updating) the disclosure of which at the time is not, in the good
faith opinion of the Company, in the best interests of the Company (an "Allowed
Delay"); provided, further, that the Company shall promptly (i) notify the
Investors in writing of the existence of (but in no event, without the prior
written consent of an Investor, shall the Company disclose to such Investor any
of the facts or circumstances regarding) material non-public information giving
rise to an Allowed Delay and (ii) advise the Investors in writing to cease all
sales under such Registration Statement until the end of the Allowed Delay. Upon
expiration of the Allowed Delay, the Company shall again be bound by the first
sentence of this Section 3(f) with respect to the information giving rise
thereto.
g. The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of any Registration
Statement, and, if such an order is issued, to obtain the withdrawal of such
order at the earliest possible moment and to notify each Investor who holds
Registrable Securities being sold (or, in the event of an underwritten offering,
the managing underwriters) of the issuance of such order and the resolution
thereof.
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<PAGE>
h. The Company shall permit a single firm of counsel designated by
the Initial Investors to review such Registration Statement and all amendments
and supplements thereto (as well as all requests for acceleration or
effectiveness thereof) a reasonable period of time prior to their filing with
the SEC, and not file any document in a form to which such counsel reasonably
objects and will not request acceleration of such Registration Statement without
prior notice to such counsel. The sections of such Registration Statement
covering information with respect to the Investors, the Investor's beneficial
ownership of securities of the Company or the Investors intended method of
disposition of Registrable Securities shall conform to the information provided
to the Company by each of the Investors.
i. The Company shall make generally available to its security holders
as soon as practicable, but not later than ninety (90) days after the close of
the period covered thereby, an earnings statement (in form complying with the
provisions of Rule 158 under the 1933 Act) covering a twelve-month period
beginning not later than the first day of the Company's fiscal quarter next
following the effective date of the Registration Statement.
j. At the request of any Investor, the Company shall furnish, on the
date that Registrable Securities are delivered to an underwriter, if any, for
sale in connection with any Registration Statement or, if such securities are
not being sold by an underwriter, on the date of effectiveness thereof (i) an
opinion, dated as of such date, from counsel representing the Company for
purposes of such Registration Statement, in form, scope and substance as is
customarily given in an underwritten public offering, addressed to the
underwriters, if any, and the Investors and (ii) a letter, dated such date, from
the Company's independent certified public accountants in form and substance as
is customarily given by independent certified public accountants to underwriters
in an underwritten public offering, addressed to the underwriters, if any, and
the Investors.
k. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to a
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Initial Investors, (iv) one firm of attorneys
and one firm of accountants or other agents retained by all other Investors, and
(v) one firm of attorneys retained by all such underwriters (collectively, the
"Inspectors") all pertinent financial and other records, and pertinent corporate
documents and properties of the Company (collectively, the "Records"), as shall
be reasonably deemed necessary by each Inspector to enable each Inspector to
exercise its due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information which any Inspector may
reasonably request for purposes of such due diligence; provided, however, that
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each Inspector shall hold in confidence and shall not make any disclosure
(except to an Investor) of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement, (b) the release of such Records is ordered pursuant to a subpoena or
other order from a court or government body of competent jurisdiction, or (c)
the information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement. The
Company shall not be required to disclose any
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<PAGE>
confidential information in such Records to any Inspector until and unless such
Inspector shall have entered into confidentiality agreements (in form and
substance satisfactory to the Company) with the Company with respect thereto,
substantially in the form of this Section 3(k). Each Investor agrees that it
shall, upon learning that disclosure of such Records is sought in or by a court
or governmental body of competent jurisdiction or through other means, give
prompt notice to the Company and allow the Company, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, the Records deemed confidential. Nothing herein (or in any other
confidentiality agreement between the Company and any Investor) shall be deemed
to limit the Investor's ability to sell Registrable Securities in a manner which
is otherwise consistent with applicable laws and regulations.
l. The Company shall hold in confidence and not make any disclosure
of information concerning an Investor provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor prior
to making such disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
m. The Company shall (i) cause all the Registrable Securities covered
by the Registration Statement to be listed on each national securities exchange
on which securities of the same class or series issued by the Company are then
listed, if any, if the listing of such Registrable Securities is then permitted
under the rules of such exchange, or (ii) to the extent the securities of the
same class or series are not then listed on a national securities exchange,
secure the designation and quotation of all the Registrable Securities covered
by the Registration Statement on the NNM or, if not eligible for NNM on Nasdaq
and, without limiting the generality of the foregoing, to arrange for at least
two market makers to register with the National Association of Securities
Dealers, Inc. ("NASD") as such with respect to such Registrable Securities.
n. The Company shall provide a transfer agent and registrar, which
may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
o. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to such Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters,
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<PAGE>
if any, or the Investors may reasonably request and registered in such names as
the managing underwriter or underwriters, if any, or the Investors may request,
and, within three (3) business days after a Registration Statement which
includes Registrable Securities is ordered effective by the SEC, the Company
shall deliver, and shall cause legal counsel selected by the Company to deliver,
to the transfer agent for the Registrable Securities (with copies to the
Investors whose Registrable Securities are included in such Registration
Statement) an instruction in the form attached hereto as Exhibit 1 and an
opinion of such counsel in the form attached hereto as Exhibit 2.
p. At the reasonable request of the holders of a majority-in-interest
of the Registrable Securities, the Company shall prepare and file with the SEC
such amendments (including post-effective amendments) and supplements to a
Registration Statement and any prospectus used in connection with the
Registration Statement as may be necessary in order to change the plan of
distribution set forth in such Registration Statement. In addition, the Company
shall not offer any securities for its own account or the account of others in
any Registration Statement under Section 2(a) hereof or any amendment or
supplement thereto under Section 3(b) hereof without the consent of the holders
of a majority-in-interest of the Registrable Securities.
q. Except as set forth on Schedule 3(g) to the Securities Purchase
Agreement, the Company shall not, and shall not agree to, allow the holders of
any securities of the Company to include any of their securities in any
Registration Statement under Section 2(a) hereof or any amendment or supplement
thereto under Section 3(b) hereof without the consent of the holders of a
majority-in-interest of the Registrable Securities.
r. The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by the Investors of Registrable Securities
pursuant to a Registration Statement.
s. The Company shall comply with all applicable laws related to a
Registration Statement and offering and sale of securities and all applicable
rules and regulations of governmental authorities in connection therewith
(including without limitation the 1933 Act and the 1934 Act and the rules and
regulations promulgated by the SEC).
4. OBLIGATIONS OF THE INVESTORS.
----------------------------
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
a. It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company
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<PAGE>
may reasonably request. At least three (3) business days prior to the first
anticipated filing date of the Registration Statement, the Company shall notify
each Investor of the information the Company requires from each such Investor.
b. Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statements hereunder, unless such Investor has notified the Company in writing
of such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statements.
c. [INTENTIONALLY OMITTED]
d. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(f) or
3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
e. No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements in usual and
customary form entered into by the Company, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements, and (iii) agrees to pay its pro rata share of all underwriting
discounts and commissions and any expenses in excess of those payable by the
Company pursuant to Section 5 below.
5. EXPENSES OF REGISTRATION.
------------------------
All reasonable expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Sections 2 and 3, including, without limitation, all registration, listing and
qualification fees, printers and accounting fees, the fees and disbursements of
counsel for the Company, and, subject to Section 4(f) of the Purchase Agreement,
the reasonable fees and disbursements of one counsel selected by the Initial
Investors pursuant to Section 3(h) hereof shall be borne by the Company.
6. INDEMNIFICATION.
---------------
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
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<PAGE>
a. To the extent permitted by law, the Company will indemnify, hold
harmless and defend (i) each Investor who holds such Registrable Securities, and
(ii) the directors, officers, partners, employees, agents and each person who
controls any Investor within the meaning of the 1933 Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act"), if any, (each, an
"Indemnified Person"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened in writing in respect thereof, "Claims") to which any of them may
become subject insofar as such Claims arise out of or are based upon: (i) any
untrue statement or alleged untrue statement of a material fact in a
Registration Statement or the omission or alleged omission to state therein a
material fact required to be stated or necessary to make the statements therein
not misleading; (ii) any untrue statement or alleged untrue statement of a
material fact contained in any preliminary prospectus if used prior to the
effective date of such Registration Statement, or contained in the final
prospectus (as amended or supplemented, if the Company files any amendment
thereof or supplement thereto with the SEC) or the omission or alleged omission
to state therein any material fact necessary to make the statements made
therein, in light of the circumstances under which the statements therein were
made, not misleading; or (iii) any violation or alleged violation by the Company
of the 1933 Act, the 1934 Act, any other law, including, without limitation, any
state securities law, or any rule or regulation thereunder relating to the offer
or sale of the Registrable Securities (the matters in the foregoing clauses (i)
through (iii) being, collectively, "Violations"). Subject to the restrictions
set forth in Section 6(c) with respect to the number of legal counsel, the
Company shall reimburse the Indemnified Person, promptly as such expenses are
incurred and are due and payable, for any reasonable legal fees or other
reasonable expenses incurred by them in connection with investigating or
defending any such Claim. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(a): (i) shall
not apply to a Claim arising out of or based upon a Violation which occurs in
reliance upon and in conformity with information furnished in writing to the
Company by any Indemnified Person or underwriter for such Indemnified Person
expressly for use in connection with the preparation of such Registration
Statement or any such amendment thereof or supplement thereto; (ii) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of the Company, which consent shall not be
unreasonably withheld; and (iii) with respect to any preliminary prospectus,
shall not inure to the benefit of any Indemnified Person if the untrue statement
or omission of material fact contained in the preliminary prospectus was
corrected on a timely basis in the prospectus, as then amended or supplemented,
such corrected prospectus was timely made available by the Company pursuant to
Section 3(c) hereof, and the Indemnified Person was promptly advised in writing
not to use the incorrect prospectus prior to the use giving rise to a Violation
and such Indemnified Person, notwithstanding such advice, used it. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Indemnified Person and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an Investor
is participating, each such Investor agrees severally and not jointly to
indemnify, hold harmless and defend, to the same extent and in the same manner
set forth in Section 6(a), the Company, each of
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<PAGE>
its directors, each of its officers who signs the Registration Statement, each
person, if any, who controls the Company within the meaning of the 1933 Act or
the 1934 Act, any underwriter and any other stockholder selling securities
pursuant to the Registration Statement or any of its directors or officers or
any person who controls such stockholder or underwriter within the meaning of
the 1933 Act or the 1934 Act (collectively and together with an Indemnified
Person, an "Indemnified Party"), against any Claim to which any of them may
become subject, under the 1933 Act, the 1934 Act or otherwise, insofar as such
Claim arises out of or is based upon any Violation by such Investor, in each
case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished to the
Company by such Investor expressly for use in connection with such Registration
Statement; and subject to Section 6(c) such Investor will reimburse any legal or
other expenses (promptly as such expenses are incurred and are due and payable)
reasonably incurred by them in connection with investigating or defending any
such Claim; provided, however, that the indemnity agreement contained in this
-------- -------
Section 6(b) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of such Investor, which
consent shall not be unreasonably withheld; provided, further, however, that the
-------- ------- -------
Investor shall be liable under this Agreement (including this Section 6(b) and
Section 7) for only that amount as does not exceed the net proceeds to such
Investor as a result of the sale of Registrable Securities pursuant to such
Registration Statement. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such Indemnified Party
and shall survive the transfer of the Registrable Securities by the Investors
pursuant to Section 9. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Section 6(b) with
respect to any preliminary prospectus shall not inure to the benefit of any
Indemnified Party if the untrue statement or omission of material fact contained
in the preliminary prospectus was corrected on a timely basis in the prospectus,
as then amended or supplemented.
c. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that an Indemnified Person or Indemnified Party
-------- -------
shall have the right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. The indemnifying party shall pay for only one
separate legal counsel for the Indemnified Persons or the Indemnified Parties,
as applicable, and such legal counsel shall be selected by Investors holding a
majority-in-interest of the Registrable Securities included in the Registration
Statement to which the Claim relates (with the approval of
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<PAGE>
a majority-in-interest of the Initial Investors), if the Investors are entitled
to indemnification hereunder, or the Company, if the Company is entitled to
indemnification hereunder, as applicable. The failure to deliver written notice
to the indemnifying party within a reasonable time of the commencement of any
such action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. CONTRIBUTION.
------------
To the extent any indemnification by an indemnifying party is prohibited or
limited by law, the indemnifying party agrees to make the maximum contribution
with respect to any amounts for which it would otherwise be liable under Section
6 to the fullest extent permitted by law; provided, however, that (i) no
-------- -------
contribution shall be made under circumstances where the maker would not have
been liable for indemnification under the fault standards set forth in Section
6, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of such fraudulent misrepresentation, and (iii) contribution (together
with any indemnification or other obligations under this Agreement) by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
--------------------------
With a view to making available to the Investors the benefits of Rule 144
promulgated under the 1933 Act or any other similar rule or regulation of the
SEC that may at any time permit the investors to sell securities of the Company
to the public without registration ("Rule 144") and so long as there shall be
any Preferred Shares, Conversion Shares, Warrants or Warrant Shares held by the
Investors, the Company agrees to:
a. make and keep public information available, as those terms are
understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns Registrable
Securities, promptly upon request, (i) a written statement by the Company that
it has complied with the
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<PAGE>
reporting requirements of Rule 144, the 1933 Act and the 1934 Act, (ii) a copy
of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company, and (iii) such other information
as may be reasonably requested to permit the Investors to sell such securities
pursuant to Rule 144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
---------------------------------
The rights under this Agreement may be assigned by the Investors to any
transferee of not less than 100,000 Registrable Securities held by an Investor
if: (i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein, (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement, and (vi) such transferee shall be an "accredited investor" as that
term defined in Rule 501 of Regulation D promulgated under the 1933 Act and
shall make appropriate representations to the Company to that effect; provided,
--------
however, no such assignment shall be effective without the consent of the
- -------
Company if the transferee is a direct business competitor of the Company or its
Subsidiaries.
10. AMENDMENT OF REGISTRATION RIGHTS.
--------------------------------
Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with written consent of the Company, each of the Initial
Investors (to the extent such Initial Investor still owns Registrable
Securities) and Investors who hold a majority interest of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company.
11. MISCELLANEOUS.
-------------
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notices required or permitted to be given under the terms
hereof shall be sent by certified or registered mail (return receipt requested)
or delivered personally or by courier
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<PAGE>
(including a recognized overnight delivery service) or by facsimile and shall be
effective five days after being placed in the mail, if mailed by regular United
States mail, or upon receipt, if delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile, in each case addressed
to a party. The addresses for such communications shall be:
If to the Company:
The Ashton Technology Group, Inc.
1900 Market Street, Suite 701
Philadelphia, Pennsylvania 19103
Attention: President
Facsimile: (215) 636-3560
With copy to:
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, Pennsylvania 19103
Attention: Justin P. Klein, Esquire
Facsimile: (215) 864-8999
If to an Investor: to the address set forth immediately below such Investor's
name on the signature pages to the Securities Purchase Agreement.
With copy to:
Morgan, Lewis & Bockius LLP
1701 Market Street
Philadelphia, Pennsylvania 19103-2921
Attention: Keith S. Marlowe, Esquire
Facsimile: 215-963-5299
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
d. This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware applicable to agreements made and to be
performed in the State of Delaware (without regard to principles of conflict of
laws). Both parties irrevocably consent to the jurisdiction of the United
States federal courts and the state courts located in Delaware with respect to
any suit or proceeding based on or arising under this Agreement, the agreements
entered into in
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<PAGE>
connection herewith or the transactions contemplated hereby or thereby and
irrevocably agree that all claims in respect of such suit or proceeding may be
determined in such courts. Both parties irrevocably waive the defense of an
inconvenient forum to the maintenance of such suit or proceeding. Both parties
further agree that service of process upon a party mailed by first class mail
shall be deemed in every respect effective service of process upon the party in
any such suit or proceeding. Nothing herein shall affect either party's right to
serve process in any other manner permitted by law. Both parties agree that a
final non-appealable judgment in any such suit or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on such judgment or in any
other lawful manner.
e. This Agreement and the Securities Purchase Agreement (including
all schedules and exhibits thereto) constitute the entire agreement among the
parties hereto with respect to the subject matter hereof and thereof. There are
no restrictions, promises, warranties or undertakings, other than those set
forth or referred to herein and therein. This Agreement and the Securities
Purchase Agreement supersede all prior agreements and understandings among the
parties hereto with respect to the subject matter hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
g. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. Except as otherwise provided herein, all consents and other
determinations to be made by the Investors pursuant to this Agreement shall be
made by Investors holding a majority of the Registrable Securities, determined
as if the all of the shares of Preferred Stock then outstanding have been
converted into for Registrable Securities.
k. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to each Investor by vitiating the intent
and purpose of the transactions contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for breach
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<PAGE>
of its obligations hereunder will be inadequate and agrees, in the event of a
breach or threatened breach by the Company of any of the provisions hereunder,
that each Investor shall be entitled, in addition to all other available
remedies in law or in equity, 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, without the necessity of showing economic loss and
without any bond or other security being required.
l. 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.
m. In the event that any provision of this Agreement is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any
provision hereof which may prove invalid or unenforceable under any law shall
not affect the validity or enforceability of any other provision hereof.
n. The initial number of Registrable Securities included on any
Registration Statement and each increase to the number of Registrable Securities
included thereon shall be allocated pro rata among the Investors based on the
number of Registrable Securities held by each Investor at the time of such
establishment or increase, as the case may be. In the event an Investor shall
sell or otherwise transfer any of such holder's Registrable Securities, each
transferee shall be allocated a pro rata portion of the number of Registrable
Securities included on a Registration Statement for such transferor. Any shares
of Common Stock included on a Registration Statement and which remain allocated
to any person or entity which does not hold any Registrable Securities shall be
allocated to the remaining Investors, pro rata based on the number of shares of
Registrable Securities then held by such Investors. For the avoidance of doubt,
the number of Registrable Securities held by an Investor shall be determined as
if all Preferred Shares and Warrants then outstanding and held by an Investor
were converted into or exercised for Registrable Securities.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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<PAGE>
IN WITNESS WHEREOF, the Company and the undersigned Initial Investors
have caused this Agreement to be duly executed as of the date first above
written.
THE ASHTON TECHNOLOGY GROUP, INC.
By: /s/ Arthur J. Bacci
-------------------------------------
Arthur J. Bacci
President
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P., Investment Manager
By: RGC General Partner Corp., as General Partner
By: /s/ Wayne D. Bloch
-------------------------------------
Wayne D. Bloch
Managing Director
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<PAGE>
EXHIBIT 99.1
Thursday August 19, 11:09 am Eastern Time
Company Press Release
Ashton Technology Group, Inc. Completes $20 Million Private Placement
PHILADELPHIA--(BUSINESS WIRE)--Aug. 19, 1999--The Ashton Technology Group, Inc.
(NASDAQ Small Cap: ASTN - news) today announced completion of a $20 million
private placement of its Series F Convertible Preferred Stock through a sale to
an investment fund managed by Rose Glen Capital Management L.P., Bala Cynwyd,
PA.
``The funding from this financing combined with existing cash on hand
significantly strengthens our balance sheet,'' said Arthur Bacci, Ashton's
President and Chief Financial Officer. ``The rapid pace of change in the
financial services market underscores our strategy of developing advanced
technology to enhance doing business in this environment. The additional funds
will enable us to accelerate development of our trading systems which we
anticipate will form the technical backbone of NextExchange as well as our
transactional web site, eMC(TM) , which will be targeted at mid-sized financial
institutions seeking to electronically distribute products and services.''
The private placement consists of 20,000 shares of preferred stock and warrants
to purchase 200,000 shares of Ashton common stock.
The preferred stock is convertible into common shares of Ashton at a conversion
price of 110% of the average closing bid price of Ashton's common stock during
the ten trading days ended August 17, 1999, subject to certain adjustments based
upon the future market price of Ashton's common stock.
The preferred stock is subject to redemption at the Company's option if the
market price of the common stock falls below certain thresholds. The exercise
price of the warrants is $12.26 per share (125% of the average closing bid price
of Ashton's common stock during the ten trading days ended August 17, 1999).
Ashton has agreed to register, under the Securities Act of 1933, the resale of
the common stock issuable upon conversion of the preferred stock and exercise of
the warrants.
Rose Glen Management L.P. was established in 1996 to make direct investments in
public companies. Since inception, assets under management have grown to
approximately $500 million. Rose Glen invests in publicly-traded companies with
promising growth potential and superior management.
The Ashton Technology Group, Inc. is developing a family of on-line transaction
systems using advanced telecommunication technologies, computing technologies,
together with data and information security technologies to facilitate global
financial transactions.
Ashton's proprietary transaction systems are made available to end users through
proprietary networks, third parties, and the Internet.
The forgoing news release contains forward looking statements based on current
management expectations, including the expected use of proceeds, projected costs
of technology development, changes in business strategy and development plans,
and the performance of the Company's common stock.
A discussion of other factors, which may cause actual results to differ from
current expectations, can be found in Ashton's reports filed with the SEC.
Contact:
The Ashton Technology Group, Inc.
Christine A. Geisser, Director of Corporate Relations
215/751-1900
Telefax: 215/636-3560.
Website: www.ashtontechgroup.com.
or
Siegel & Gale
Press Contact:
Fraser P. Seitel, 201/784-8880
Telefax: 201/784-1446.
