================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------------------
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of report (Date of earliest event reported): September 5, 1997
IDT CORPORATION
---------------
(Exact name of Registrant as Specified in its Charter)
Delaware 0-27898 22-3415036
- ---------------------------- --------------------- --------------------------
(State or Other Jurisdiction (Commission File No.) (IRS Employer
of Incorporation) Identification No.)
294 State Street, Hackensack, New Jersey 07601 07601
---------------------------------------------- ----------
(Address of Principal Executive Offices) (Zip Code)
(201) 928-1000
----------------------------------------------------
(Registrant's Telephone Number, Including Area Code)
Page 1 of 5 Pages
Exhibit Index Located on Page 5
================================================================================
<PAGE>
INFORMATION TO BE INCLUDED IN REPORT
Item 5. Other Events.
On September 5, 1997 (the "Closing Date"), the Registrant entered
into a Securities Purchase Agreement (the "Purchase Agreement") with a small
group of institutional investors (the "Investors") pursuant to which the
Investors purchased Convertible Debentures totaling in principal amount to
$7,500,000 (the "Debentures"). The Debentures carry an interest rate of three
percent per annum from the Closing Date until maturity, acceleration, prepayment
or redemption.
The Debentures were sold in a private placement pursuant to
provisions of Regulation D promulgated by the Securities and Exchange Commission
(the "SEC") under the Securities Act of 1933, as amended (the "Act"). The
Registrant will utilize the net proceeds from the sale of the Debentures for
working capital and general corporate purposes.
Commencing on the earlier of 90 days from the Closing Date or the
effective date of a registration statement filed to effect a registration of the
securities underlying the Debentures, the Debentures, including the principal
amount and all unpaid accrued interest, are convertible into common stock, $.01
par value per share (the "Common Stock"), of the Registrant at the option of
each Investor at a conversion price (the "Conversion Price") equal to the lower
of $15.16 per share (125% of the Closing bid price of the Common Stock on the
Closing Date) or the lowest closing price on any one trading day during the
twelve consecutive trading day period preceding the date that notice of
conversion is given to the Registrant. The Investor may elect to convert all or
any part of the unpaid principal amount, provided that the Investor must elect
to convert at least $50,000 in principal amount, unless such lesser amount as
shall remain unpaid. Any principal amount or unpaid accrued interest outstanding
on September 5, 2000 will be automatically converted into shares of Common
Stock. The Registrant has agreed to reserve a sufficient number of authorized
and unissued shares of Common Stock to provide for the issuance of Common Stock
upon conversion of the Debentures. As of the Closing Date, the Registrant has
reserved 1,363,367 shares.
The Registrant has agreed to prepare and file a registration
statement on the Common Stock underlying the conversion of the Debentures within
thirty days of the Closing Date.
The above discussion is qualified in its entirety by the Purchase
Agreement, the Registration Agreement, and the form of Debenture. All of the
above documents are attached as exhibits to this report.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Businesses Acquired.
Not applicable.
(b) Pro Forma financial Information.
Not applicable.
2
<PAGE>
(c) Exhibits.
Exhibit Description
No. -----------
---
10.1 Securities Purchase Agreement dated as of September 5,
1997 among IDT Corporation, RGC International
Investors, LDC, Pangaea Fund Ltd., Special Situations
Private Equity Fund, L.P. and Halifax Fund L.P.
10.2 Registration Rights Agreement dated as of September 5,
1997 among IDT Corporation, RGC International
Investors, LDC, Pangaea Fund Ltd., Special Situations
Private Equity Fund, L.P. and Halifax Fund L.P.
10.3 Form of Debenture.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
IDT CORPORATION
By /s/ Howard S. Jonas
------------------------------------------
Howard S. Jonas
Chairman and Chief Executive Officer
Date: September 19, 1997
4
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
10.1 Securities Purchase Agreement dated as of September 5, 1997 among
IDT Corporation, RGC International Investors, LDC, Pangaea Fund
Ltd., Special Situations Private Equity Fund, L.P. and Halifax
Fund L.P.
10.2 Registration Rights Agreement dated as of September 5, 1997 among
IDT Corporation, RGC International Investors, LDC, Pangaea Fund
Ltd., Special Situations Private Equity Fund, L.P. and Halifax
Fund L.P.
10.3 Form of Debenture.
5
Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of September 5,
1997, by and among IDT Corporation, a Delaware corporation, with headquarters
located at 190 Main Street, Hackensack, New Jersey 07601 ("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 Rule 506
under Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 Act");
B. The Buyers desire to purchase and the Company desires to issue and
sell, upon the terms and conditions set forth in this Agreement, convertible
debentures of the Company, in the form attached hereto as Exhibit "A", in the
aggregate principal amount of Seven Million Five Hundred Thousand Dollars
($7,500,000), 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 such debentures;
C. Each Buyer wishes to purchase, upon the terms and conditions stated in
this Agreement, such convertible debentures of the Company in the principal
amount set forth immediately below its name on the signature pages hereto;
D. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as Exhibit "B" (the "Registration Rights Agreement"),
pursuant to which the Company has agreed to provide certain registration rights
under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws; and
NOW THEREFORE, the Company and each of the Buyers (severally and not
jointly) hereby agree as follows:
1. PURCHASE AND SALE OF DEBENTURES.
a. Purchase of Debentures. The Company shall issue and sell to
each Buyer and each Buyer severally agrees to purchase from the Company such
principal amount of convertible debentures as is set forth immediately below
such Buyer's name on the signature pages hereto (collectively, together with any
debenture(s) issued in replacement thereof or as a dividend thereon or otherwise
with respect thereto in accordance with the terms thereof, the
<PAGE>
"Debentures") for an aggregate principal amount of Seven Million Five Hundred
Thousand Dollars ($7,500,000).
b. Form of Payment. On the Closing Date (as defined below), (i)
each Buyer shall pay the purchase price for the Debentures to be issued and sold
to it (the "Purchase Price") 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 the Debentures in the principal
amount equal to the Purchase Price, and (ii) the Company shall deliver such
Debentures duly executed on behalf of the Company, to the 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 Debentures pursuant to this Agreement (the
"Closing Date") shall be 12:00 noon Eastern Standard Time on September 5, 1997
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 the Company, or at such other location as may be agreed to be
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:
a. Investment Purpose. As of the date hereof, the Buyer is
purchasing the Debentures and the shares of Common Stock issuable upon
conversion thereof (the "Conversion Shares" and, collectively with the
Debentures, the "Securities") for its own account for investment only and not
with a view towards the public sale or distribution thereof, except pursuant to
sales registered or exempted 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.
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
2
<PAGE>
or its advisors. The Buyer and its advisors, if any, have been afforded
the opportunity to ask questions of the Company and have received what the
Buyer believes to be satisfactory answers to any such inquiries. 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 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.
f. Transfer or Resale. The Buyer understands that (i) except as
provided in the Registration Rights Agreement, the Securities have not been and
are not being registered under the 1933 Act or any applicable state securities
laws, and may not be transferred unless (a) subsequently included in an
effective registration statement thereunder, or (b) the Buyer shall have
delivered to the Company an opinion of counsel (which opinion shall be
reasonably acceptable 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 or (c) sold pursuant to Rule 144 promulgated under the 1933
Act (or a successor rule); (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 resale 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,
provided that such transaction complies with applicable securities laws.
g. Legends. The Buyer understands that the Debentures and, until
such time as the Conversion Shares have been registered under the 1933 Act as
contemplated by the Registration Rights Agreement, the Conversion 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 have been acquired for investment and may not be sold,
transferred or assigned in the absence of an effective registration
3
<PAGE>
statement for the securities under said Act, or an opinion of
counsel, in form, substance and scope reasonably acceptable 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 (b) such holder provides the Company with
an opinion of counsel, in form, substance and scope reasonably acceptable to the
Company, to the effect that a public sale or transfer of such Security may be
made without registration under the 1933 Act or (c) such holder provides the
Company with reasonable assurances that such Security can be sold pursuant to
Rule 144 under the 1933 Act (or a successor rule thereto) without any
restriction as to the number of Securities acquired as of a particular date that
can then be immediately sold. 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.
h. Authorization; Enforcement. This Agreement and the
Registration Rights Agreement have been duly and validly authorized, executed
and delivered on behalf of the Buyer and are valid and binding agreements of the
Buyer enforceable in accordance with their terms except as such enforceability
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium,
liquidation or similar laws relating to, or affecting generally, the enforcement
of creditors' rights and remedies or by other equitable principles of general
application.
i. Residency. The Buyer is a resident of the jurisdiction set
forth immediately below such Buyer's name on the signature pages hereto.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Buyer 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 power and authority (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. 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 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
4
<PAGE>
Effect" means any material adverse effect on the operations, assets,
financial condition or reasonably foreseeable prospects of the Company or its
Subsidiaries, if any, taken as a whole, or on the transactions contemplated
hereby or by the agreements or instruments to be entered into in connection
herewith. "Subsidiaries" means any corporation or other organization, whether
incorporated or unincorporated, in which the Company owns, directly or
indirectly, any majority equity or other ownership interest.
b. Authorization; Enforcement. (i) The Company has all requisite
corporate power and authority to enter into and perform this Agreement, the
Registration Rights Agreement and the Debentures 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 Debentures by the
Company and the consummation by it of the transactions contemplated hereby and
thereby (including without limitation, the issuance of the Debentures and the
issuance and reservation for issuance of the Conversion Shares issuable upon
conversion thereof) have been duly authorized by the Company's Board of
Directors and no further consent or authorization of the Company, its Board of
Directors, or its shareholders 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 Debentures, each of such instruments will constitute, a legal, valid and
binding obligation of the Company enforceable against the Company in accordance
with its terms except as such enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium, liquidation or similar laws
relating to, or affecting generally, the enforcement of creditors' rights and
remedies or by other equitable principles of general application.
c. Capitalization. As of the date hereof, the authorized capital
stock of the Company consists of (i) 100,000,000 shares of Common Stock of which
10,636,961 shares are issued and outstanding, 3,488,709 shares are reserved for
issuance pursuant to the Company's stock option plans, approximately 259,004
shares are reserved for issuance pursuant to securities (other than the
Debentures) exercisable for, or convertible into or exchangeable for shares of
Common Stock and 1,363,367 shares are reserved for issuance upon conversion of
the Debentures (subject to adjustment pursuant to the Company's covenant set
forth in Section 4(h) below); (ii) 35,000,000 shares of Class A Common Stock,
par value $.01 per share, of which 11,174,330 shares are issued and outstanding;
and (iii) 10,000,000 shares of preferred stock, par value $.01 share, none of
which shares are issued and outstanding. All of such outstanding shares of
capital stock are, or upon issuance will be, duly authorized, validly issued,
fully paid and nonassessable. 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. 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
5
<PAGE>
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 in any agreement providing rights to security holders) that will
be triggered by the issuance of the Debentures or Conversion 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. The Company shall provide the Buyer with a written update of
this representation signed by the Company's Chief Executive or Chief Financial
Officer on behalf of the Company as of the Closing Date.
d. Issuance of Shares. The Conversion Shares are duly authorized
and, upon issuance in accordance with the terms of this Agreement (including the
issuance of the Conversion Shares upon conversion of the Debentures in
accordance with the terms thereof) will be validly issued, fully paid and
non-assessable, and free from all taxes, liens and charges with respect to the
issue thereof and shall not be subject to preemptive rights or other similar
rights of stockholders of the Company. The term Conversion Shares includes the
shares of Common Stock issuable upon conversion of the Debentures, including
without limitation, such additional shares, if any, as are issuable as a result
of the events described in Section 2(c) of the Registration Rights Agreement.
The Company understands and acknowledges the potentially dilutive effect to the
Common Stock of the issuance of the Conversion Shares upon conversion of the
Debentures. The Company further acknowledges that its obligation to issue
Conversion Shares upon conversion of the Debentures in accordance with this
Agreement and the Debentures is absolute and unconditional regardless of the
dilutive effect that such issuance may have on the ownership interests of other
stockholders of the Company.
e. No Conflicts. The execution, delivery and performance of this
Agreement and the Registration Rights Agreement by the Company and the
consummation by the Company of the transactions contemplated hereby and thereby
(including, without limitation, the issuance and reservation for issuance of the
Conversion 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 agreement, indenture or instrument to which
the Company or any of its Subsidiaries is a party, or result in a violation of
any law, rule, regulation, order, judgment or decree (including federal and
state securities laws and regulations) applicable to the Company or any of its
Subsidiaries or by which any
6
<PAGE>
property or asset of the Company or any of its Subsidiaries is bound or
affected (except for such conflicts, 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
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 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 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 except where such
violation would not 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 or governmental agency or any regulatory or self regulatory agency in
order for it to execute, deliver or perform any of its obligations under this
Agreement, the Registration Rights Agreement or the Debentures in accordance
with the terms hereof or thereof. Except as disclosed in Schedule 3(e), 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 National 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.
f. SEC Documents, Financial Statements. Since March 15, 1996, 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 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) incorporated by reference therein, being hereinafter referred to
herein as the "SEC Documents"). The Company has delivered to each Buyer true and
complete copies of the SEC Documents, except for such exhibits and incorporated
documents. As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the 1934 Act and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they
7
<PAGE>
were made, not misleading. As of their respective dates, the financial
statements of the Company included in the SEC Documents complied as to form in
all material respects with applicable accounting requirements and the published
rules and regulations of the SEC with respect thereto. Such financial statements
have been prepared in accordance with generally accepted accounting principles,
consistently applied, during the periods involved (except (i) as may be
otherwise indicated in such financial statements or the notes thereto, or (ii)
in the case of unaudited interim statements, to the extent they may 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 July
31, 1996 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.
g. Absence of Certain Changes. Since July 31, 1996, there has
been no material adverse change in the assets, liabilities, business,
properties, operations, financial condition, results of operations or reasonably
foreseeable prospects of the Company or any of its Subsidiaries.
h. 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 that could have a Material
Adverse Effect. Schedule 3(h) contains a complete list and summary description
of any pending or threatened proceeding against or affecting the Company or any
of its Subsidiaries, without regard to whether it would have a Material Adverse
Effect.
i. Patents, Copyrights, etc. The Company and each of its
Subsidiaries owns or possesses the requisite licenses or rights to use all
patents, patent rights, inventions, know-how, trade secrets, trademarks, 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(i) 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(i)
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
8
<PAGE>
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.
j. [Intentionally Omitted]
k. Tax Status. Except as set forth on Schedule 3(k), the Company
and each of its Subsidiaries has made or filed all federal and state income and
all other tax returns, reports and declarations required by any jurisdiction to
which it is subject (unless and only to the extent that the Company and each of
its Subsidiaries has set aside on its books provisions reasonably adequate for
the payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books 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.
l. Certain Transactions. Except as disclosed 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.
m. 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, reasonably foreseeable prospects, operations or financial
conditions, which, under applicable
9
<PAGE>
law, rule or regulation, requires public disclosure or announcement by the
Company but which has not been so publicly announced or disclosed.
n. 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 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 any advice given by any Buyer or any of their respective
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is merely incidental to the Buyers, purchase of the
Securities. 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.
o. 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 in 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) which requires stockholder
approval under the rules of The Nasdaq Stock Market.
p. 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 Tanner Unman Securities, Inc., whose
commissions and fees will be paid for by the Company.
q. 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 (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 except for such Company
Permits the failure of which to possess, or the cancellation or suspension of
which, would not, individually or in the aggregate, have a Material Adverse
Effect. 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 July 31,
1996, 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.
10
<PAGE>
r. Environmental Matters.
(i) Except as set forth in Schedule 3(r), there are, to the
Company's knowledge, with respect to the Company or any of its 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.
(ii) Other than those that are or were stored, used or disposed
of in compliance with applicable law, to the Company's knowledge, no Hazardous
Materials are contained on or about any real property currently owned, leased or
used by the Company or any of its Subsidiaries, and no Hazardous Materials were
released on or about any real property previously owned, leased or used by the
Company or any of its Subsidiaries during the period the property was owned,
leased or used by the Company or any of its Subsidiaries, except in the normal
course of the Company's or any of its Subsidiaries' business.
(iii) Except as set forth in Schedule 3(r), to the Company's
knowledge, there are no underground storage tanks on or under any real property
owned, leased or used by the Company or any of its Subsidiaries that are not in
compliance with applicable law.
s. Title to Property. The Company and its Subsidiaries have good
and marketable title in fee simple to all real property and good 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(s) 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.
11
<PAGE>
t. 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.
u. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, int
he 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 for assets is compared with
the existing assets at reasonable intervals and appropriate action is taken with
respect to any differences.
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 action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Buyers at the
applicable 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.
12
<PAGE>
d. Use of Proceeds. The Company shall use the proceeds from the
sale of the Debentures for working capital and general corporate purposes 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).
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) that involves (A) the issuance of Common Stock at a discount
to the market price of the Common Stock on the date of issuance or (B) the
issuance of convertible securities that are convertible into an indeterminate
number of shares of Common Stock during the period (the "Lock-up Period")
beginning on the Closing Date and ending on the later of (i) ninety (90) days
from the Closing Date and (ii) thirty (30) days from the date the Registration
Statement (as defined in the Registration Rights Agreement) is declared
effective. 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 fifty (150) 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 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 aggregate principal
amount of Debentures purchased by it hereunder bears to the aggregate principal
amount of Debentures 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 and the immediately preceding sentence are
collectively referred to as the "Capital Raising Limitations"). In the event
that one or more Buyers agree to purchase their pro rata portion of the
securities offered in a Future Offering (each a "Future Offering Buyer") but the
remaining Buyers do not wish to purchase their pro rata portion of the
securities offered in such Future Offering, each Future Offering Buyer shall be
given the option to purchase its pro rata portion of the remaining portion of
such Future Offering (based on the ratio that the aggregate principal amount
purchased by each future Offering Buyer hereunder bears to the aggregate
principal amount of Debentures purchased by all Future Offering Buyers) and any
other remaining portions of such Future Offering not purchased by such other
Future Offering Buyers. 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 sale 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,
13
<PAGE>
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 the Company's disinterested directors.
f. Expenses. Each party to this Agreement shall bear its own
expenses, whether or not the transactions contemplated hereby are consummated.
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-K, its Quarterly Reports on Form 10-Q and
any Current Reports on Form 8-K; (ii) within two (2) days 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
Debentures and issuance of the Conversion Shares in connection therewith (based
on the Conversion Price of the Debentures in effect from time to time). The
Company shall not reduce the number of shares of Common Stock reserved for
issuance upon conversion of Debentures without the consent of each Buyer, which
consent will not be unreasonably withheld. 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 one and one-half (1 1/2) times the number
that is then actually issuable upon full conversion of the Debentures (based on
the Conversion Price of the Debentures 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
the Debentures (based on the Conversion Price then in effect), 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 shareholders 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 shareholder approval of
an increase in such authorized number of shares.
i. Listing. The Company shall promptly secure the listing of the
Conversion Shares upon each national securities exchange or automated quotation
system, if any, upon which shares of Common Stock are then listed (subject to
official notice of issuance) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all Conversion Shares from time
to time issuable upon conversion of the Debentures. The Company will obtain and
maintain the listing and trading of its Common Stock on Nasdaq, the Nasdaq
SmallCap Market ("Nasdaq SmallCap"), the New York Stock Exchange ("NYSE"),
14
<PAGE>
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 regarding the continued eligibility of the
Common Stock for listing on Nasdaq.
j. Corporate Existence. So long as a Buyer beneficially owns any
Debentures, 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 surviving or successor entity in such transaction (i) assumes
the Company's obligations hereunder and under the agreements and instruments
entered into in connection herewith and (ii) is a publicly traded corporation
whose Common Stock is listed for trading on Nasdaq, Nasdaq SmallCap, NYSE or
AMEX.
k. 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, 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 fiscal year ended July
31, 1996 and does not anticipate or know of any basis upon which its auditors
might issue a qualified opinion in respect of its fiscal year ended July 31,
1997.
l. Other Equity Issuances. In the event that the Company issues
shares of Common Stock (or securities convertible into Common Stock), which
Common Stock is eligible for public resale within eighteen (18) months of the
Closing Date, with any terms more favorable than any of the conversion terms
applicable to the Debentures issued pursuant to this Agreement, then the
applicable conversion terms of the Debentures will, at the Buyer's option, be
modified to reflect such more favorable terms.
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 in such amounts as
specified from time to time by each Buyer to the Company upon proper conversion
of the Debentures (the "Irrevocable Transfer Agent Instructions"). Prior to
registration of the Conversion Shares under the 1933 Act, all such certificates
shall bear the restrictive legend specified in Section 2(g) of this Agreement.
The Company warrants that no instruction other than the Irrevocable Transfer
Agent Instructions referred to in this Section 5, and stop transfer instructions
to give effect to Section 2(f) hereof (in the case of the Conversion Shares,
prior to registration of the Conversion Shares under the 1933 Act), will be
given by the Company to its transfer agent and that the
15
<PAGE>
Securities shall otherwise be freely transferable on the books and records
of the Company as and to the extent provided in this Agreement and the
Registration Rights Agreement. Nothing in this Section shall affect in any way
the Buyer's obligations and agreement set forth in Section 2(g) hereof to comply
with all applicable prospectus delivery requirements, if any, upon resale of the
Securities. If a Buyer provides the Company with an opinion of counsel,
reasonably satisfactory to the Company in form, substance and scope, that
registration of a resale by such Buyer of any of the Securities is not required
under the 1933 Act, the Company shall permit the transfer, and, in the case of
the Conversion Shares, promptly instruct its transfer agent to issue one or more
certificates in such name and in such denominations as specified by such Buyer.
The Company acknowledges that a breach by it of its obligations hereunder will
cause irreparable harm to the Buyers, by vitiating the intent and purpose of the
transaction contemplated hereby. Accordingly, the Company acknowledges that the
remedy at law for a breach of its obligations under this Section 5 will be
inadequate and agrees, in the event of a breach or threatened breach by the
Company of the provisions of this Section, that the Buyers shall be entitled, in
addition to all other available remedies, to an injunction restraining any
breach and requiring immediate transfer, without the necessity of showing
economic loss and without any bond or other security being required.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of
the Company hereunder to issue and sell the Debentures 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 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), 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.
d. 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.
16
<PAGE>
7. CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The obligation
of each Buyer hereunder to purchase the Debentures 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.
b. The Company shall have delivered to such Buyer duly executed
Debentures (in such denominations as the Buyer shall request) in accordance with
Section 1(b) above.
c. 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.
d. 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) 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 chief executive
officer 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.
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.
f. The Conversion Shares shall have been authorized for quotation
on Nasdaq and trading in the Common Stock on Nasdaq shall not have been
suspended by the SEC or Nasdaq.
g. 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 "C"
attached hereto.
17
<PAGE>
h. 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.
a. Governing Law. This Agreement shall be governed by and
interpreted in accordance with the laws of the State of Delaware without regard
to the principles of conflict of laws. The parties hereto hereby submit to the
exclusive jurisdiction of the United States Federal Courts located in Delaware
with respect to any dispute arising under this Agreement, the agreements entered
into in connection herewith or the transactions contemplated hereby or thereby.
b. Counterparts; Signatures by Facsimile. This Agreement may be
executed in two or more counterparts, all of which shall be considered one and
the same agreement and shall become effective when counterparts have been signed
by each party and delivered to the other party. This Agreement, once executed by
a party, may be delivered to the other 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 U.S. 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:
18
<PAGE>
If to the Company:
IDT Corporation
190 Main Street
Hackensack, New Jersey 07601
Facsimile: (201) 907-5165
With copy to:
Morrison & Foerster LLP
1290 Avenue of the Americas
New York, New York 10104
Attention: Ira Greenstein, Esq.
Facsimile: (212) 468-7900
If to a Buyer: To the address set forth immediately below such
Buyer's name on the signature pages hereto.
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 from a Buyer or to any of its "affiliates," as that term is defined
under the 1934 Act, without the consent of the Company.
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. The representations and warranties of the Company
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.
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, SEC, Nasdaq or NASD filings, 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 SEC, Nasdaq or NASD filings with respect to
19
<PAGE>
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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
20
<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.
IDT CORPORATION
By: /s/ James Courter
-----------------
James Courter
President
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P., as General Partner
By: RGC General Partner Corp.
By: /s/ Steven Katznelson
---------------------
Steven Katznelson
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:
Aggregate Purchase Price: $4,000,000
21
<PAGE>
PANGAEA FUND LTD.
By: /s/ Rhonda McDeigan-Eldridge
----------------------------
Rhonda McDeigan-Eldridge
President
RESIDENCE: Bahamas
ADDRESS:
Windermere House
404 East Bay Street
P.O. Box SS-6238
Nassua, Bahamas
Facsimile: (242) 394-3284
Telephone: (242) 393-8777
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Purchase Price: $1,000,000
22
<PAGE>
SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.
By: /s/ David Greenhouse
--------------------
David Greenhouse
Managing Director
RESIDENCE: New York
ADDRESS:
153 East 53rd Street
New York, NY 10022
Facsimile: (212) 832-6141
Telephone: (212) 832-5300
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Purchase Price: $1,500,000
23
<PAGE>
HALIFAX FUND, L.P.
By: Palladin Group L.P., as attorney-in-fact
By: Palladin Capital Management LLC, its general partner
By: /s/ Andrew Kaplan
-----------------
Andrew Kaplan
Senior Vice President
RESIDENCE: Cayman Islands
ADDRESS:
c/o Palladin Group L.P.
40 West 57th Street
New York, New York 10019
Facsimile: (212) 698-0599
Telephone: (212) 698-0515
AGGREGATE SUBSCRIPTION AMOUNT:
Aggregate Purchase Price: $1,000,000
24
Exhibit 10.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of September 5,
1997, by and among IDT Corporation, a Delaware corporation, with headquarters
located at 190 Main Street, Hackensack, New Jersey 07601 (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 convertible debentures (the
"Debentures") that are convertible into shares (the "Conversion Shares") of the
Company's common stock (the "Common Stock"), upon the terms and subject to the
limitations and conditions set forth in such Debentures; 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:
<PAGE>
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 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 the Conversion Shares issued
or issuable and 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.
(iv) "Registration Statement" means a registration statement 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 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 underlying the Debentures issued or
issuable pursuant to the Securities Purchase Agreement, which Registration
Statement, to the extent allowable under the 1933 Act and the Rules promulgated
thereunder (including Rule 416), shall state that such Registration Statement
also covers such indeterminate number of additional shares of Common Stock as
may become issuable upon conversion of the Debentures (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 Debentures in accordance with
the terms thereof. The number of shares of Common Stock initially included in
such Registration Statement shall be no less than one and one-half (1 1/2)
2
<PAGE>
times the sum of the number of Conversion Shares that are then issuable upon
conversion of the Debentures without regard to any limitation on the Investor's
ability to convert the Debentures.
b. [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. 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 within one hundred twenty (120) days after the Closing Date
or if, after the Registration Statement has been declared effective by the SEC,
sales cannot be made pursuant to the Registration Statement, or (ii) the Common
Stock is not listed or included for quotation on the Nasdaq National Market
("Nasdaq"), the Nasdaq SmallCap Market ("Nasdaq SmallCap"), 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 Debentures or
Registerable Securities an amount equal to the then outstanding principal amount
of the Debentures (and, in the case of holders of Registerable Securities, the
principal amount of Debentures from which such Registerable Securities were
converted) ("Outstanding Principal Amount") multiplied by two and one-half
hundredths (.025) times the sum of: (i) the number of months (prorated for
partial months) after the end of such 120-day period 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) that sales 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, but excluding Allowed
Delays (as defined below)); and (iii) the number of months (prorated for partial
months) that the Common Stock is not listed or included for quotation on the
Nasdaq, Nasdaq SmallCap, NYSE or AMEX or that trading thereon is halted after
the Registration Statement has been declared effective. (For example, if the
Registration Statement becomes effective one (1) month after the end of such
120-day period, the Company would pay $25,000 for each $1,000,000 of Outstanding
Principal Amount. If thereafter, sales could not be made pursuant to the
Registration Statement for an additional period of one (1) month, the Company
would pay an additional $25,000 for each $1,000,000 of Outstanding Principal
Amount.) Such amounts shall be paid in cash or, at each Investor's option, may
be added to the principal amount of the Debentures and thereafter be convertible
into Common Stock at the
3
<PAGE>
"Conversion Price" (as defined in the Debentures) in accordance with the terms
of the Debentures. 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 under Article I of the Debentures),
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 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), 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, 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; provided, however, that the Company shall not exclude any
Registrable Securities unless the Company has first excluded all outstanding
securities, the holders of which are not entitled 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 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 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
4
<PAGE>
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. Notwithstanding
anything to the contrary set forth herein, the registration rights of the
Investors pursuant to this Section 2(d) shall only be available in the event the
Company fails to timely file, obtain effectiveness or maintain effectiveness of
the 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 not
later than thirty (30) days after the Closing 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, and 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 without restriction (including without limitation as to
volume by each holder thereof) without registration 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. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the Registration
Statement and the prospectus used in connection with the Registration Statement
as may be necessary to keep the Registration Statement effective at all times
during the Registration Period, and, during such period, comply with the
provisions of the 1933 Act with respect to the disposition of all Registrable
Securities of the Company covered by the Registration Statement 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 Statement. In the event the number of shares available
under a Registration Statement filed pursuant to this
5
<PAGE>
Agreement is insufficient to cover all of the Registrable Securities issued or
issuable upon conversion of the Debentures, 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 all of the
Registrable Securities, 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. The provisions of Section 2(c)
above shall be applicable with respect to such obligation, with the one hundred
twenty (120) days running from the day after the date on which the Company
reasonably first determines (or reasonably should have determined) the need
therefor.
c. The Company shall furnish to each Investor whose Registrable
Securities are included in the 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 the 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 the 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 any Registration
Statement or any amendment thereto to be declared effective by the SEC as soon
as practicable and shall promptly 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 the 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 Statement under
such other securities or "blue 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
6
<PAGE>
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 the
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and use its best
efforts promptly to prepare a supplement or amendment to the 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 thirty (30) consecutive
trading days (or a total of not more than sixty (60) trading days in any twelve
(12) month period or thirty (30) trading days in any three (3) 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, 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
the 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 a 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.
h. The Company shall permit a single firm of counsel designated by
the Initial Investors to review the 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 the Registration Statement without
prior notice to such counsel. The sections of the Registration Statement
covering information with respect to the Investors, the Investor's beneficial
ownership of securities of the Company or the
7
<PAGE>
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 practical, 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. [Intentionally Omitted]
k. The Company shall make available for inspection by (i) any
Investor, (ii) one firm of attorneys and one firm of accountants or other agents
retained by the Initial Investors, and (iii) one firm of attorneys and one firm
of accountants or other agents retained by all other Investors (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 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 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
8
<PAGE>
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) secure the designation and
quotation, of all the Registrable Securities covered by the Registration
Statement on the Nasdaq or, if not eligible for the Nasdaq on the Nasdaq
SmallCap 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 the Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or 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. The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by the Investors of Registrable Securities
pursuant to the Registration Statement.
9
<PAGE>
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 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
Statement hereunder, unless such Investor has notified the Company in writing of
such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement.
c. In the event Investors holding a majority-in-interest of the
Registrable Securities being registered (with the approval of the Initial
Investors) determine to engage the services of an underwriter, each Investor
agrees to enter into and perform such Investor's obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Registrable Securities, unless such Investor has notified the Company in writing
of such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statement.
d. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(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
10
<PAGE>
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 and
the fees and disbursements of counsel for the Company, shall be borne by the
Company.
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
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
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
11
<PAGE>
Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a): (i) shall not apply to
a Claim arising out of or based upon a Violation which occurs in reliance upon
and in conformity with information furnished in writing to the Company by any
Indemnified Person or underwriter for such Indemnified Person expressly for use
in connection with the preparation of the Registration Statement or any such
amendment thereof or supplement thereto, if such prospectus was timely made
available by the Company pursuant to Section 3(c) hereof; (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 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, 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
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
12
<PAGE>
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 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)
13
<PAGE>
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"), the Company agrees to:
a. make and keep public information available, as those terms are
understood and defined in Rule 144;
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable by the
Investors to any transferee of all or any portion of Registrable Securities if:
(i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) 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.
14
<PAGE>
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 (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 U.S. 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:
IDT Corporation
190 Main Street
Hackensack, New Jersey 07601
Attention: Chief Executive Officer
Facsimile: (201) 907-5165
With copy to:
Morrison & Foerster LLP
1290 Avenues of the Americas
New York, New York 10104
Attention: Ira Greenstein, Esq.
Facsimile: (212) 468-7900
If to an Investor: to the address set forth immediately below such Investor's
name on the signature pages to the Securities Purchase Agreement.
15
<PAGE>
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 enforced, governed by and construed in
accordance with the laws of Delaware applicable to agreements made and to be
performed entirely within such State. 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. The parties hereto hereby submit to the exclusive jurisdiction of the
United States Federal Courts located in Delaware with respect to any dispute
arising under this Agreement or the transactions contemplated hereby.
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
16
<PAGE>
majority of the Registrable Securities, determined as if the all of the
Debentures then outstanding have been converted into for Registrable Securities.
k. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.
[REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]
17
<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.
IDT CORPORATION
By: /s/ James Courter
---------------------------------------------
James Courter
President
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P., as General Partner
By: RGC General Partner Corp.
By: /s/ Steven Katznelson
---------------------------------------------
Steven Katznelson
Managing Director
HALIFAX FUND, L.P.
By: Palladin Group L.P., as attorney-in-fact
By: Palladin Capital Management LLC, its general partner
By: /s/ Andrew Kaplan
---------------------------------------------
Andrew Kaplan
Senior Vice President
18
<PAGE>
PANGAEA FUND LTD.
By: /s/ Rhonda McDeigan-Eldridge
---------------------------------------------
Rhonda McDeigan-Eldridge
President
SPECIAL SITUATIONS PRIVATE EQUITY FUND, L.P.
By: /s/ David Greenhouse
---------------------------------------------
David Greenhouse
Managing Director
19
Exhibit 10.3
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND 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 IN FORM, SUBSTANCE AND SCOPE REASONABLY
ACCEPTABLE TO THE BORROWER THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144
UNDER SAID ACT.
CONVERTIBLE DEBENTURE
Hackensack, New Jersey
September 5, 1997 $_________
FOR VALUE RECEIVED, IDT CORPORATION, a Delaware corporation
(hereinafter called the "Borrower") hereby promises to pay to the order of
______________________________ or registered assigns (the "Holder") the sum
of ____________________ Dollars ($____________), on September 5, 2000, and to
pay interest on the unpaid principal balance hereof at the rate of three
percent (3%) per annum from September 5, 1997 (the "Issue Date") until the
same becomes due and payable, whether at maturity or upon acceleration or by
prepayment or otherwise. Any amount of principal of or interest on this
Debenture which is not paid when due shall bear interest at the rate of ten
percent (10%) per annum from the due date thereof until the same is paid
("Default Interest"). Interest shall commence accruing on September 5, 1997,
shall be computed on the basis of a 365-day year and the actual number of
days elapsed and shall be payable at the time of optional or automatic
conversion of the principal to which such interest relates in accordance with
Article I below. All payments of principal and accrued interest (to the
extent not converted into common stock, par value $.01 per share, of the
Borrower (the "Common Stock") in accordance with the terms hereof) shall be
made in lawful money of the United States of America. All payments shall be
made at such address as the Holder shall hereafter give to the Borrower by
written notice made in accordance with the provisions of
<PAGE>
this Debenture. Whenever any amount expressed to be due by the terms of
this Debenture is due on any day which is not a business day, the same shall
instead be due on the next succeeding day which is a business day and, in the
case of any interest payment date which is not the date on which this Debenture
is paid in full, the extension of the due date thereof shall not be taken into
account for purposes of determining the amount of interest due on such date. As
used in this Debenture, the term "business day" shall mean any day other than a
Saturday, Sunday or a day on which commercial banks in the city of New York, New
York are authorized or required by law or executive order to remain closed. Each
capitalized term used herein, and not otherwise defined, shall have the meaning
ascribed thereto in that certain Securities Purchase Agreement, dated September
5, 1997, pursuant to which this Debenture was originally issued (the "Purchase
Agreement"). The Automatic Conversion Date is subject to extension pursuant to
Section 1.4 below.
The following terms shall apply to this Debenture:
ARTICLE I. CONVERSION RIGHTS
1.1 Conversion Right.
The Holder shall have the right from time to time, and at any time
on or after the earliest of (i) ninety (90) days from the Issue Date, (ii) the
occurrence of an event described in Section 1.6, or (iii) the effective date of
registration statement to be filed pursuant to that certain Registration Rights
Agreement, dated as of September 5, 1997, executed in connection with the
initial issuance of this Debenture and the other Debentures issued on the Issue
Date (the "Registration Rights Agreement") and prior to the day that all of the
principal, accrued interest and other amounts payable hereunder are paid in
full, to convert at any time all or from time to time any part of the
outstanding and unpaid principal amount of this Debenture of at least $50,000,
or such lesser amount as shall remain unpaid at the time of the conversion
(together with accrued interest thereon, into fully paid and non-assessable
shares of Common Stock, as such Common Stock exists on the date of issuance of
this Debenture, or any shares of capital stock of Borrower into which such
Common Stock shall hereafter be changed or reclassified (the "Common Stock") at
the conversion price determined as provided herein (the "Conversion Price");
provided, however, that unless the Holder delivers a waiver in accordance with
the immediately following sentence, in no event (other than in connection with
an Automatic Conversion (as defined in Section 1.4 below) on the Automatic
Conversion Date (as defined in Section 1.4 below)) shall the Holder be entitled
to convert any portion of this Debenture in excess of that portion of this
Debenture upon conversion of which the sum of (1) 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 this Debenture) and (2) the number of shares of Common
Stock
2
<PAGE>
issuable upon the conversion of the portion of this Debenture with respect
to which the determination of this proviso is being made, would result in
beneficial ownership by the Holder and its affiliates of more than 4.9% of the
outstanding shares of Common Stock. For purposes of the first proviso to the
immediately preceding sentence, (i) beneficial ownership shall be determined in
accordance with Section 13(d) of the Securities Exchange Act of 1934, as
amended, and Regulation 13 D-G thereunder, except as otherwise provided in
clause (1) of such proviso and (ii) the Holder may waive the limitations set
forth therein by written notice to the Borrower upon not less than sixty-one
(61) days prior notice (with such waiver taking effect only upon the expiration
of such 61 day notice period). The number of shares of Common Stock to be issued
upon each conversion of this Debenture shall be determined by dividing the
Conversion Amount (as defined below) by the Conversion Price in effect on the
date a notice of conversion, in the form attached hereto as Exhibit A (the
"Notice of Conversion"), is delivered to the Borrower by the Holder in
accordance with Section 1.4 below (the "Conversion Date"). The term "Conversion
Amount" means, with respect to any conversion of this Debenture, the sum of (1)
the principal amount of this Debenture to be converted in such conversion plus
(2) accrued and unpaid interest, if any, on such principal amount at the
interest rates provided in this Debenture to the Conversion Date plus (3)
Default Interest, if any, on the interest referred to in the immediately
preceding clause (2) plus (4) at the Holder's option, any amounts owed to the
Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to Section 2(c) of
the Registration Rights Agreement.
1.2 Conversion Price. The Conversion Price shall be the lesser of
(i) the Market Price, where the Market Price means the Low Closing Bid Price (as
defined below) of the Common Stock on Nasdaq National Market ("Nasdaq"), or on
the principal securities exchange or other securities market on which the Common
Stock is then being traded, for any one Trading Day during the twelve (12)
consecutive Trading Day period ending one Trading Day prior to the date the
Conversion Notice is sent by the Holder to the Borrower via facsimile (the
"Conversion Date"), and (ii) $15.16 (subject, in each case, to equitable
adjustments for stock splits, stock dividends or rights offerings by the
Borrower relating to the Borrower's securities or the securities of any
subsidiary of the Borrower, combinations, recapitalization, reclassifications,
extraordinary distributions and similar events). "Low Closing Bid Price" means,
for any security as of any date, the lowest closing bid price on Nasdaq as
reported by Bloomberg, L.P. ("Bloomberg") or, if Nasdaq is not the principal
trading market for such security, the lowest 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
lowest 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
lowest trading price is reported for such security by Bloomberg, then the
average of the bid prices of any market makers for such security as reported in
the "pink sheets" by the National Quotation Bureau, Inc. If the Low Closing Bid
Price cannot be calculated for such security on such date on any of the
foregoing bases, the Low Closing Bid Price of such security on such date shall
be the fair market value as
3
<PAGE>
mutually determined by the Borrower and the Holders of a majority in
interest of Debentures being converted for which the calculation of the closing
bid price is required in order to determine the Conversion Price of such
Debentures. "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.
1.3 Authorized Shares. The Borrower covenants that during the period
the conversion right exists, the Borrower will reserve from its authorized and
unissued Common Stock a sufficient number of shares to provide for the issuance
of Common Stock upon the full conversion of this Debenture and the other
Debentures issued on the Issue Date. As of the date of issuance of this
Debenture, 1,363,367 authorized and unissued shares of Common Stock have been
duly reserved for issuance upon conversion of this Debenture and the other
Debentures issued on the Issue Date (the "Reserved Amount"). The Borrower
represents that upon issuance, such shares will be duly and validly issued,
fully paid and non-assessable. The Borrower (i) acknowledges that it has
irrevocably instructed its transfer agent to issue certificates for the Common
Stock issuable upon conversion of this Debenture and (ii) agrees that its
issuance of this Debenture shall constitute full authority to its officers and
agents who are charged with the duty of executing stock certificates to execute
and issue the necessary certificates for shares of Common Stock in accordance
with the terms and conditions of this Debenture.
If, at any time a Holder of this Debenture submits a Notice of
Conversion, the Borrower does not have sufficient authorized but unissued
shares of Common Stock available to effect such conversion in accordance with
the provisions of this Article I (a "Conversion Default"), subject to Section
5.8, the Borrower shall issue to the Holder all of the shares of Common Stock
which are then available to effect such conversion. The portion of this
Debenture which the Holder included in its Conversion Notice and 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 Borrower, at which
time the Conversion Price in respect thereof shall be the lower of (i) the
Conversion Price on the Conversion Default Date (as defined below) and (ii)
the Conversion Price on the Conversion Date thereafter elected by the Holder
in respect thereof. The Borrower shall pay to the Holder payments
("Conversion Default Payments") for a Conversion Default in the amount of
(N/365) x .24 x the Excess Amount on the Conversion Date in respect of the
Conversion Default (the "Conversion Default Date"), where N = the number of
days from the Conversion Default Date to the date (the "Authorization Date")
that the Borrower authorizes a sufficient number of shares of Common Stock to
effect conversion of the full outstanding principal balance of this
Debenture. The Borrower shall use its best efforts to authorize a sufficient
number of shares of Common Stock as soon as practicable following the earlier
of (i) such time that the Holder notifies the Borrower or that the Borrower
4
<PAGE>
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. The Borrower 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 Payments for each calendar month shall be paid in cash or
shall be convertible into Common Stock (at such time as there are sufficient
authorized shares of Common Stock) at the Market Price, at the Holder's
option, as follows:
(a) In the event Holder elects to take such payment in cash, cash
payment shall be made to Holder by the fifth day of the month following the
month in which it has accrued; and
(b) In the event 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 day of the month following the month in which it has accrued (at such time
as there are sufficient authorized shares of Common Stock) in accordance with
the terms of this Article I.
The Holder's election shall be made in writing to the Borrower at
any time prior to 9:00 p.m., New York City Time, on the third 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) due to the Borrower's
failure to maintain a sufficient number of authorized shares of Common Stock.
1.4 Method of Conversion.
(a) Subject to Section 1.1, this Debenture may be converted by
the Holder in whole or in part (provided such partial conversion is at least
$50,000, or such lesser amount as shall remain unpaid at the time of the
conversion (together with accrued and unpaid interest thereon)) at any time from
time to time after the Issue Date, by (A) submitting to the Borrower a Notice of
Conversion (by facsimile or other reasonable means of communication dispatched
on the Conversion Date prior to 11:00 p.m., New York City Time) and (B) subject
to Section 1.4(b), surrendering this Debenture at the principal office of the
Borrower. So long as the registration statement filed pursuant to Section 2(a)
of the Registration Rights Agreement (the "Registration Statement") is effective
(or the Common Stock issuable upon conversion hereof may otherwise be resold
publicly without restriction) and there is not then a continuing Event of
Default, each Debenture issued and outstanding on September 5, 2000 (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 this Article I (the "Automatic
5
<PAGE>
Conversion"). 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.
Notwithstanding anything to the contrary contained herein, the Automatic
Conversion Date shall be extended for the aggregate number of days comprising
any Allowed Delays under the Registration Rights Agreement.
(b) Notwithstanding anything to the contrary set forth herein,
upon conversion of this Debenture in accordance with the terms hereof, the
Holder shall not be required to physically surrender this Debenture to the
Borrower unless the entire unpaid principal amount of this Debenture is so
converted. The Holder and the Borrower shall maintain records showing the
principal amount so converted and the dates of such conversions or shall use
such other method, reasonably satisfactory to the Holder and the Borrower, so as
not to require physical surrender of this Debenture upon each such conversion.
In the event of any dispute or discrepancy, such records of the Borrower shall
be controlling and determinative in the absence of manifest error.
Notwithstanding the foregoing, if any portion of this Debenture is converted as
aforesaid, the Holder may not transfer this Debenture unless the Holder first
physically surrenders this Debenture to the Borrower, whereupon the Borrower
will forthwith issue and deliver upon the order of the Holder a new note of like
tenor, registered as the Holder (upon payment by the Holder of any applicable
transfer taxes) may request, representing in the aggregate the remaining unpaid
principal amount of this Debenture. The Holder and any assignee, by acceptance
of this Debenture, acknowledge and agree that, by reason of the provisions of
this paragraph, following conversion of a portion of this Debenture, the unpaid
and unconverted principal amount of this Debenture represented by this Debenture
may be less than the amount stated on the face hereof.
(c) The Borrower shall not be required to pay any tax which may
be payable in respect of any transfer involved in the issue and delivery of
shares of Common Stock or other securities or property on conversion of this
Debenture in a name other than that of the Holder (or in street name), and the
Borrower shall not be required to issue or deliver any such shares or other
securities or property unless and until the person or persons (other than the
Holder or the custodian in whose street name such shares are to be held for the
Holder's account) requesting the issuance thereof shall have paid to the
Borrower the amount of any such tax or shall have established to the
satisfaction of the Borrower that such tax has been paid.
(d) Upon receipt by the Borrower from the Holder of a facsimile
transmission (or other reasonable means of communication) of a Notice of
Conversion meeting the requirements for conversion as provided in this Section
1.4, the Borrower shall issue and deliver or cause to be issued and delivered to
the Holder certificates for the Common Stock issuable upon such conversion
within three (3) business days after such receipt (and, solely in the case of
conversion of the entire unpaid principal amount hereof,
6
<PAGE>
surrender of this Debenture) (such third business day being hereinafter
referred to as the "Deadline") in accordance with the terms hereof and the
Purchase Agreement (including, without limitation, in accordance with the
requirement that certificates for shares of Common Stock issued on or after the
effective date of the Registration Statement upon conversion of this Debenture
shall not bear any restrictive legend).
(e) Upon receipt by the Borrower of a Notice of Conversion, the
Holder shall be deemed to be the holder of record of the Common Stock issuable
upon such conversion, the outstanding principal amount and the amount of accrued
and unpaid interest on this Debenture shall be reduced to reflect such
conversion, and, unless the Borrower defaults on its obligations under this
Article I, all rights with respect to the portion of this Debenture being so
converted shall forthwith terminate except the right to receive the Common Stock
or other securities, cash or other assets, as herein provided, on such
conversion. If the Holder shall have given a Notice of Conversion as provided
herein, the Borrower's obligation to issue and deliver the certificates for
Common Stock shall be absolute and unconditional, irrespective of the absence of
any action by the Holder to enforce the same, any waiver or consent with respect
to any provision thereof, the recovery of any judgment against any person or any
action to enforce the same, any failure or delay in the enforcement of any other
obligation of the Borrower to the holder of record, or any setoff, counterclaim,
recoupment, limitation or termination, or any breach or alleged breach by the
Holder of any obligation to the Borrower, and irrespective of any other
circumstance which might otherwise limit such obligation of the Borrower to the
Holder in connection with such conversion. The date of receipt of such Notice of
Conversion shall be the Conversion Date so long as it is received before 11:00
p.m., New York City Time, on such date.
(f) In lieu of delivering physical certificates representing the
Common Stock issuable upon conversion, provided the Borrower'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 Section 1.1 and in this Section 1.4, the Borrower
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.
(g) Without in any way limiting the Holder's right to pursue
other remedies, including actual damages and/or equitable relief, the parties
agree that if delivery of the Common Stock issuable upon conversion of this
Debenture is more than one (1) business day after the Deadline (other than a
failure due to the circumstances described in Section 1.3 above, which failure
shall be governed by such Section) the Borrower shall pay to the Holder $500 per
day in cash, for each of the first two (2) days beyond the Deadline and $2,500
per day in cash for each day thereafter that the Borrower fails to deliver such
Common Stock. Such cash amount shall be paid to Holder by the fifth day of the
month
7
<PAGE>
following the month in which it has accrued or, at the option of the Holder
(by written notice to the Borrower by the first day of the month following
the month in which it has accrued), shall be added to the principal amount
of this Debenture, in which event interest shall accrue thereon in accordance
with the terms of this Debenture and such additional principal amount shall
be convertible into Common Stock in accordance with the terms of this
Debenture.
1.5 Concerning the Shares. The shares of Common Stock issuable upon
conversion of this Debenture may not be sold or transferred unless either (i)
such shares shall have been included in an effective registration statement
under the Act or (ii) the Borrower or its transfer agent shall have been
furnished with an opinion or other similar letter of legal counsel to the effect
that such sale or transfer is exempt from the registration requirements of the
Act or (iii) such shares are sold pursuant to Rule 144 under the Act (or a
successor rule). Except as otherwise provided in the Purchase Agreement (and
subject to the removal provisions set forth below), each certificate for shares
of Common Stock issuable upon conversion of this Debenture that has not been so
included in an effective registration statement or that has not been sold
pursuant to an effective registration statement or an exemption that permits
removal of the legend, shall bear a legend substantially in the following form,
as appropriate:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THE SECURITIES HAVE BEEN
ACQUIRED FOR INVESTMENT AND 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 IN FORM, SUBSTANCE AND SCOPE REASONABLY
ACCEPTABLE TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER SAID ACT
AND ANY APPLICABLE STATE SECURITIES LAWS OR UNLESS SOLD PURSUANT TO RULE 144
UNDER SAID ACT."
The legend set forth above shall be removed and the Borrower shall
issue to the Holder a new certificate therefor free of any transfer legend if
(i) the Borrower or its transfer agent shall have received an opinion or other
similar letter of counsel, to the effect that a public sale or transfer of such
Common Stock may be made without registration under the Act and any applicable
state securities laws and the shares are so sold or transferred, or that the
Common Stock issuable upon conversion of this Debenture (to the extent such
securities are deemed to have been acquired on the same date) can be sold
pursuant to Rule 144 (or a successor rule thereto) without any restriction as to
the number of shares of Common Stock acquired as of a particular date that can
then be immediately sold or (ii) in the case of the Common Stock issuable upon
conversion of this Debenture, a registration statement under the Act covering
such securities is in effect. Nothing in this Debenture shall (i) limit the
Borrower's obligation under the Registration Rights Agreement or (ii) affect in
8
<PAGE>
any way the Holder's obligations to comply with applicable prospectus delivery
requirements upon the resale of the securities referred to herein.
1.6 Effect of Certain Events.
(a) If, at any time when this Debenture is issued and
outstanding, 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 Borrower shall be changed into the same or a
different number of shares of another class or classes of stock or securities of
the Borrower or another entity, or in case of any sale or conveyance of all or
substantially all of the assets of the Borrower other than in connection with a
plan of complete liquidation of the Borrower, then the Holder of this Debenture
shall thereafter have the right to receive upon conversion of this Debenture,
upon the bases 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 Holder would have been entitled to
receive in such transaction had this Debenture been converted immediately prior
to such transaction, and in any such case appropriate provisions shall be made
with respect to the rights and interests of the Holder of this Debenture to the
end that the provisions hereof (including, without limitation, provisions for
adjustment of the Conversion Price and of the number of shares issuable upon
conversion of the Debenture) shall thereafter be applicable, as nearly as may be
practicable in relation to any securities or assets thereafter deliverable upon
the exercise hereof. The Borrower shall not effect any transaction described in
this Section 1.6 unless (a) it first gives, to the extent practicable, thirty
(30) days prior written notice (but in any event at least fifteen (15) 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 Holder shall be
entitled to convert this Debenture) and (b) the resulting successor or acquiring
entity (if not the Borrower) assumes by written instrument the obligations of
this Section 1.6(a). The above provisions shall similarly apply to successive
consolidations, mergers, sales, transfers or share exchanges.
(b) If the Borrower 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 Borrower's shareholders in cash or shares
(or rights to acquire shares) of capital stock of a subsidiary (i.e., a
spin-off) (a "Distribution")), the Holder of this Debenture shall be entitled,
upon any conversion of this Debenture 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.
9
<PAGE>
(c) If, at any time when any Debentures are issued and
outstanding, the Borrower 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 Holder of
this Debenture 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 this Debenture (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.
(d) Upon the occurrence of each adjustment or readjustment of the
Conversion Price as a result of the events described in this Section 1.6, the
Borrower, at its expense, shall promptly compute such adjustment or readjustment
and prepare and furnish to the Holder of a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Borrower shall, upon the written
request at any time of the Holder, 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 the Debenture.
1.7 Certain Payments in Lieu of Conversion. In no event shall the
Borrower issue more than the Maximum Share Amount (as defined below and subject
to adjustment as provided herein) upon conversion of this Debenture, unless the
Borrower shall have obtained Stockholder Approval (as defined below) or a waiver
of such requirement by the Nasdaq Stock Market. As used herein, Stockholder
Approval means approval by the stockholders of the Borrower in accordance with
Rule 4460(i) of the rules of the Nasdaq Stock Market. Once the Maximum Share
Amount has been issued (the date of which is hereinafter referred to as the
"Maximum Conversion Date"), unless the Borrower shall have obtained Stockholder
Approval or a waiver of such requirement by the Nasdaq Stock Market, in lieu of
any further right to convert this Debenture, and in full satisfaction of the
Borrower's obligations under this Debenture, the Borrower shall pay to the
Holder, within fifteen (15) business days of the Maximum Conversion Date, an
amount equal to the greater of (i) 130% times the sum of (a) the then
outstanding principal amount of this Debenture immediately following the Maximum
Conversion Date plus (b) accrued and unpaid interest on such principal amount
plus (c) accrued and unpaid Default Interest, if any, on the amount referred to
in the immediately preceding clause (b) at the rate provided in this Debenture
plus (d) any optional amounts that may be added thereto at the Maximum
Conversion Date by the Holder in accordance with the terms hereof (the then
outstanding principal amount of this Debenture immediately following the Maximum
Conversion Date plus the amounts referred to in clauses (b), (c) and (d) above
shall collectively be referred to as the "Remaining
10
<PAGE>
Convertible Amount"), or (ii) the Remaining Convertible Amount divided by
the Conversion Price (based on the twelve (12) consecutive Trading Days ending
on the Trading Day which is one (1) Trading Day prior to the date of payment)
multiplied by the Closing Price of the Common Stock on the Trading Day
immediately preceding the date of payment. The Maximum Share Amount shall mean
an aggregate of 4,360,077 shares of Common Stock (19.99% of the Borrower's
outstanding shares of Common Stock and Class A Common Stock, par value $.01 per
share, as of September 5, 1997), subject to equitable adjustment from time to
time for stock splits, stock dividends, combinations, capital reorganizations
and similar events relating to the Common Stock occurring after the date hereof.
With respect to each Holder of Debentures, the Maximum Share Amount shall refer
to such Holder's pro rata share thereof determined in accordance with Section
5.8 below. In the event that Borrower obtains Stockholder Approval, the approval
of the Nasdaq Stock Market or otherwise concludes that it is able to increase
the number of shares to be issued above the Maximum Share Amount (such increased
number being the "New Maximum Share Amount"), the references to Maximum Share
Amount, above, shall be deemed to be, instead, references to the greater New
Maximum Share Amount. In the event that Stockholder Approval is not obtained or
a registration statement covering the additional shares of Common Stock which
constitute the New Maximum Share Amount is not effective prior to the Maximum
Share Amount being issued (if such registration statement is necessary to allow
for the public resale of such securities), the Maximum Share Amount shall remain
unchanged; provided, however, that the Holder may grant an extension of the
effective date of such registration statement. In the event that (a) the
aggregate number of shares of Common Stock issued pursuant to this Debenture and
the other Debentures issued on the Issue Date represents at least fifty percent
(50%) of the Maximum Share Amount and (b) the sum of (x) the aggregate number of
shares of Common Stock issued pursuant to this Debenture and the other
Debentures issued on the Issue Date plus (y) the aggregate number of shares of
Common Stock that remain issuable pursuant to this Debenture and the other
Debentures issued on the Issue Date, represents at least one hundred percent
(100%) of the Maximum Share Amount (the "Triggering Event"), the Borrower 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 and before the
Maximum Conversion Date.
1.8 Status as Stockholder. Upon submission of a Notice of Conversion
by a Holder, (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) shall be deemed converted into shares
of Common Stock and (ii) the Holder's rights as a Holder of such converted
portion of this Debenture 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 Borrower to comply with the terms of this Debenture.
Notwithstanding the foregoing, if a Holder has not received certificates for all
shares of Common Stock prior to
11
<PAGE>
the tenth (10th) business day after the expiration of the Deadline with
respect to a conversion of any portion of this Debenture for any reason, then
(unless the Holder otherwise elects to retain its status as a holder of Common
Stock by so notifying the Borrower), the Holder shall regain the rights of a
Holder of this Debenture with respect to such unconverted portions of this
Debenture and the Borrower shall, as soon as practicable, return such
unconverted Debenture to the holder or, if the Debenture has not been
surrendered, adjust its records to reflect that such portion of this Debenture
has not been converted. In all cases, the Holder shall retain all of its rights
and remedies (including, without limitation, (i) the right to receive Conversion
Default Payments pursuant to Section 1.3 the extent required thereby for such
Conversion Default and any subsequent Conversion Default and (ii) the right to
have the Conversion Price with respect to subsequent conversions determined in
accordance with Section 1.3) for the Borrower's failure to convert this
Debenture.
ARTICLE II. CERTAIN COVENANTS
2.1 Distributions on Capital Stock. So long as the aggregate
principal amount of the Debentures outstanding is greater than or equal to one
million dollars ($1,000,000), the Borrower shall not without the Holder's
written consent (a) pay, declare or set apart for such payment, any dividend or
other distribution (whether in cash, property or other securities) on shares of
capital stock other than dividends on shares of Common Stock solely in the form
of additional shares of Common Stock or (b) directly or indirectly or through
any subsidiary make any other payment or distribution in respect of its capital
stock.
2.2 Restriction on Stock Repurchases. So long as the aggregate
principal amount of the Debentures outstanding is greater than or equal to one
million dollars ($1,000,000), the Borrower shall not without the Holder's
written consent redeem, repurchase or otherwise acquire (whether for cash or in
exchange for property or other securities or otherwise) in any one transaction
or series of related transactions any shares of capital stock of the Borrower or
any warrants, rights or options to purchase or acquire any such shares.
ARTICLE III. EVENTS OF DEFAULT
If any of the following events of default (each, an "Event of
Default") shall occur:
3.1 Failure to Pay Principal or Interest. The Borrower fails (a) to
pay the principal hereof when due, whether at maturity, upon mandatory
prepayment pursuant to Section 1.7, upon acceleration or otherwise or (b) to pay
any installment of interest hereon
12
<PAGE>
when due and, in the case of this clause (b) only, such failure continues
for a period of ten (10) days after the due date thereof;
3.2 Conversion and the Shares. The Borrower fails to issue shares of
Common Stock to the Holder (or announces that it will not honor its obligation
to do so) upon exercise by the Holder of the conversion rights of the Holder in
accordance with the terms of this Debenture (for a period of at least ninety
(90) days, if such failure is solely as a result of the circumstances governed
by Section 1.3 and the Borrower is using its best efforts to authorize a
sufficient number of shares of Common Stock as soon as practicable), fails to
transfer any certificate for shares of Common Stock issued to the Holder upon
conversion of this Debenture and when required by this Debenture or the
Registration Rights Agreement, or fails to remove any restrictive legend on any
certificate for any shares of Common Stock issued to the Holder upon conversion
of this Debenture as and when required by this Debenture, the Purchase Agreement
or the Registration Rights Agreement and any such failure shall continue uncured
(or any announcement not to honor conversions shall not be rescinded) for ten
(10) days after the Borrower shall have been notified thereof in writing by the
Holder.
3.3 Failure to Effect Registration. The Borrower fails to obtain
effectiveness with the Securities and Exchange Commission of the Registration
Statement prior to February 5, 1998 or the Registration Statement lapses in
effect (or sales cannot otherwise be made thereunder) for more than thirty (30)
consecutive Trading Days or sixty (60) Trading Days in any twelve month period
after the Registration Statement becomes effective excluding Allowed Delays (as
defined in Section 3(f) of the Registration Rights Agreement);
3.4 Breach of Covenants. The Borrower breaches any material covenant
or other material term or condition contained in Sections 1.3, 1.6, 1.7 or 4.1
of this Debenture, or Sections 4(e), 4(h), 4(i) or 4(j) of the Purchase
Agreement and such breach continues for a period of ten (10) days after written
notice thereof to the Borrower from the Holder;
3.5 Breach of Representations and Warranties. Any representation or
warranty of the Borrower made herein or in any agreement, statement or
certificate given in writing pursuant hereto or in connection herewith
(including, without limitation, the Purchase Agreement and the Registration
Rights Agreement), shall be false or misleading in any material respect when
made and the breach of which has (or with the passage of time will have) a
material adverse effect on the rights of the Holder with respect to this
Debenture, the Purchase Agreement or the Registration Rights Agreement;
3.6 Receiver or Trustee. The Borrower or any subsidiary of the
Borrower shall make an assignment for the benefit of creditors, or apply for or
consent to the
13
<PAGE>
appointment of a receiver or trustee for it or for a substantial
part of its property or business, or such a receiver or trustee shall otherwise
be appointed;
3.7 Judgments. Any money judgment, writ or similar process shall be
entered or filed against the Borrower or any subsidiary of the Borrower or any
of its property or other assets for more than $1,000,000, and shall remain
unvacated, unbonded or unstayed for a period of twenty (20) days unless
otherwise consented to by the Holder, which consent will not be unreasonably
withheld;
3.8 Bankruptcy. 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
Borrower or any subsidiary of the Borrower; or
3.9 Delisting of Common Stock. The Common Stock is not listed on at
least one of the Nasdaq National Market, Nasdaq Small Cap Market, the New York
Stock Exchange, or the American Stock Exchange;
then, upon the occurrence and during the continuation of any
Event of Default specified in Section 3.1, 3.2, 3.3, 3.4, 3.5, 3.7 or 3.9, at
the option of the Holders of a majority of the aggregate principal amount of
the outstanding Debentures issued pursuant to the Securities Purchase
Agreement, the Borrower shall, and upon the occurrence of an Event of Default
specified in Section 3.6 or 3.8, the Debentures shall become immediately due
and payable and the Borrower shall pay to the Holder, in full satisfaction of
its obligations hereunder, an amount equal to the greater of (i) 130% times
the sum of (w) the then outstanding principal amount of this Debenture plus
(x) accrued and unpaid interest on the unpaid principal amount of this
Debenture to the date of payment plus (y) Default Interest, if any, on the
interest referred to in the immediately preceding clause plus (z) any amounts
owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to
Section 2(c) of the Registration Rights Agreement (the then outstanding
principal amount of this Debenture to the date of payment plus the amounts
referred to in clauses (x), (y) and (z) shall collectively be known as the
"Default Sum") or (ii) the Default Sum divided by the then applicable
Conversion Price (based on the lesser of $15.16 and the price derived from
the twelve (12) consecutive Trading Days ending one (1) Trading Day prior to
the date the Holders exercise their option pursuant to this paragraph or the
date of the occurrence of an event referred to in Section 3.6 or 3.8)
multiplied by the Closing Price of the Common Stock on the date the Holders
exercise their option pursuant to this paragraph or the date of the
occurrence of an event referred to in Section 3.6 or 3.8 (the "Default
Amount") and all other amounts payable hereunder shall immediately become due
and payable, all without demand, presentment or notice, all of which hereby
are expressly waived, together with all costs, including, without limitation,
legal fees and expenses, of collection, and the Holder shall be entitled to
exercise all other rights and remedies available at law or in equity.
14
<PAGE>
If the Borrower fails to pay the Default Amount within five (5)
business days of written notice that such amount is due and payable, then the
Holder shall have the right at any time, so long as the Borrower remains in
default (and so long and to the extent that there are sufficient authorized
shares), to require the Borrower, upon written notice, to immediately issue, in
lieu of the Default Amount, the number of shares of Common Stock of the Borrower
equal to the Default Amount divided by the Conversion Price then in effect.
ARTICLE IV. REDEMPTION
4.1 Redemption. So long as no Event of Default shall have occurred
and be continuing and so long as the Registration Statement is then in effect
and has been in effect and sales can be made thereunder for at least twenty (20)
days prior to the Redemption Date (as defined below), on or after six (6) months
following the Issue Date, in the event that the closing bid price of the Common
Stock is at least $22.73 for ten (10) consecutive Trading Days, then the
Borrower may redeem, in whole but not in part, this Debenture upon twenty (20)
days prior written notice (a "Redemption Notice") in accordance with this
Section 4.1. Any Redemption Notice shall be delivered to the Holder at its
registered address appearing on the records of the Borrower and shall state (1)
that the Borrower is exercising its right to redeem this Debenture and all other
Debentures issued on the Issue Date and (2) the date of redemption. On the date
fixed for redemption (the "Redemption Date"), the Borrower shall make payment of
the Redemption Amount (as hereinafter defined) in cash to or upon the order of
the Holder as specified by the Holder in writing to the Borrower at least one
business day prior to the Redemption Date. The Redemption Amount shall be equal
to 130% times the sum of (a) the then outstanding principal amount of this
Debenture plus (b) accrued and unpaid interest on the unpaid principal amount of
this Debenture to the date of payment plus (c) Default Interest, if any, on the
interest referred to in the immediately preceding clause plus (d) any amounts
owed to the Holder pursuant to Sections 1.3 and 1.4(g) hereof or pursuant to
Section 2(c) of the Registration Rights Agreement. Notwithstanding anything to
the contrary contained in this Section 4.1, the Holder shall at all times prior
to the Redemption Date maintain the right to convert all or any part of this
Debenture in accordance with Article I and any amounts so converted after
receipt of a Redemption Notice and prior to the Redemption Date set forth in
such notice and payment of the Aggregate Redemption Amount shall be deducted
from the amount which is otherwise subject to redemption pursuant to the
Redemption Notice.
ARTICLE V. MISCELLANEOUS
5.1 Failure or Indulgence Not Waiver. No failure or delay on the
part of the Holder in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such power, right or privilege
15
<PAGE>
preclude other or further exercise thereof or of any other right, power or
privileges. All rights and remedies existing hereunder are cumulative to, and
not exclusive of, any rights or remedies otherwise available.
5.2 Notices. Any notice herein required or permitted to be given
shall be in writing and may be personally served or delivered by courier or sent
by United States mail and shall be deemed to have been given upon receipt if
personally served (which shall include telephone line facsimile transmission) or
sent by courier or three (3) days after being deposited in the United States
mail, certified, with postage pre-paid and properly addressed, if sent by mail.
For the purposes hereof, the address of the Holder shall be as shown on the
records of the Borrower; and the address of the Borrower shall be IDT
Corporation, 190 Main Street, Hackensack, New Jersey 07601, facsimile number:
(201) 907-5165. Both the Holder and the Borrower may change the address for
service by service of written notice to the other as herein provided.
5.3 Amendments. This Debenture and any provision hereof may only be
amended by an instrument in writing signed by the Borrower and the Holder. The
term "Debenture" and all reference thereto, as used throughout this instrument,
shall mean this instrument (and the other Debentures issued pursuant to the
Purchase Agreement) as originally executed, or if later amended or supplemented,
then as so amended or supplemented.
5.4 Assignability. This Debenture shall be binding upon the Borrower
and its successors and assigns, and shall inure to be the benefit of the Holder
and its successors and assigns. Each transferee of this Debenture must be an
"accredited investor" (as defined in Rule 501(a) of the 1933 Act).
Notwithstanding anything in this Debenture to the contrary, this Debenture may
be pledged as collateral in connection with a bona fide margin account or other
lending arrangement.
5.5 Cost of Collection. If default is made in the payment of this
Debenture, the Borrower shall pay the Holder hereof costs of collection,
including reasonable attorneys' fees.
5.6 Governing Law. This Debenture shall be governed by the internal
laws of the State of Delaware, without regard to the principles of conflict of
laws.
5.7 Certain Amounts. Whenever pursuant to this Debenture the
Borrower is required to pay an amount in excess of the outstanding principal
amount (or the portion thereof required to be paid at that time) plus accrued
and unpaid interest plus Default Interest on such interest, the Borrower and the
Holder agree that the actual damages to the Holder from the receipt of cash
payment on this Debenture may be difficult to determine and the amount to be so
paid by the Borrower represents stipulated damages and not a penalty and is
16
<PAGE>
intended to compensate the Holder in part for loss of the opportunity to convert
this Debenture and to earn a return from the sale of shares of Common Stock
acquired upon conversion of this Debenture at a price in excess of the price
paid for such shares pursuant to this Debenture. The Borrower and the Holder
hereby agree that such amount of stipulated damages is not plainly
disproportionate to the possible loss to the Holder from the receipt of a cash
payment without the opportunity to convert this Debenture into shares of Common
Stock.
5.8 Allocations of Maximum Share Amount and Reserved Amount. The
Maximum Share Amount and the Reserved Amount (including any increases thereto)
shall be allocated pro rata among the Holders of Debentures based on the
principal amount of Debentures then held by each Holder relative to the
aggregate principal amount of the Debentures then outstanding.
5.9 Damages Shares. The shares of Common Stock that may be issuable
to the Holder pursuant to Sections 1.3 and 1.4(g) hereof and pursuant to Section
2(c) of the Registration Rights Agreement ("Damages Shares") shall be treated as
Common Stock issuable upon conversion of this Debenture for all purposes hereof
and shall be subject to all of the limitations and afforded all of the rights of
the other shares of Common Stock issuable hereunder, including without
limitation, the right to be included in the Registration Statement filed
pursuant to the Registration Rights Agreement. For purposes of calculating
interest payable on the outstanding principal amount hereof, except as otherwise
provided herein, amounts convertible into Damages Shares ("Damages Amounts")
shall not bear interest but must be converted prior to the conversion of any
outstanding principal amount hereof, until the outstanding Damages Amounts is
zero.
5.10 Denominations. At the request of the Holder, upon surrender of
this Debenture, the Borrower shall promptly issue new Debentures in the
aggregate outstanding principal amount hereof, in the form hereof, in such
denominations of at least $100,000 as the Holder shall request.
5.11 Purchase Agreement. By its acceptance of this Debenture, each
Holder agrees to be bound by the applicable terms of the Purchase Agreement.
5.12 Notice of Corporate Events. Except as otherwise provided below,
the Holder of this Debenture shall have no rights as a Holder of Common Stock
unless and only to the extent that it converts this Debenture into Common Stock.
The Borrower shall provide the Holder with prior notification of any meeting of
the Borrower's shareholders (and copies of proxy materials and other information
sent to shareholders). In the event of any taking by the Borrower 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,
17
<PAGE>
consolidation, reclassification 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 Borrower or any proposed liquidation, dissolution or winding up of
the Borrower, the Borrower shall mail a notice to the Holder, at least twenty
(20) days prior to the record date specified therein (or thirty (30) days prior
to the consummation of the 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. The Borrower shall make a public announcement of any event
requiring notification to the Holder hereunder substantially simultaneously with
the notification to the Holder in accordance with the terms of this Section
5.12.
18
<PAGE>
IN WITNESS WHEREOF, Borrower has caused this Debenture to be signed
in its name by its duly authorized officer this 5th day of September, 1997.
IDT CORPORATION
By:_____________________________________
James Courter
President
19
<PAGE>
Exhibit A
NOTICE OF CONVERSION
OF CONVERTIBLE DEBENTURE
TO: IDT Corporation
(1) Pursuant to the terms of the attached Convertible Debenture (the
"Debenture"), the undersigned hereby elects to convert $__ principal amount of
the Debenture into shares of Common Stock of IDT Corporation, a Delaware
corporation (the "Borrower"). Capitalized terms used herein and not otherwise
defined herein have the respective meanings provided in the Debenture.
(2) Please issue a certificate or certificates for the number of
shares of Common Stock into which such principal amount of the Debenture (plus
interest thereon to the extent not paid in cash in accordance with the terms of
the Debenture) is convertible (_____ shares, 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 Name
_____________________________ ________________________________
Address Address
_____________________________ ________________________________
SS or Tax ID Number SS or Tax ID Number
(3) Holder acknowledges and affirms that the Common Stock issued
pursuant to this Notice of Conversion has been or will be sold in accordance
with the requirements of the 1933 Act, if applicable, or pursuant to an
exemption under the 1933 Act.
(4) Capitalized terms used in this Notice of Conversion and not
otherwise defined herein shall have the respective meanings provided in the
Debenture.
Date_________________ _______________________________________
Signature of Registered Holder (must be
signed exactly as name appears in the
Debenture).
20
