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
January 26, 1999
Date of Report (Date of earliest event reported)
FIDELITY HOLDINGS, INC.
(Exact name of registrant as specified in its charter)
Nevada 00029182 11-3292094
(State or other (Commission (IRS Employer
jurisdiction of incorporation) File Number) Identification No.)
80-02 Kew Gardens Road, Kew Gardens, NY 11415
(Address of principal executive offices) (Zip Code)
(Registrant's telephone number, including area code): 718/520-6500
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PART II. OTHER INFORMATION
Item 5. OTHER EVENTS
On January 26, 1999, Fidelity Holdings, Inc., a Nevada corporation,
("Fidelity" or the "Company") closed on an initial $2.75 million financial
transaction as part of an overall $11.35 million debt facility. The following
summary of this transaction is qualified in its entirety by the terms of the
related agreements and instruments filed herewith as exhibits to this Form 8-K.
The Transaction
On January 25, 1999, the Company and its wholly owned subsidiary, Computer
Business Sciences, Inc., a Delaware corporation ("CBS") entered into a
Securities Purchase Agreement with certain purchasers named therein (the
"Purchasers"), pursuant to which the Company and CBS agreed to sell up to 2,750
Units (the "Units"), each Unit consisting of (a) in the first tranche, (i) a 12%
Convertible Debenture of the Company in the principal amount of One Thousand
Dollars ($1,000) of the Company (the "Debentures"), convertible on certain terms
and conditions into shares of the Company's common stock, par value $0.01 per
share (the "Common Stock"), (ii) 36.3636 shares of Common Stock, (iii) warrants
(the "Warrants") to acquire 83.3333 shares of Common Stock and (iv) warrants
(the "CBS Warrants") to acquire 25.4545 shares of common stock, par value $0.01
per share, of CBS (the "CBS Shares"), and (b), in the second tranche, (i) a
Debenture in the principal amount of One Thousand Five Hundred Sixty-Three and
64/100 Dollars ($1,563.64) and (ii) Warrants to acquire 130.3030 shares of
Common Stock and (c) in the third tranche, (i) Debentures in an aggregate
principal amount of One Thousand Five Hundred Sixty-Three and 64/100 Dollars
($1,563.64) and (ii) Warrants to purchase 130.3030 shares of Common Stock. The
shares of Common Stock issuable upon conversion of or otherwise pursuant to the
Debentures are referred to herein as the "Conversion Shares" and the shares of
Common Stock issuable upon exercise of or otherwise pursuant to the Warrants are
referred to herein as the "Warrant Shares."
The Company closed on the first tranche of $2.75 million and issued to the
Purchasers, in the aggregate, Debentures in the face amount of $2.75 million,
100,000 shares of Common Stock, Warrants to acquire 229,167 shares of Common
Stock and CBS Warrants to acquire 70,000 CBS Shares. Consummation of the second
and third tranches is conditioned upon, among other things, achievement by the
Company and CBS of certain mutually agreeable milestones and under certain
conditions, approval by the shareholders of Fidelity.
The Debentures are convertible into Common Stock of the Company at any
time after the date of issue (subject to certain volume limitations). Upon
conversion, holders will be entitled to receive a number of shares of Common
Stock determined by dividing the outstanding principal amount of the Debentures
by a conversion price equal to the lesser of 90% of the average closing bid
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prices for the Common Stock during a defined period prior to conversion, and
$4.20 (but in no event less than $3.00, and subject to adjustment upon the
occurrence of certain dilutive events).
The Warrants are exercisable for shares of Common Stock of the Company.
Upon exercise, holders will be entitled to receive shares of Common Stock for an
exercise price of $4.20 per share. The Warrants will expire on January 25, 2004.
The CBS Warrants are exercisable for shares of Common Stock of CBS. Upon
exercise, holders will be entitled to receive shares of Common Stock for an
exercise price of $0.001 per share. The CBS Warrants will expire on January 25,
2004.
In connection with this transaction, the Company also entered into a
Registration Rights Agreement with the Purchasers under which the Company is
required to file a registration statement on Form S-3 by March 11, 1999, subject
to certain specified exceptions, covering resales of the Conversion Shares and
the Warrant Shares (the "Resale Registration Statement"). Under the Registration
Rights Agreement, the Company may be required to make certain payments to
holders of the Debentures as partial damages if, among other things, the Resale
Registration Statement has not been declared effective by the Securities and
Exchange Commission on or before July 9, 1999, subject to certain specified
exceptions.
The net proceeds to the Company after payment of closing fees and expenses
is $2,455,250. In connection with the placement of the Debentures, the Company
also issued to Zanett Securities Corporation, the placement agent for the
transaction (the "Placement Agent"), and its assignees, 50,000 shares of the
Company's Common Stock, 30,000 shares of CBS Common Stock and warrants to
purchase an aggregate of 114,583 shares of Common Stock at an exercise price
equal to $4.20 per share, which contain the same restrictions as the Warrants.
All of the shares underlying the Placement Agent warrants must be included in
the Resale Registration Statement.
Use of Proceeds
The Company intends to use the net proceeds from the Offering primarily
for developmental activities in its telecommunications and plastics divisions,
and also for working capital purposes of Fidelity and CBS, including the
possible acquisition of additional car dealerships.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(C) Exhibits
The following exhibits, from which schedules and exhibits have been
omitted and will be furnished to the Commission upon its request, are filed with
this report on Form 8-K.
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4.11 -- Form of Warrant
4.12 -- Form of CBS Warrant
4.13 -- Form of Debenture
10.60 -- Placement Agent Agreement, dated as of January 25,1999, between
Fidelity Holdings, Inc. and The Zanett Securities Corporation,
Claudio Guazzoni, David McCarthy, and Tony Milbank
10.61 -- Securities Purchase Agreement dated as of January 25,1999, By and
among Fidelity Holdings, Inc., Computer Business Sciences, Inc.,
Zanett Lombardier, Ltd., Goldman Sachs Performance Partners, L.P.,
Goldman Sachs Performance Partners, (Offshore) L.P., David McCarthy
and Bruno Guazzoni.
10.62 -- Registration Rights Agreement dated as of January 25,1999, by and
among Fidelity Holdings, Inc., Zanett Lombardier, Ltd., Goldman
Sachs Performance Partners, L.P., Goldman Sachs Performance
Partners, (Offshore) L.P., David McCarthy and Bruno Guazzoni.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
FIDELITY HOLDINGS, INC.
(Registrant)
/s/ Doron Cohen
-------------------------------
Doron Cohen, President
Dated: February 3, 1999
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Exhibit 4.11
VOID AFTER 5:00 P.M., NEW YORK
CITY TIME, ON JANUARY 25, 2004
(UNLESS EXTENDED PURSUANT TO SECTION 2 HEREOF)
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
UNLESS THE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS, OR ANY SUCH OFFER, SALE OR TRANSFER IS
MADE PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THOSE LAWS.
Date: January 25, 1999 Right to Purchase ____________
Shares of Common Stock
FIDELITY HOLDINGS, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, _________________________ or its
or his registered assigns is entitled to purchase from Fidelity Holdings, Inc.,
a Nevada corporation (the "Company"), at any time or from time to time during
the period specified in Section 2 hereof, ______________________ (___________)
fully paid and nonassessable shares of the Company's Common Stock, par value
$0.01 per share ("Common Stock"), at an exercise price per share equal to $4.20
(the "Exercise Price"). The number of shares of Common Stock purchasable
hereunder (the "Warrant Shares") and the Exercise Price are subject to
adjustment as provided in Section 4 hereof. The term "Warrants" means this
Warrant and the other Warrants of the Company issued pursuant to that certain
Securities Purchase Agreement, dated as of January 25, 1999, by and among the
Company and the other signatories thereto (the "Securities Purchase Agreement")
and/or that certain Placement Agency Agreement of even date herewith between the
Company and The Zanett Securities Corporation (the "Placement Agency
Agreement").
This Warrant is subject to the following terms, provisions and conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
Subject to the provisions hereof, including, without limitation, the limitations
contained in Section 7 hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the
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"Exercise Agreement"), to the Company by 11:59 p.m., New York time on any
business day at the Company's principal executive offices (or such other office
or agency of the Company as it may designate by notice to the holder hereof),
and upon (i) payment to the Company in cash, by certified or official bank check
or by wire transfer for the account of the Company, of the Exercise Price for
the Warrant Shares specified in the Exercise Agreement or (ii) upon delivery to
the Company of a written notice of a Cashless Exercise for the Warrant Shares
specified in the Exercise Agreement. The Warrant Shares so purchased shall be
deemed to be issued to the holder hereof or such holder's designee, as the
record owner of such shares, as of the close of business on the date on which
this Warrant shall have been surrendered, the completed Exercise Agreement shall
have been delivered and payment shall have been made for such Warrant Shares as
set forth above, or, if such date is not a business date, on the next succeeding
business day. Certificates for the Warrant Shares so purchased, representing the
aggregate number of shares specified in the Exercise Agreement, shall be
delivered to the holder hereof within a reasonable time, not exceeding two (2)
business days, after this Warrant shall have been so exercised (the "Delivery
Period"). The certificates so delivered shall bear a standard restrictive legend
and shall be in such denominations as may be requested by the holder hereof and
shall be registered in the name of such holder or such other name as shall be
designated by such holder. If this Warrant shall have been exercised only in
part, then, unless this Warrant has expired, the Company shall, at its expense,
at the time of delivery of such certificates, deliver to the holder a new
Warrant representing the number of shares with respect to which this Warrant
shall not then have been exercised.
If, at any time, a holder of this Warrant submits this Warrant, an
Exercise Agreement and payment to the Company of the Exercise Price for each of
the Warrant Shares specified in the Exercise Agreement, and the Company fails
for any reason to deliver, on or prior to the fourth business day following the
expiration of the Delivery Period for such exercise, the number of shares of
Common Stock to which the holder is entitled upon such exercise (an "Exercise
Default"), then the Company shall pay to the holder payments ("Exercise Default
Payments") for an Exercise Default in the amount of (a) (N/365), multiplied by
(b) the difference between the Market Price (as defined in Section 4(l)(ii)
hereof) on the date the Exercise Agreement giving rise to the Exercise Default
is transmitted in accordance with this Section 1 (the "Exercise Default Date")
less the Exercise Price, multiplied by (c) the number of shares of Common Stock
the Company failed to so deliver in such Exercise Default, multiplied by (d)
.24, where N = the number of days from the Exercise Default Date to the date
that the Company effects the full exercise of this Warrant which gave rise to
the Exercise Default. The accrued Exercise Default Payment for each calendar
month shall be paid in cash or shall be convertible into Common Stock at the
Exercise Price, at the holder's option, as follows:
(a) In the event the holder elects to take such payment in cash,
cash payment shall be made to holder by the fifth (5th) day of the month
following the month in which it has accrued; and
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(b) In the event the holder elects to take such payment in Common
Stock, the holder may convert such payment amount into Common Stock at the
Exercise Price (as in effect at the time of conversion) at any time after the
fifth (5th) day of the month following the month in which it has accrued.
Nothing herein shall limit the holder's right to pursue actual
damages for the Company's failure to maintain a sufficient number of authorized
shares of Common Stock as required pursuant to the terms of Section 3(b) hereof,
or to otherwise issue shares of Common Stock upon exercise of this Warrant in
accordance with the terms hereof, and the holder shall have the right to pursue
all remedies available at law or in equity (including a decree of specific
performance and/or injunctive relief); provided that any such damages shall be
reduced by the amount of the Exercise Default Payments.
2. Period of Exercise. This Warrant is exercisable at any time or from
time to time on or after the date of the initial issuance of this Warrant (the
"Issue Date") and before 5:00 p.m., New York City time, on the fifth (5th) year
anniversary of the Issue Date (the "Exercise Period"). The Exercise Period shall
automatically be extended by one (1) day for each day on which the Company does
not have a number of shares of Common Stock reserved for issuance upon exercise
hereof at least equal to the number of shares of Common Stock issuable upon
exercise hereof.
3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon issuance
in accordance with the terms of this Warrant, be validly issued, fully paid, and
nonassessable and free from all taxes, liens, claims and encumbrances.
(b) Reservation of Shares. During the Exercise Period, the Company
shall at all times have authorized, and reserved for the purpose of issuance
upon exercise of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.
(c) Listing. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon exercise of this Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed or become listed (subject to official notice of
issuance upon exercise of this Warrant) and shall maintain, so long as any other
shares of Common Stock shall be so listed or through the Exercise Period,
whichever is shorter, such listing of all shares of Common Stock from time to
time issuable upon the exercise of this Warrant; and the Company shall so list
on each national securities exchange or automated quotation system, as the case
may be, and shall maintain such listing of, any other shares of capital stock of
the Company issuable upon the exercise of this Warrant if and so long as any
shares of the same class shall be listed on such national securities exchange or
automated quotation system; provided, however, that the holder of this Warrant
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acknowledges that the rules of such national securities exchange or automated
quotation system may under certain circumstances require shareholder approval
for the issuance of Shares of Common Stock upon exercise of this Warrant.
(d) Certain Actions Prohibited. The Company will not, by amendment
of its charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of Common Stock receivable upon
the exercise of this Warrant above the Exercise Price then in effect, and (ii)
will take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.
(e) Successors and Assigns. This Warrant will be binding upon any
entity succeeding to the Company by merger, consolidation or acquisition of all
or substantially all of the Company's assets.
(f) Blue Sky Laws. The Company shall, on or before the date of
issuance of any Warrant Shares, take such actions as the Company shall
reasonably determine are necessary to qualify the Warrant Shares for, or obtain
exemption for the Warrant Shares for, sale to the holder of this Warrant upon
the exercise hereof under applicable securities or "blue sky" laws of the states
of the United States, and shall provide evidence of any such action so taken to
the holder of this Warrant prior to such date; provided, however, that the
Company shall not be required to qualify as a foreign corporation or file a
general consent to service of process in any such jurisdiction.
4. Antidilution Provisions. During the Exercise Period, the Exercise Price
and the number of Warrant Shares shall be subject to adjustment from time to
time as provided in this Section 4. In the event that any adjustment of the
Exercise Price as required herein results in a fraction of a cent, such Exercise
Price shall be rounded up or down to the nearest cent.
(a) Adjustment of Exercise Price and Number of Shares upon Issuance
of Common Stock. Except as otherwise provided in Sections 4(b)(iv), 4(c) and
4(e) hereof, if and whenever during the Exercise Period, after the Issue Date,
the Company issues or sells, or in accordance with Section 4(b) hereof is deemed
to have issued or sold, any shares of Common Stock for no consideration or for a
consideration per share less than the Market Price on the date of issuance
(other than any issuance pursuant to the Securities Purchase Agreement) (a
"Dilutive Issuance"), then effective immediately upon the Dilutive Issuance, the
Exercise Price will be adjusted in accordance with the following formula:
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E' = E x O + P/M
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CSDO
where:
E' = the adjusted Exercise Price;
E = the then current Exercise Price;
M = the then current Market Price (as defined in Section
4(l)(ii));
O = the number of shares of Common Stock outstanding
immediately prior to the Dilutive Issuance;
P = the aggregate consideration, calculated as set forth
in Section 4(b) hereof, received by the Company upon
such Dilutive Issuance; and
CSDO = the total number of shares of Common Stock Deemed
Outstanding (as defined in Section 4(l)(i))
immediately after the Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Section 4(a) hereof, the following
will be applicable:
(i) Issuance of Rights or Options. If the Company in any
manner issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock or other
securities exercisable, convertible into or exchangeable for Common Stock
("Convertible Securities") (such warrants, rights and options to purchase Common
Stock or Convertible Securities are hereinafter referred to as "Options") and
the price per share for which Common Stock is issuable upon the exercise of such
Options is less than the Market Price in effect on the date of issuance of such
Options ("Below Market Options"), then the maximum total number of shares of
Common Stock issuable upon the exercise of all such Below Market Options
(assuming full exercise, conversion or exchange of Convertible Securities, if
applicable) will, as of the date of the issuance or grant of such Below Market
Options, be deemed to be outstanding and to have been issued and sold by the
Company for such price per share. For purposes of the preceding sentence, the
"price per share for which Common Stock is issuable upon the exercise of such
Below Market Options" is determined by dividing (i) the total amount, if any,
received or receivable by the Company as consideration for the issuance or
granting of all such Below Market Options, plus the minimum aggregate amount of
additional consideration, if any, payable to the Company upon the exercise of
all such Below Market Options, plus, in the case of Convertible Securities
issuable upon the exercise of such Below Market Options, the minimum aggregate
amount of additional consideration payable upon the exercise, conversion or
exchange thereof at the time such Convertible Securities first become
exercisable, convertible or exchangeable, by (ii) the maximum total number of
shares of Common Stock issuable upon the exercise of all such Below Market
Options (assuming full conversion of Convertible Securities, if applicable). No
further adjustment to the Exercise Price will be made upon the actual issuance
of such Common Stock upon the exercise of such Below Market
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Options or upon the exercise, conversion or exchange of Convertible Securities
issuable upon exercise of such Below Market Options.
(ii) Issuance of Convertible Securities.
(A) If the Company in any manner issues or sells any
Convertible Securities, whether or not immediately convertible (other than where
the same are issuable upon the exercise of Options) and the price per share for
which Common Stock is issuable upon such exercise, conversion or exchange (as
determined pursuant to Section 4(b)(ii)(B) if applicable) is less than the
Market Price in effect on the date of issuance of such Convertible Securities,
then the maximum total number of shares of Common Stock issuable upon the
exercise, conversion or exchange of all such Convertible Securities will, as of
the date of the issuance of such Convertible Securities, be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For the purposes of the preceding sentence, the "price per share for
which Common Stock is issuable upon such exercise, conversion or exchange" is
determined by dividing (i) the total amount, if any, received or receivable by
the Company as consideration for the issuance or sale of all such Convertible
Securities, plus the minimum aggregate amount of additional consideration, if
any, payable to the Company upon the exercise, conversion or exchange thereof at
the time such Convertible Securities first become exercisable, convertible or
exchangeable, by (ii) the maximum total number of shares of Common Stock
issuable upon the exercise, conversion or exchange of all such Convertible
Securities. No further adjustment to the Exercise Price will be made upon the
actual issuance of such Common Stock upon exercise, conversion or exchange of
such Convertible Securities.
(B) If the Company in any manner issues or sells any
Convertible Securities with a fluctuating conversion or exercise price or
exchange ratio (a "Variable Rate Convertible Security"), then the "price per
share for which Common Stock is issuable upon such exercise, conversion or
exchange" for purposes of the calculation contemplated by Section 4(b)(ii)(A)
shall be deemed to be the lowest price per share which would be applicable
(assuming all holding period and other conditions to any discounts contained in
such Convertible Security have been satisfied) if the Market Price in effect on
the date of issuance of such Convertible Security was 75% of the Market Price in
effect on such date (the "Assumed Variable Market Price"). Further, if the
Market Price in effect at any time or times thereafter is less than or equal to
the Assumed Variable Market Price last used for making any adjustment under this
Section 4 with respect to any Variable Rate Convertible Security, the Exercise
Price in effect at such time shall be readjusted to equal the Exercise Price
which would have resulted if the Assumed Variable Market Price in effect at the
time of issuance of the Variable Rate Convertible Security had been 75% of the
Market Price in effect at the time of the adjustment required by this sentence.
(iii) Change in Option Price or Conversion Rate. If there is a
change at any time in (i) the amount of additional consideration payable to the
Company upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the
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Company upon the exercise, conversion or exchange of any Convertible Securities;
or (iii) the rate at which any Convertible Securities are convertible into or
exchangeable for Common Stock (in each such case, other than under or by reason
of provisions designed to protect against dilution), the Exercise Price in
effect at the time of such change will be readjusted to the Exercise Price which
would have been in effect at such time had such Options or Convertible
Securities still outstanding provided for such changed additional consideration
or changed conversion rate, as the case may be, at the time initially granted,
issued or sold.
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. If, in any case, the total number of shares of Common Stock issuable
upon exercise of any Option or upon exercise, conversion or exchange of any
Convertible Securities is not, in fact, issued and the rights to exercise such
Option or to exercise, convert or exchange such Convertible Securities shall
have expired or terminated, the Exercise Price then in effect will be readjusted
to the Exercise Price which would have been in effect at the time of such
expiration or termination had such Option or Convertible Securities, to the
extent outstanding immediately prior to such expiration or termination (other
than in respect of the actual number of shares of Common Stock issued upon
exercise or conversion thereof), never been issued.
(v) Calculation of Consideration Received. If any Common
Stock, Options or Convertible Securities are issued, granted or sold for cash,
the consideration received therefor for purposes of this Warrant will be the
amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance, grant or sale.
In case any Common Stock, Options or Convertible Securities are issued or sold
for a consideration part or all of which shall be other than cash, the amount of
the consideration other than cash received by the Company will be the fair
market value of such consideration, except where such consideration consists of
securities, in which case the amount of consideration received by the Company
will be the Market Price thereof as of the date of receipt. In case any Common
Stock, Options or Convertible Securities are issued in connection with any
merger or consolidation in which the Company is the surviving corporation, the
amount of consideration therefor will be deemed to be the fair market value of
such portion of the net assets and business of the non-surviving corporation as
is attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair market value of any consideration other than cash or
securities will be determined in good faith by an investment banker or other
appropriate expert of national reputation selected by the Company and reasonably
acceptable to the holder hereof, with the costs of such appraisal to be borne by
the Company.
(vi) Exceptions to Adjustment of Exercise Price. No adjustment
to the Exercise Price will be made (i) upon the exercise or conversion of any
warrants, options, subscriptions, convertible notes, convertible debentures,
convertible preferred stock or other convertible securities issued and
outstanding on the First Closing Date (as defined in the Securities Purchase
Agreement) as set forth on Schedule 3(a)(iii) of the Securities Purchase
Agreement in accordance with the terms of such securities as of such date; (ii)
upon the grant or
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exercise of any stock or options which may hereafter be granted or exercised
under any employee benefit plan of the Company now existing or to be implemented
in the future, or upon grant or exercise of any stock or options to or by any
officer, director, employee, agent, consultant or other entity providing
services to the Company, whether or not under a plan, so long as the issuance of
such stock or options is approved by a majority of the non-employee members of
the Board of Directors of the Company or a majority of the members of a
committee of non-employee directors established for such purpose; (iii) upon the
issuance of any Debentures (as such term is defined in the Securities Purchase
Agreement) or Warrants issued or issuable in accordance with the terms of the
Securities Purchase Agreement; (iv) upon conversion of the Debentures or
exercise of the Warrants; (v) upon the issuance of securities in connection with
an underwritten public offering of the Company; (vi) upon the issuance of
securities in connection with any merger, acquisition or consolidation, or
purchase of assets or business from another person, so long as the Company is
the surviving corporation; (vii) upon the issuance of securities issued as the
result of anti-dilution rights granted to a third party; (viii) in connection
with the issuance of securities upon the exercise of warrants or other rights
granted as "equity kickers" to the holders of Senior Indebtedness (as defined in
the Debentures); and (ix) upon exercise of the Placement Agent's Warrants.
(c) Subdivision or Combination of Common Stock. If the Company, at
any time during the Exercise Period subdivides (by any stock split, stock
dividend, recapitalization, reorganization, reclassification or otherwise) its
shares of Common Stock into a greater number of shares, then, after the date of
record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company, at
any time during the Exercise Period, combines (by reverse stock split,
recapitalization, reorganization, reclassification or otherwise) its shares of
Common Stock into a smaller number of shares, then, after the date of record for
effecting such combination, the Exercise Price in effect immediately prior to
such combination will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 4, the number of
shares of Common Stock issuable upon exercise of this Warrant and for which this
Warrant is or may become exercisable shall be adjusted by multiplying a number
equal to the Exercise Price in effect immediately prior to such adjustment by
the number of shares of Common Stock issuable upon exercise of this Warrant and
for which this Warrant is or may become exercisable immediately prior to such
adjustment and dividing the product so obtained by the adjusted Exercise Price.
(e) Consolidation or Merger. In case of any consolidation of the
Company with, or merger of the Company into, any other corporation, or in case
of any sale or conveyance of all or substantially all of the assets of the
Company at any time during the Exercise Period, then as a condition of such
consolidation, merger or sale or conveyance, adequate provision will be made
whereby the holder of this Warrant will have the right to acquire and receive
upon exercise of this Warrant in lieu of the shares of Common Stock immediately
theretofore acquirable upon the exercise of this Warrant, such shares of stock,
securities, cash or assets as may be issued or
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payable with respect to or in exchange for the number of shares of Common Stock
immediately theretofore acquirable and receivable upon exercise of this Warrant
had such consolidation, merger, sale or conveyance not taken place. In any such
case, the Company will make appropriate provision to insure that the provisions
of this Section 4 hereof will thereafter be applicable as nearly as may be in
relation to any shares of stock or securities thereafter deliverable upon the
exercise of this Warrant. The Company will not effect any consolidation, merger,
sale or conveyance unless prior to the consummation thereof, the successor
corporation (if other than the Company) assumes by written instrument the
obligations under this Warrant and the obligations to deliver to the holder of
this Warrant such shares of stock, securities or assets as, in accordance with
the foregoing provisions, the holder may be entitled to acquire. Notwithstanding
the foregoing, in the event of any consolidation of the Company with, or merger
of the Company into, any other corporation, or the sale or conveyance of all or
substantially all of the assets of the Company, at any time during the Exercise
Period, the holder of the Warrant shall, at its option, have the right to
receive, in connection with such transaction, cash consideration equal to the
fair market value of this Warrant as determined in accordance with customary
valuation methodology used in the investment banking industry.
(f) Distribution of Assets. In case the Company shall declare or
make any distribution of its assets (or rights to acquire its assets) to holders
of Common Stock as a dividend, by way of return of capital or otherwise
(including any dividend or distribution to the Company's shareholders of cash or
shares (or rights to acquire shares) of capital stock of a subsidiary) (a
"Distribution"), at any time during the Exercise Period, then the holder of this
Warrant shall be entitled upon exercise of this Warrant for the purchase of any
or all of the shares of Common Stock subject hereto, to receive the amount of
such assets (or rights) which would have been payable to the holder had such
holder been the holder of such shares of Common Stock on the record date for the
determination of shareholders entitled to such Distribution.
(g) Notice of Adjustment. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the holder of this Warrant, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Company.
(h) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
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<PAGE>
(i) No Fractional Shares. No fractional shares of Common Stock are
to be issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Market Price of a share of Common
Stock on the date of such exercise.
(j) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the Common
Stock payable in shares of stock of any class or make any other distribution
(other than dividends or distributions payable in cash out of retained earnings
consistent with the Company's past practices with respect to declaring dividends
and making distributions) to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization of the
Company, or reclassification of the Common Stock, or consolidation or merger of
the Company with or into, or sale of all or substantially all of its assets to,
another corporation or entity; or
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable estimate thereof by the Company)
when the same shall take place. Such notice shall also specify the date on which
the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least twenty (20)
days prior to the record date or the date on which the Company's books are
closed in respect thereto. Failure to give any such notice or any defect therein
shall not affect the validity of the proceedings referred to in clauses (i),
(ii), (iii) and (iv) above. Notwithstanding the foregoing, the Company shall
publicly disclose the substance of any notice delivered hereunder prior to
delivery of such notice to the holder of this Warrant.
(k) Certain Events. If, at any time after the Issue Date, any event
occurs of the type contemplated by the adjustment provisions of this Section 4
but not expressly provided
10
<PAGE>
for by such provisions, the Company will give notice of such event as provided
in Section 4(g) hereof, and the Company's Board of Directors will make an
appropriate adjustment in the Exercise Price and the number of shares of Common
Stock acquirable upon exercise of this Warrant so that the rights of the holder
shall be neither enhanced nor diminished by such event.
(l) Certain Definitions.
(i) "Common Stock Deemed Outstanding" shall mean the number of
shares of Common Stock actually outstanding (not including shares of Common
Stock held in the treasury of the Company), plus (x) in the case of any
adjustment required by Section 4(a) resulting from the issuance of any Options,
the maximum total number of shares of Common Stock issuable upon the exercise of
the Options for which the adjustment is required (including any Common Stock
issuable upon the conversion of Convertible Securities issuable upon the
exercise of such Options), and (y) in the case of any adjustment required by
Section 4(a) resulting from the issuance of any Convertible Securities, the
maximum total number of shares of Common Stock issuable upon the exercise,
conversion or exchange of the Convertible Securities for which the adjustment is
required, as of the date of issuance of such Convertible Securities, if any.
Except as specifically provided by the foregoing, no other derivative securities
(and underlying shares) shall be deemed outstanding for purposes of this
definition.
(ii) "Market Price," as of any date, (i) means the average of
the closing bid prices for the shares of Common Stock as reported on the Nasdaq
SmallCap Market by Bloomberg Financial Markets ("Bloomberg") for the five (5)
consecutive trading days immediately preceding such date, or (ii) if the Nasdaq
SmallCap Market is not the principal trading market for the shares of Common
Stock, the average of the closing bid prices reported by Bloomberg on the
principal trading market for the Common Stock during the same period, or, if
there is no bid price for such period, the last reported price reported by
Bloomberg for such period, or (iii) if the foregoing do not apply, the last
closing bid price of such security in the over-the-counter market on the pink
sheets or bulletin board for such security as reported by Bloomberg, or if no
closing bid price is so reported for such security, the last closing trade price
of such security as reported by Bloomberg, or (iv) if market value cannot be
calculated as of such date on any of the foregoing bases, the Market Price shall
be the average fair market value as reasonably determined by an investment
banking firm selected by the Company and reasonably acceptable to the holder,
with the costs of the appraisal to be borne by the Company. The manner of
determining the Market Price of the Common Stock set forth in the foregoing
definition shall apply with respect to any other security in respect of which a
determination as to market value must be made hereunder.
(iii) "Common Stock," for purposes of this Section 4, includes
the Common Stock and any additional class of stock of the Company having no
preference as to dividends or distributions on liquidation, provided that the
shares purchasable pursuant to this Warrant shall include only Common Stock in
respect of which this Warrant is exercisable, or shares resulting from any
subdivision or combination of such Common Stock, or in the case of
11
<PAGE>
any reorganization, reclassification, consolidation, merger, or sale of the
character referred to in Section 4(e) hereof, the stock or other securities or
property provided for in such Section.
5. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.
6. No Rights or Liabilities as a Stockholder. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a stockholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
7. Transfer, Exchange, Redemption and Replacement of Warrant.
(a) Restriction on Transfer. This Warrant and the rights granted to
the holder hereof are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the form attached
hereto, at the office or agency of the Company referred to in Section 7(e)
below, provided, however, that any transfer or assignment shall be subject to
the conditions set forth in Sections 7(f) and (g) hereof and to the provisions
of Sections 2(f) and (g) of the Securities Purchase Agreement. Until due
presentment for registration of transfer on the books of the Company, the
Company may treat the registered holder hereof as the owner and holder hereof
for all purposes, and the Company shall not be affected by any notice to the
contrary. Notwithstanding anything to the contrary contained herein, the
registration rights described in Section 8 hereof are assignable only in
accordance with the provisions of the Registration Rights Agreement.
(b) Warrant Exchangeable for Different Denominations. This Warrant
is exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in Section 7(e) below, for new Warrants of
like tenor of different denominations representing in the aggregate the right to
purchase the number of shares of Common Stock which may be purchased hereunder,
each of such new Warrants to represent the right to purchase such number of
shares as shall be designated by the holder hereof at the time of such
surrender.
(c) Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reason ably satisfactory in form and amount
to the Company, or, in the case of any such mutilation, upon
12
<PAGE>
surrender and cancellation of this Warrant, the Company, at its expense, will
execute and deliver, in lieu thereof, a new Warrant of like tenor.
(d) Cancellation; Payment of Expenses. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided in
this Section 7, this Warrant shall be promptly canceled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses (other than legal expenses, if any, incurred by the Holder or
transferees) and charges payable in connection with the preparation, execution,
and delivery of Warrants pursuant to this Section 7. The Company shall indemnify
and reimburse the holder of this Warrant for all costs and expenses (including
legal fees) incurred by such holder in connection with the enforcement of its
rights hereunder.
(e) Warrant Register. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the holder hereof), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
(f) Exercise or Transfer Without Registration. If, at the time of
the surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act and under applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such exercise, transfer, or exchange, (i)
that the holder or transferee of this Warrant, as the case may be, furnish to
the Company a written opinion of counsel (which opinion shall be in form,
substance and scope customary for opinions of counsel in comparable
transactions) to the effect that such exercise, transfer, or exchange may be
made without registration under the Securities Act and under applicable state
securities or blue sky laws (the cost of which shall be borne by the Company if
the Company's counsel renders such opinion and up to $250 of such cost shall be
borne by the Company if the holder's counsel is requested to render such
opinion), (ii) that the holder or transferee execute and deliver to the Company
an investment letter in form and substance acceptable to the Company and (iii)
that the transferee be an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act; provided that no such opinion, letter or
status as an "accredited investor" shall be required in connection with any
transfer pursuant to Rule 144 under the Securities Act.
(g) Additional Restrictions on Exercise or Transfer. Notwithstanding
anything contained herein to the contrary, unless the waiver contemplated by the
last sentence of this Subsection (g) is delivered, this Warrant shall not be
exercisable by a holder hereof to the extent (but only to the extent) that (a)
the number of shares of Common Stock beneficially owned by such holder and its
affiliates (other than shares of Common Stock which may be deemed beneficially
owned through the ownership of the unexercised or unconverted portion of any
other securities of the Company subject to a limitation on conversion or
exercise analogous to the limitation contained herein) and (b) the number of
shares of Common Stock issuable upon
13
<PAGE>
exercise of the Warrant (or portion thereof) with respect to which the
determination described herein is being made, would result in beneficial
ownership by such holder and its affiliates of more than 4.99% of the
outstanding shares of Common Stock. To the extent the above limitation applies,
the determination of whether and to what extent this Warrant shall be
exercisable vis-a-vis other securities owned by such holder shall be in the sole
discretion of the holder and submission of this Warrant for full or partial
exercise shall be deemed to be the holder's determination of whether and the
extent to which this Warrant is exercisable, in each case subject to such
aggregate percentage limitation. No prior inability to exercise the Warrant
pursuant to this Section shall have any effect on the applicability of the
provisions of this Section with respect to any subsequent determination of
exerciseability. For purposes of the immediately preceding sentence, beneficial
ownership shall be determined in accordance with Section 13(d) of the Securities
Exchange Act of 1934, as amended, and Regulation 13D-G thereunder, except as
otherwise provided in clause (a) of such sentence. The restrictions contained in
this Section 7(g) may not be amended without the consent of the holder of this
Warrant and the holders of a majority of the Company's then outstanding Common
Stock. Notwithstanding the foregoing, the holder hereof may waive the foregoing
limitations and restrictions upon thirty (30) days prior written notice to the
Company.
8. Registration Rights. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in the Registration Rights
Agreement, dated as of January 25, 1999, by and between the Company, the initial
holder hereof and the other signatories thereto, including the right to assign
such rights to certain assignees, as set forth therein.
9. Notices. Any notices required or permitted to be given under the terms
of this Warrant shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier or by confirmed telecopy, and
shall be effective five days after being placed in the mail, if mailed, or upon
receipt or refusal of receipt, if delivered personally or by courier or
confirmed telecopy, in each case addressed to a party. The addresses for such
communications shall be:
If to the Company:
Fidelity Holdings, Inc.
80-02 Kew Gardens Road
Suite 5000
Kew Gardens, NY 11415
Telecopy: (718) 793-2455
Attention: Chief Executive Officer
and if to the holder, at such address as such holder shall have provided in
writing to the Company, or at such other address as each such party furnishes by
notice given in accordance with this Section 9.
14
<PAGE>
10. Governing Law; Jurisdiction. This Warrant shall be governed by and
construed in accordance with the laws of the State of New York without regard to
principles of choice of law or conflict of laws that would defer to the
substantive law of another jurisdiction performed in the State of New York. The
Company irrevocably consents to the jurisdiction of the United States federal
courts and state courts located in the City of New York in the State of New York
in any suit or proceeding based on or arising under this Warrant and irrevocably
agrees that all claims in respect of such suit or proceeding shall be determined
exclusively in such courts. The Company irrevocably waives the defense of an
inconvenient forum to the maintenance of such suit or proceeding. The Company
agrees that service of process upon the Company mailed by first class mail shall
be deemed in every respect effective service of process upon the Company in any
such suit or proceeding. Nothing herein shall affect the holder's right to serve
process in any other manner permitted by law. The Company agrees that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
11. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and the holder hereof.
(b) Descriptive Headings. The descriptive headings of the several
Sections of this Warrant are inserted for purposes of reference only, and shall
not affect the meaning or construction of any of the provisions hereof.
(c) Cashless Exercise. Notwithstanding anything to the contrary
contained in this Warrant, this Warrant may be exercised at any time during the
Exercise Period by presentation and surrender of this Warrant to the Company at
its principal executive offices with a written notice of the holder's intention
to effect a cashless exercise, including a calculation of the number of shares
of Common Stock to be issued upon such exercise in accordance with the terms
hereof (a "Cashless Exercise"). In the event of a Cashless Exercise, in lieu of
paying the Exercise Price in cash, the holder shall surrender this Warrant for
that number of shares of Common Stock determined by multiplying the number of
Warrant Shares to which it would otherwise be entitled by a fraction, the
numerator of which shall be the difference, but not less than zero between the
then current Market Price per share of the Common Stock and the Exercise Price,
and the denominator of which shall be the then current Market Price per share of
Common Stock.
15
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
FIDELITY HOLDINGS, INC.
By:
---------------------------------------
Name:
Title:
By:
---------------------------------------
Name:
Title:
16
<PAGE>
FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably exercises the right to purchase
_____________ of the shares of Common Stock of Fidelity Holdings, Inc., a
__________ corporation (the "Company"), evidenced by the attached Warrant, and
herewith makes payment of the Exercise Price with respect to such shares in
full, all in accordance with the conditions and provisions of said Warrant.
(i) The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws, and agrees that the following legend
may be affixed to the stock certificate for the Common Stock hereby subscribed
for if resale of such Common Stock is not registered or if Rule 144 is
unavailable for the immediate resale of such shares:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE
SECURITIES LAWS UNLESS OFFERED, SOLD OR TRANSFERRED UNDER AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE
LAWS.
(ii) The undersigned requests that stock certificates for such shares be
issued, and a Warrant representing any unexercised portion hereof be issued,
pursuant to the Warrant in the name of the Holder and delivered to the
undersigned at the address set forth below:
Dated:_________________
_____________________________________
Signature of Holder
_____________________________________
Name of Holder (Print)
Address:
_____________________________________
_____________________________________
_____________________________________
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
Name of Assignee Address Number of Shares
- ---------------- ------- ----------------
, and hereby irrevocably constitutes and appoints ______________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Dated: _____________________, ____
In the presence of
__________________
Name: _____________________________________
Signature: ________________________________
Title of Signing Officer or Agent (if any):
________________________________
Address: ________________________________
________________________________
Note: The above signature should
correspond exactly with the name on
the face of the within Warrant.
Exhibit 4.12
VOID AFTER 5:00 P.M., NEW YORK
CITY TIME, ON JANUARY 25, 2004
(UNLESS EXTENDED PURSUANT TO SECTION 2 HEREOF)
THIS WARRANT AND THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE. THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
UNLESS THE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT AND
APPLICABLE STATE SECURITIES LAWS, OR ANY SUCH OFFER, SALE OR TRANSFER IS
MADE PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THOSE LAWS.
Date: January 25, 1999 Right to Purchase _________
Shares of Common Stock
COMPUTER BUSINESS SCIENCES, INC.
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, _________________________ or its
or his registered assigns (the "Holder") is entitled to purchase from Computer
Business Sciences, Inc., a Delaware corporation (the "Company"), at any time or
from time to time during the period specified in Section 2 hereof,
______________________ (___________) fully paid and nonassessable shares (the
"Warrant Shares") of the Company's Common Stock, par value $0.01 per share
("Common Stock"), at an exercise price per share equal to $0.001 (the "Exercise
Price"). The number of Warrant Shares purchasable hereunder are subject to
adjustment as provided in Section 4 hereof. The term "Warrants" means this
Warrant and the other Warrants of the Company issued pursuant to that certain
Securities Purchase Agreement, dated as of January 25, 1999, by and among the
Company and the other signatories thereto (the "Securities Purchase Agreement")
and/or that certain Placement Agency Agreement of even date herewith between the
Company and The Zanett Securities Corporation (the "Placement Agency Agreement")
and the term "Holders" shall refer to the holders of Warrants.
This Warrant is subject to the following terms, provisions and conditions:
1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
Subject to the provisions hereof, including, without limitation, the limitations
contained in Section 7 hereof, this
<PAGE>
Warrant may be exercised by the Holder hereof, in whole or in part, by the
surrender of this Warrant, together with a completed exercise agreement in the
form attached hereto (the "Exercise Agreement"), to the Company by 11:59 p.m.,
New York time on any business day at the Company's principal executive offices
(or such other office or agency of the Company as it may designate by notice to
the Holder hereof), and upon payment to the Company in cash, by certified or
official bank check or by wire transfer for the account of the Company, of the
Exercise Price for the Warrant Shares specified in the Exercise Agreement.
Notwithstanding any provision hereof to the contrary, this Warrant shall be
deemed exercised in full immediately upon closing by the Company on an initial
public offering of shares of the Company's Common Stock at an initial public
offering price of $5.00 or more and pursuant to a Registration Statement (as
defined herein) which registers the resale of the Warrant Shares in compliance
with Section 8 below. The Warrant Shares so purchased shall be deemed to be
issued to the Holder hereof or the Holder's designee, as the record owner of
such shares, as of the close of business on the date on which this Warrant shall
have been surrendered, the completed Exercise Agreement shall have been
delivered and payment shall have been made for such Warrant Shares as set forth
above, or, if such date is not a business date, on the next succeeding business
day. Certificates for the Warrant Shares so purchased, representing the
aggregate number of shares specified in the Exercise Agreement, shall be
delivered to the Holder hereof within a reasonable time, not exceeding two (2)
business days, after this Warrant shall have been so exercised (the "Delivery
Period"). The certificates so delivered shall bear a standard restrictive legend
and shall be in such denominations as may be requested by the Holder hereof and
shall be registered in the name of the Holder or such other name as shall be
designated by the Holder. If this Warrant shall have been exercised only in
part, then, unless this Warrant has expired, the Company shall, at its expense,
at the time of delivery of such certificates, deliver to the Holder a new
Warrant representing the number of shares with respect to which this Warrant
shall not then have been exercised.
2. Period of Exercise. This Warrant is exercisable at any time or from
time to time on or after the date of the initial issuance of this Warrant (the
"Issue Date") and before 5:00 p.m., New York City time, on the fifth (5th) year
anniversary of the Issue Date (the "Exercise Period"). The Exercise Period shall
automatically be extended by one (1) day for each day on which the Company does
not have a number of shares of Common Stock reserved for issuance upon exercise
hereof at least equal to the number of shares of Common Stock issuable upon
exercise hereof.
3. Certain Agreements of the Company. The Company hereby covenants and
agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon issuance
in accordance with the terms of this Warrant, be validly issued, fully paid, and
nonassessable and free from all taxes, liens, claims and encumbrances.
(b) Reservation of Shares. During the Exercise Period, the Company
shall at all times have authorized, and reserved for the purpose of issuance
upon exercise of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant.
2
<PAGE>
(c) Certain Actions Prohibited. The Company will not, by amendment
of its charter or through any reorganization, transfer of assets, consolidation,
merger, dissolution, issue or sale of securities, or any other voluntary action,
avoid or seek to avoid the observance or performance of any of the terms to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the Holder of this
Warrant in order to protect the exercise privilege of the Holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of Common Stock receivable upon
the exercise of this Warrant above the Exercise Price then in effect, and (ii)
will take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.
(d) Successors and Assigns. This Warrant will be binding upon any
entity succeeding to the Company by merger, consolidation or acquisition of all
or substantially all of the Company's assets.
4. Adjustment to Number of Warrant Shares. During the Exercise Period, the
number of Warrant Shares shall be subject to adjustment from time to time as
provided in this Section 4. In the event that any adjustment required herein
results in a fraction of a share, such fraction shall be rounded up or down to
the nearest whole share.
(a) Subdivision or Combination of Common Stock. If the Company, at
any time during the Exercise Period subdivides (by any stock split, stock
dividend, recapitalization, reorganization, reclassification or otherwise) its
shares of Common Stock into a greater number of shares, then, after the date of
record for effecting such subdivision, the number of shares of Common Stock
issuable upon exercise of this Warrant and for which this Warrant is or may
become exercisable will be proportionately increased. If the Company, at any
time during the Exercise Period, combines (by reverse stock split,
recapitalization, reorganization, reclassification or otherwise) its shares of
Common Stock into a smaller number of shares, then, after the date of record for
effecting such combination, the number of shares of Common Stock issuable upon
exercise of this Warrant and for which this Warrant is or may become exercisable
will be proportionately decreased.
(b) Consolidation or Merger. In case of any consolidation of the
Company with, or merger of the Company into, any other corporation, or in case
of any sale or conveyance of all or substantially all of the assets of the
Company at any time during the Exercise Period, then as a condition of such
consolidation, merger or sale or conveyance, adequate provision will be made
whereby the Holder of this Warrant will have the right to acquire and receive
upon exercise of this Warrant in lieu of the shares of Common Stock immediately
theretofore acquirable upon the exercise of this Warrant, such shares of stock,
securities, cash or assets as may be issued or payable with respect to or in
exchange for the number of shares of Common Stock immediately theretofore
acquirable and receivable upon exercise of this Warrant had such consolidation,
merger, sale or conveyance not taken place. In any such case, the Company will
make appropriate provision to
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insure that the provisions of this Section 4 hereof will thereafter be
applicable as nearly as may be in relation to any shares of stock or securities
thereafter deliverable upon the exercise of this Warrant. The Company will not
effect any consolidation, merger, sale or conveyance unless prior to the
consummation thereof, the successor corporation (if other than the Company)
assumes by written instrument the obligations under this Warrant and the
obligations to deliver to the Holder of this Warrant such shares of stock,
securities or assets as, in accordance with the foregoing provisions, the Holder
may be entitled to acquire. Notwithstanding the foregoing, in the event of any
consolidation of the Company with, or merger of the Company into, any other
corporation, or the sale or conveyance of all or substantially all of the assets
of the Company, at any time during the Exercise Price, the Holder of the Warrant
shall, at its option, have the right to receive, in connection with such
transaction, cash consideration equal to the fair market value of this Warrant
as determined in accordance with customary valuation methodology used in the
investment banking industry.
(c) Distribution of Assets. In case the Company shall declare or
make any distribution of its assets (or rights to acquire its assets) to Holders
of Common Stock as a dividend, by way of return of capital or otherwise
(including any dividend or distribution to the Company's shareholders of cash or
shares (or rights to acquire shares) of capital stock of a subsidiary) (a
"Distribution"), at any time during the Exercise Period, then the Holder of this
Warrant shall be entitled upon exercise of this Warrant for the purchase of any
or all of the shares of Common Stock subject hereto, to receive the amount of
such assets (or rights) which would have been payable to the Holder had the
Holder been the holder of such shares of Common Stock on the record date for the
determination of shareholders entitled to such Distribution.
(d) Notice of Adjustment. Upon the occurrence of any event which
requires any adjustment of the number of Warrant Shares issuable hereunder,
then, and in each such case, the Company shall give notice thereof to the Holder
of this Warrant, which notice shall state the increase or decrease in the number
of Warrant Shares purchasable hereunder resulting from such adjustment, setting
forth in reasonable detail the method of calculation and the facts upon which
such calculation is based. Such calculation shall be certified by the chief
financial officer of the Company.
(e) Certain Events. If, at any time after the Issue Date, any event
occurs of the type contemplated by the adjustment provisions of this Section 4
but not expressly provided for by such provisions, the Company will give notice
of such event as provided in Section 4(d) hereof, and the Company's Board of
Directors will make an appropriate adjustment in the number of Warrant Shares
purchasable upon exercise of this Warrant so that the rights of the Holder shall
be neither enhanced nor diminished by such event.
5. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the Holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the Holder of this Warrant.
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6. No Rights or Liabilities as a Stockholder. This Warrant shall not
entitle the Holder hereof to any voting rights or other rights as a stockholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the Holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the Holder hereof, shall give rise to any
liability of the Holder for the Exercise Price or as a stockholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
7. Transfer, Exchange, Redemption and Replacement of Warrant.
(a) Restriction on Transfer. This Warrant and the rights granted to
the Holder hereof are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the form attached
hereto, at the office or agency of the Company referred to in Section 7(e)
below, provided, however, that any transfer or assignment shall be subject to
the conditions set forth in Section 7(f) hereof and to the provisions of
Sections 2(f) and (g) of the Securities Purchase Agreement. Until due
presentment for registration of transfer on the books of the Company, the
Company may treat the registered holder hereof as the owner and Holder hereof
for all purposes, and the Company shall not be affected by any notice to the
contrary. Notwithstanding anything to the contrary contained herein, the
registration rights described in Section 8 hereof are assignable only in
accordance with the provisions of the Registration Rights Agreement.
(b) Warrant Exchangeable for Different Denominations. This Warrant
is exchangeable, upon the surrender hereof by the Holder hereof at the office or
agency of the Company referred to in Section 7(e) below, for new Warrants of
like tenor of different denominations representing in the aggregate the right to
purchase the number of shares of Common Stock which may be purchased hereunder,
each of such new Warrants to represent the right to purchase such number of
shares as shall be designated by the Holder hereof at the time of such
surrender.
(c) Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
(d) Cancellation; Payment of Expenses. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided in
this Section 7, this Warrant shall be promptly canceled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses (other than legal expenses, if any, incurred by the Holder or
transferees) and charges payable in connection with the preparation, execution,
and delivery of Warrants pursuant to this Section 7. The Company shall indemnify
and reimburse the Holder of this Warrant for all costs and expenses (including
legal fees) incurred by the Holder in connection with the enforcement of its
rights hereunder.
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(e) Warrant Register. The Company shall maintain, at its principal
executive offices (or such other office or agency of the Company as it may
designate by notice to the Holder hereof), a register for this Warrant, in which
the Company shall record the name and address of the person in whose name this
Warrant has been issued, as well as the name and address of each transferee and
each prior owner of this Warrant.
(f) Exercise or Transfer Without Registration. If, at the time of
the surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act and under applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such exercise, transfer, or exchange, (i)
that the Holder or transferee of this Warrant, as the case may be, furnish to
the Company a written opinion of counsel (which opinion shall be in form,
substance and scope customary for opinions of counsel in comparable
transactions) to the effect that such exercise, transfer, or exchange may be
made without registration under the Securities Act and under applicable state
securities or blue sky laws (the cost of which shall be borne by the Company if
the Company's counsel renders such opinion and up to $ 250.00 of such cost shall
be borne by the Company if the Holder's counsel is requested to render such
opinion), (ii) that the Holder or transferee execute and deliver to the Company
an investment letter in form and substance acceptable to the Company and (iii)
that the transferee be an "accredited investor" as defined in Rule 501(a)
promulgated under the Securities Act; provided that no such opinion, letter or
status as an "accredited investor" shall be required in connection with any
transfer pursuant to Rule 144 under the Securities Act.
8. Registration Rights.
(a) Piggy-Back Registrations. If at any time prior to the expiration
of the Registration Period (as hereinafter defined) the Company shall file with
the Securities and Exchange Commission ("SEC") a registration statement (a
"Registration Statement") under the Securities Act of 1933 (the "Securities
Act") relating to an offering for its own account or the account of others under
the Securities 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 include in such Registration Statement all of the
Warrant Shares, except that if, in connection with any underwritten public
offering, the managing underwriter(s) thereof shall impose a limitation on the
number of shares of the Company's 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 Warrant Shares as the
underwriter shall permit. Any exclusion of Warrant Shares shall be made pro rata
among the Holders of Warrants and/or Warrant Shares, in proportion to the number
of Warrant Shares held or purchasable by such Holders; provided, however, that
the Company shall not exclude any Warrant Shares 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
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to pro rata inclusion with the Warrant Shares; and provided, further, however,
that, after giving effect to the immediately preceding proviso, any exclusion of
Warrant Shares 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.
(b) The Company shall keep the Registration Statements effective
pursuant to Rule 415 at all times until such date as is the earlier of (i) the
date on which at least 90% of the Warrant Shares have been sold, (ii) the date
on which all of the Warrant Shares (in the reasonable opinion of counsel to the
Holder) may be immediately sold to the public without registration or
restriction pursuant to Rule 144(k) under the Securities Act or any successor
provision, or (iii) the date on which all restrictive legends have been removed
from all Warrant Shares all "stop transfer" instructions issued to the Company's
transfer agent have been canceled (the "Registration Period"), which
Registration Statement (including any amendments or supplements thereto and
prospectuses contained therein and all documents incorporated by reference
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.
(c) The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the Registration
Statement and the prospectuses 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 Securities Act with respect to the disposition of all
Warrant Shares of the Company covered by the Registration Statement until such
time as all of such Warrant Shares 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.
(d) The Company shall furnish to the Holder and its legal counsel
(i) promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one copy of each Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, (ii) on the date of effectiveness of a Registration
Statement or any amendment thereto, a notice stating that the Registration
Statement or amendment has been declared effective, and (iii) such number of
copies of a prospectus, including a preliminary prospectus, and all amendments
and supplements thereto and such other documents as the Holder may reasonably
request in order to facilitate the disposition of the Warrant Shares owned by
the Holder.
(e) The Company shall use its best efforts to (i) register and
qualify the Warrant Shares covered by the Registration Statement under such
other securities or "blue sky" laws of such jurisdictions in the United States
as the Holder reasonably requests, (ii) prepare and file in those jurisdictions
such amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the
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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 Warrant Shares for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (a) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Subsection, (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.
(f) As promptly as practicable after becoming aware of such event,
the Company shall notify the Holder of the happening of any event, of which the
Company has knowledge, as a result of which the prospectus included in a
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and use its best
efforts promptly to prepare a supplement or amendment to such Registration
Statement to correct such untrue statement or omission, and deliver such number
of copies of such supplement or amendment to the Holder as the Holder may
reasonably request.
(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 practicable moment (including in each case by amending or
supplementing such Registration Statement) and to notify the Holder of the
issuance of such order and the resolution thereof (and if such Registration
Statement is supplemented or amended, deliver such number of copies of such
supplement or amendment to the Holder as the Holder may reasonably request).
(h) The Company shall permit a single firm of counsel designated by
the Holders to review each Registration Statement and all amendments and
supplements thereto 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.
(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 Securities 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 a Registration Statement.
(j) At the request of the Holders, the Company shall make available,
on the date of effectiveness of a Registration Statement (i) an opinion, dated
as of such date, from counsel representing the Company addressed to the Holders
and in form, scope and substance as is customarily given in an underwritten
public offering and (ii) in the case of an underwriting, a letter,
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dated such date, from the Company's independent certified public accountants in
form and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and the Holders.
(k) The Company shall make available for inspection by (i) the
Holder, and (ii) one firm of attorneys and one firm of accountants or other
agents retained by the Holders, (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 a Holder) or use
of any Record or other information which the Company determines in good faith to
be confidential, and of which determination the Inspectors are so notified,
unless (a) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in any Registration Statement, (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 Subsection. The Holder 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 shall be deemed to limit
the Holder's ability to sell Warrant Shares 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 the Holder provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement, or (v) the Holder
consents to the form and content of any such disclosure. The Company agrees that
it shall, upon learning that disclosure of such information concerning the
Holder is sought in or by a court or governmental body of competent jurisdiction
or through other means, give prompt notice to the Holder prior to making such
disclosure, and allow the Holder, at its expense, to undertake appropriate
action to prevent disclosure of, or to obtain a protective order for, such
information.
(m) The Company shall provide a transfer agent and registrar, which
may be a single entity, for the Warrant Shares not later than the effective date
of the Registration Statement.
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(n) At the reasonable request of the Holder, the Company shall
prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to a Registration Statement and the prospectus used
in connection with the Registration Statement as may be necessary in order to
change the plan of distribution set forth in the Registration Statement.
(o) The Company shall comply with all applicable laws related to the
Registration Statement and offering and sale of securities and all applicable
rules and regulations of governmental authorities in connection therewith
(including, without limitation, the Securities Act and the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated by the SEC).
(p) The Company shall take all such other actions as the Holder
reasonably request in order to expedite or facilitate the disposition of the
Warrant Shares.
(q) It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Warrant with respect to
the Warrant Shares that the Holder shall furnish to the Company such information
regarding itself, the Warrant Shares and the intended method of disposition of
the Warrant Shares held by it as shall be reasonably required to effect the
registration of such Warrant Shares and shall execute such documents in
connection with such registration as the Company may reasonably request. At
least five (5) business days prior to the first anticipated filing date of the
Registration Statement, the Company shall notify the Holder of the information
the Company requires from each the Holder.
(r) The Holder, by the Holder's acceptance of the Warrant Shares,
agrees to cooperate with the Company as reasonably requested by the Company in
connection with the preparation and filing of the Registration Statement
hereunder.
(s) All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications, including, without limitation, all registration, listing and
qualifications fees, printers and accounting fees, the fees and disbursements of
counsel for the Company, and the reasonable fees and disbursements of one
counsel selected by the Holders pursuant hereto shall be borne by the Company.
In addition, the Company shall pay all of the Holders' costs and expenses
(including legal fees) incurred in connection with the enforcement of the rights
of the Holders hereunder.
(t) To the extent permitted by law, the Company will indemnify, hold
harmless and defend (i) the Holder, and (ii) the directors, officers, partners,
members, employees, agents and each person who controls the Holder within the
meaning of Section 15 of the Securities Act or Section 20 of the Securities
Exchange Act of 1934, as amended (the "Exchange 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
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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 Securities Act, the Exchange 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 Warrant Shares (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 Holder and each other
Indemnified Person, promptly as such expenses are incurred and are due and
payable, for any reasonable legal fees or other reasonable, actual and
appropriate out of pocket expenses incurred by them in connection with
investigating or defending any such Claim. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Subsection: (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 such Indemnified Person expressly for use
in a Registration Statement or any such amendment thereof or supplement thereto;
(ii) shall not apply to amounts paid in settlement of any Claim if such
settlement is effected without the prior written consent of the Company, which
consent shall not be unreasonably withheld; and (iii) with respect to any
preliminary prospectus, shall not inure to the benefit of any Indemnified Person
if the untrue statement or omission of material fact contained in the
preliminary prospectus was corrected on a timely basis in the prospectus, as
then amended or supplemented, if such corrected prospectus was timely made
available by the Company 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 Warrant Shares by the Holders pursuant to Section 9 hereof.
(u) In connection with any Registration Statement in which the
Holder is participating, the Holder agrees to indemnify, hold harmless and
defend, to the same extent and in the same manner set forth in Subsection (t),
the Company, each of its directors, each of its officers who signs the
Registration Statement, its employees, agents and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange 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 Securities
Act or the Exchange Act (collectively and together with an Indemnified Person,
an "Indemnified Party"), against any Claim to which any of them may become
subject, under the Securities Act, the Exchange Act or otherwise, insofar as
such Claim arises out of or is based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished to the Company by the Holder
expressly for use in connection with such Registration Statement; and subject to
Subsection (v) the Holder will reimburse
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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 Subsection shall not apply to amounts paid in settlement of
any Claim if such settlement is effected without the prior written consent of
the Holder, which consent shall not be unreasonably withheld; provided, further,
however, that the Holder shall be liable under this Agreement (including this
Subsection and Subsection (w) for only that amount as does not exceed the net
proceeds actually received by the Holder as a result of the sale of Warrant
Shares 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. Notwithstanding anything to the contrary contained
herein, the indemnification agreement contained in this Subsection 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, and the Indemnified Party failed to utilize such
corrected prospectus.
(v) Promptly after receipt by an Indemnified Person or Indemnified
Party 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 made against any indemnifying party, 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 such
indemnifying party shall not be entitled to assume such defense and 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
conflicts of interest between such Indemnified Person or Indemnified Party and
any other party represented by such counsel in such proceeding or the actual or
potential defendants in, or targets of, any such action include both the
Indemnified Person or the Indemnified Party and the indemnifying party and any
such Indemnified Person or Indemnified Party reasonably determines that there
may be legal defenses available to such Indemnified Person or Indemnified Party
which are different from or in addition to those available to such indemnifying
party. 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 the Holder, if the Holder is entitled to
indemnification hereunder, or by 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, except to the extent that the
indemnifying party is actually prejudiced in its ability to defend such action.
The indemnification required hereby 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.
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(w) 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 Subsections (t) or (u) 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 Subsections (t) and (u), (ii) no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any seller of Warrant Shares who was not
guilty of such fraudulent misrepresentation, and (iii) contribution (together
with any indemnification or other obligations under this Agreement) by any
seller of Warrant Shares shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Warrant Shares pursuant
to such Registration Statement.
9. Notices. Any notices required or permitted to be given under the terms
of this Warrant shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier or by confirmed telecopy, and
shall be effective five days after being placed in the mail, if mailed, or upon
receipt or refusal of receipt, if delivered personally or by courier or
confirmed telecopy, in each case addressed to a party. The addresses for such
communications shall be:
If to the Company:
Computer Business Sciences, Inc.
80-02 Kew Gardens Road
Suite 5000
Kew Gardens, NY 11415
Telecopy:
Attention:
and if to the Holder, at such address as the Holder shall have provided in
writing to the Company, or at such other address as each such party furnishes by
notice given in accordance with this Section 9.
10. Governing Law; Jurisdiction. This Warrant shall be governed by and
construed in accordance with the laws of the State of New York without regard to
principles of choice of law or conflict of laws that would defer to the
substantive law of another jurisdiction. The Company irrevocably consents to the
jurisdiction of the United States federal courts and state courts located in the
City of New York in the State of New York in any suit or proceeding based on or
arising under this Warrant and irrevocably agrees that all claims in respect of
such suit or proceeding shall be determined exclusively in such courts. The
Company irrevocably waives the defense of an inconvenient forum to the
maintenance of such suit or proceeding. The Company agrees that service of
process upon the Company mailed by first class mail shall be deemed in every
respect effective service of process upon the Company in any such suit or
proceeding. Nothing herein shall affect the Holder's right to serve process in
any other manner permitted by law. The Company agrees that a
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<PAGE>
final non-appealable judgment in any such suit or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on such judgment or in any
other lawful manner.
11. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and the Holder hereof.
(b) Descriptive Headings. The descriptive headings of the several
Sections of this Warrant are inserted for purposes of reference only, and shall
not affect the meaning or construction of any of the provisions hereof.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by
its duly authorized officer.
COMPUTER BUSINESS SCIENCES, INC.
By:
---------------------------------------
Name:
Title:
By:
---------------------------------------
Name:
Title:
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<PAGE>
FORM OF EXERCISE AGREEMENT
(To be Executed by the Holder in order to Exercise the Warrant)
The undersigned hereby irrevocably exercises the right to purchase
_____________ of the shares of Common Stock of Computer Business Sciences, Inc.,
a Delaware corporation (the "Company"), evidenced by the attached Warrant, and
herewith makes payment of the Exercise Price with respect to such shares in
full, all in accordance with the conditions and provisions of said Warrant.
(i) The undersigned agrees not to offer, sell, transfer or otherwise
dispose of any Common Stock obtained on exercise of the Warrant, except under
circumstances that will not result in a violation of the Securities Act of 1933,
as amended, or any state securities laws, and agrees that the following legend
may be affixed to the stock certificate for the Common Stock hereby subscribed
for if resale of such Common Stock is not registered or if Rule 144 is
unavailable for the immediate resale of such shares:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE SECURITIES
REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR THE SECURITIES UNDER APPLICABLE
SECURITIES LAWS UNLESS OFFERED, SOLD OR TRANSFERRED UNDER AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE
LAWS.
(ii) The undersigned requests that stock certificates for such shares be
issued, and a Warrant representing any unexercised portion hereof be issued,
pursuant to the Warrant in the name of the Holder and delivered to the
undersigned at the address set forth below:
Dated:_________________ _____________________________________
Signature of Holder
_____________________________________
Name of Holder (Print)
Address:
_____________________________________
_____________________________________
_____________________________________
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
Name of Assignee Address Number of Shares
- ---------------- ------- ----------------
, and hereby irrevocably constitutes and appoints ____________________________
as agent and attorney-in-fact to transfer said Warrant on the books of the
within-named corporation, with full power of substitution in the premises.
Dated: _____________________, ____
In the presence of
__________________
Name: __________________________________
Signature: ________________________________
Title of Signing Officer or Agent (if any):
________________________________
Address: ________________________________
________________________________
Note: The above signature should
correspond exactly with the name on
the face of the within Warrant.
Exhibit 4.13
THIS CONVERTIBLE SUBORDINATED TERM DEBENTURE AND THE SECURITIES ISSUABLE UPON
CONVERSION HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF ANY STATE. THE
SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED
UNLESS THE SECURITIES ARE REGISTERED UNDER THE SECURITIES ACT AND APPLICABLE
STATE SECURITIES LAWS, OR ANY SUCH OFFER, SALE OR TRANSFER IS MADE UNDER AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THOSE LAWS.
CONVERTIBLE SUBORDINATED TERM DEBENTURE
Date: January 25, 1999 $______________
FOR VALUE RECEIVED, FIDELITY HOLDINGS, INC., a corporation organized
under the laws of the State of Nevada (hereinafter called the "Borrower" or the
"Corporation") hereby promises to pay to the order of ______________________ or
registered assigns (individually, the "Holder", and collectively with the
holders of all other debentures of same like and tenor, the "Holders") the sum
of ________________ Dollars ($________) together with interest at the rate of
twelve percent (12%) per annum (the "Interest Rate"), as follows: Interest shall
accrue on the unconverted face amount hereof from the date hereof (the "Issue
Date") through that date which is one hundred eighty (180) days from the Issue
Date (the "Accrual Period"), at which time all accrued interest shall be added
to the unconverted face amount hereof and the resulting balance, together with
interest at the Interest Rate shall be due and payable in sixteen (16) equal
monthly installments of $_________ commencing one month following the end of the
Accrual Period and continuing on the same day of each month with a final payment
on that date which is seventeen (17) months following the end of the Accrual
Period (the "Scheduled Maturity Date"). Interest shall accrue on a daily basis.
Any amount of principal of or interest on this Debenture which is not paid when
due shall bear interest at the rate of fifteen percent (15%) per annum from the
due date thereof until the same is paid. Interest shall be calculated based on a
360 day year having twelve months of thirty days each. All payments of principal
and interest (to the extent not converted in accordance with the terms hereof)
shall be made in, and all references herein to monetary denominations shall
refer to, lawful money of the United States of America, subject to the Holder's
conversion right set below. 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 this Debenture.
<PAGE>
Notwithstanding any provision hereof to the contrary, the Holder shall
have the option to receive each payment of principal and interest hereunder in
cash or to convert all or any portion of such payment into shares of Common
Stock (defined below) pursuant to Article III below. The Holder shall be
required to deliver a Notice of Conversion in order to convert any payment of
principal and interest hereunder (or a portion thereof) into shares of Common
Stock. Such written notice of its election to convert shall be delivered no
later than two (2) business days prior to the payment due date. In such event,
the Conversion Date with respect to any such conversion shall be the payment due
date.
This Debenture is being issued by the Borrower along with similar
convertible term debentures (the "Other Debentures" and, together with this
Debenture, the "Debentures") pursuant to that certain Securities Purchase
Agreement, dated as of January 25, 1999 by and among the Borrower and the other
signatories thereto (the "Securities Purchase Agreement").
ARTICLE I
PREPAYMENT; SUBORDINATION
A. Limited Right to Prepay. Upon the occurrence of an Event of Default (as
defined herein), this Debenture shall be prepaid by the Borrower in accordance
with the provisions of Article VII hereof. Except as provided in Paragraph B of
this Article I, this Debenture may not be prepaid at the option of Borrower
without the prior written consent of the Holder.
B. Prepayment at Borrower's Option. Subject to prior conversion, the
Borrower shall have the right to prepay the unpaid principal balance of and
accrued but unpaid interest on this Debenture in whole or in part at any time
upon not less than sixty (60) days written notice to the Holders; provided that
(i) any such prepayment of principal shall be accompanied by a prepayment
premium equal to ten percent (10%) of the principal amount being prepaid, and
(ii) all payments shall be applied first to the payment of costs and expenses,
if any, due from the Borrower to the Holder, if any, then to accrued but unpaid
interest on the principal balance hereof and then to the scheduled payments of
principal in inverse order of maturity.
C. Subordination.
(i) The indebtedness evidenced by the Debenture shall be
subordinated and junior in right of payment to all Senior Indebtedness (as
defined below) to the extent and in the manner set forth in this Article I.C.
(ii) In the event of (a) any insolvency, bankruptcy, receivership,
liquidation, reorganization, debt readjustment or composition or other similar
proceeding relative to the Corporation or its creditors or its property, (b) any
proceeding for voluntary liquidation, dissolution or other winding up of the
Corporation, whether or not involving insolvency or bankruptcy proceedings or
(c) any assignment for the benefit of creditors or any other marshaling of the
assets
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<PAGE>
of the Corporation, then and in any such event the holders of all Senior
Indebtedness shall first be paid in full the principal thereof and prepayment
charges, if any, and interest at the time due thereon before any payment or
distribution of any character, whether in cash, securities or other property,
shall be made on account of the Debenture.
(iii) Until the Senior Indebtedness is paid in full, the holder of
the Debenture shall be subordinated to the rights of the holders of Senior
Indebtedness to receive cash payments, but not with respect to receive Common
Stock as contemplated by the conversion provisions hereunder.
(iv) Upon any distribution of assets or securities of the
Corporation referred to in this Article I.C, the holder of the Debenture shall
be entitled to rely upon a certificate of any liquidating trustee or agent or
other person making any distribution to the holder of the Debenture for the
purpose of ascertaining the persons entitled to participate in such
distribution, the holders of Senior Indebtedness and other indebtedness of the
Corporation, the amount thereof or payable thereon, the amount or amounts paid
or distributed thereon and all other facts pertinent thereto or to this Article
I.C.
(v) In the event and during the continuation of any default in the
payment of principal of, or prepayment charge, if any, or interest on, any
Senior Indebtedness beyond any applicable period of grace, or in the event that
any event of default with respect to any Senior Indebtedness shall have occurred
and be continuing permitting the holders of such Senior Indebtedness (or a
trustee on behalf of the holders thereof) to accelerate the maturity thereof,
then unless and until such default or event of default shall have been cured or
waived or shall have ceased to exist, no cash payment of principal, premium, if
any, or interest shall be made by the Corporation on the Debenture.
(vi) No right of any present or future holder of any Senior
Indebtedness of the Corporation to enforce subordination as herein provided
shall at any time in any way be prejudiced or impaired by any act or failure to
act on the part of the Corporation or by any act or failure to act, in good
faith, by any such holder, or by any non-compliance by the Corporation with the
covenants, agreements and conditions of the Debenture, regardless of any
knowledge thereof any such holder may have or be otherwise charged with.
(vii) "Senior Indebtedness" means all loans, advances, reimbursement
obligations regarding letters of credit, liabilities, covenants, guarantees and
duties now existing or arising from time to time hereafter and renewals,
extensions and refundings of any such indebtedness, whether for principal,
premium or interest or otherwise of the Corporation or any subsidiary of the
Corporation (including without limitation Major Acquisition Corp.) (i)
outstanding as of January 25, 1999, or (ii) to, but only to, any bank or other
commercial financing institution and either (A) incurred in connection with the
acquisition of the securities or assets of another entity constituting the
acquisition of the business of such entity, or (B) constituting "floor planning"
financing of automobile dealerships (all indebtedness described in clauses (i)
and (ii) above shall be referred to herein as "Qualifying Debt"), absolute or
contingent, secured or unsecured, due or to become due, including (1) any
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<PAGE>
Qualifying Debt which such bank or other commercial financing institution may
have obtained by assignment, pledge, purchase or otherwise, (2) any overdraft or
overadvance to the Corporation with respect to Qualifying Debt, and (3) all
interest, charges, expenses and attorney's fees for which the Corporation or any
subsidiary of the Corporation is now or hereafter becomes liable with respect to
Qualifying Debt (unless in the instrument creating or evidencing such
indebtedness, or pursuant to which the same is outstanding, it is provided that
such indebtedness or such renewal, extension or refunding thereof is
subordinated in right of payment to the Debentures).
ARTICLE II
CERTAIN DEFINITIONS
The following terms shall have the following meanings:
A. "Closing Bid Price" means, for any security as of any date, the closing
bid price of such security on the principal United States securities exchange or
trading market where such security is listed or traded as reported by Bloomberg
Financial Markets (or a comparable reporting service of national reputation
selected by the Corporation and reasonably acceptable to holders of a majority
of the aggregate principal amount represented by the then outstanding Debentures
("Majority Holders") if Bloomberg Financial Markets is not then reporting
closing bid prices of such security) (collectively, "Bloomberg"), or if the
foregoing does not apply, the last reported bid price of such security in the
over-the-counter market on the electronic bulletin board for such security as
reported by Bloomberg, or, if no bid price is reported for such security by
Bloomberg, the average of the bid prices of any market makers for such security
as reported in the "pink sheets" by the National Quotation Bureau, Inc., in each
case for such date or, if such date was not a trading date for such security, on
the next preceding date which was a trading date. If the Closing Bid Price
cannot be calculated for such security as of either of such dates on any of the
foregoing bases, the Closing Bid Price of such security on such date shall be
the fair market value as reasonably determined by an investment banking firm
selected by the Corporation and reasonably acceptable to the Majority Holders,
with the costs of such appraisal to be borne by the Corporation.
B. "Conversion Amount" means the portion of the unconverted principal
amount of this Debenture being converted plus any accrued and unpaid interest
thereon through the Conversion Date and any Prepayment Default Payments payable
with respect thereto, each as specified in the notice of conversion in the form
attached hereto (the "Notice of Conversion").
C. "Conversion Date" means, for any Optional Conversion (as defined
below), the date specified in the Notice of Conversion so long as the copy of
the Notice of Conversion is faxed (or delivered by other means resulting in
notice) to the Corporation at or before 11:59 p.m., New York City time, on the
Conversion Date indicated in the Notice of Conversion; provided, however, that
if the Notice of Conversion is not so faxed or otherwise delivered before such
time, then the Conversion Date shall be the date the holder faxes or otherwise
delivers the Notice of Conversion to the Corporation.
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<PAGE>
D. "Conversion Price" means the lower of the Fixed Conversion Price and
the Variable Conversion Price, each in effect as of such date and subject to
adjustment as provided herein, but in no event less than the Floor Conversion
Price.
E. "Fixed Conversion Price" means $4.20, and shall be subject to
adjustment as provided herein.
F. "Floor Conversion Price" means $3.00, subject to applicable adjustment
as provided herein.
G. "Variable Conversion Price" means, as of any date of determination, an
amount equal to 90% (the "Conversion Percentage") of the average of the Closing
Bid Prices for the Corporation's common stock, par value $0.001 per share
("Common Stock"), for any three (3) trading days selected by the Holder during
the twenty (20) consecutive trading days ending on the trading day immediately
preceding such date of determination (the "Lookback Period") (subject to
equitable adjustment for any stock splits, stock dividends, reclassifications or
similar events during such twenty (20) trading day period), and shall be subject
to adjustment as provided herein. For the avoidance of doubt, the trading day
immediately preceding any Conversion Date is the last calendar day that is a
trading day and which is immediately preceding the Conversion Date. As of the
end of the Accrual Period, the Lookback Period shall be increased to twenty-one
(21) days, and it shall increase by one date as of the same day of each
succeeding calendar month.
ARTICLE III
CONVERSION
A. Conversion at the Option of the Holder. (i) Subject to the limitations
on conversions contained in Paragraph C of this Article III and the rights of
prepayment set forth in Article I, the Holder may, at any time and from time to
time on or after the Issue Date and prior to payment in full of the outstanding
unconverted principal balance of and accrued interest on this Debenture, convert
(an "Optional Conversion") all or any part of the outstanding principal amount
of this Debenture, plus all accrued interest thereon through the Conversion
Date, into a number of fully paid and nonassessable shares of Common Stock
determined in accordance with the following formula:
Conversion Amount
Conversion Price
B. Mechanics of Conversion. In order to effect an Optional Conversion, a
Holder shall: (x) fax (or otherwise deliver) a copy of the fully executed Notice
of Conversion to the Corporation or its transfer agent for the Common Stock and
(y) surrender or cause to be surrendered this Debenture, duly endorsed, along
with a copy of the Notice of Conversion as soon as practicable thereafter to the
Corporation. Upon receipt by the Corporation or its transfer agent of a
facsimile copy of a Notice of Conversion from a Holder, the Corporation shall
immediately send, via facsimile,
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<PAGE>
a confirmation to such Holder stating that the Notice of Conversion has been
received, the date upon which the Corporation expects to deliver the Common
Stock issuable upon such conversion and the name and telephone number of a
contact person at the Corporation regarding the conversion. The Corporation
shall not be obligated to issue shares of Common Stock upon a conversion unless
either this Debenture is delivered to the Corporation as provided above, or the
Holder notifies the Corporation or its transfer agent that such certificates
have been lost, stolen or destroyed and delivers the documentation to the
Corporation required by Article IX.H hereof.
(i) Delivery of Common Stock Upon Conversion. Upon the surrender of
this Debenture accompanied by a Notice of Conversion, the Corporation shall, no
later than the later of (a) the fifth business day following the Conversion Date
and (b) the business day following the date of such surrender (or, in the case
of lost, stolen or destroyed certificates, after provision of indemnity pursuant
to Article IX.H) (the "Delivery Period"), issue and deliver to the Holder or its
nominee (x) that number of shares of Common Stock issuable upon conversion of
the portion of this Debenture being converted and (y) a new Debenture in the
form hereof representing the balance of the principal amount hereof not being
converted, if any. If the Corporation's transfer agent is participating in the
Depository Trust Corporation ("DTC") Fast Automated Securities Transfer program,
and if, but only if, as the certificates therefor do not bear a legend and the
holder thereof is not then obligated to return such certificate for the
placement of a legend thereon, the Corporation shall cause its transfer agent to
electronically transmit the Common Stock issuable upon conversion to the holder
by crediting the account of the holder or its nominee with DTC through its
Deposit Withdrawal Agent Commission system ("DTC Transfer"). If the
aforementioned conditions to a DTC Transfer are not satisfied, the Corporation
shall deliver to the holder physical certificates representing the Common Stock
issuable upon conversion. Further, a Holder may instruct the Corporation to
deliver to the holder physical certificates representing the Common Stock
issuable upon conversion in lieu of delivering such shares by way of DTC
Transfer.
(ii) Taxes. The Corporation shall pay any and all taxes which may be
imposed upon it with respect to the issuance and delivery of the shares of
Common Stock upon the conversion of this Debenture.
(iii) No Fractional Shares. If any conversion of this Debenture
would result in the issuance of a fractional share of Common Stock, such
fractional share shall not be issued and an amount equal to the product of such
fraction and the Closing Bid Price as of the date of Conversion Date shall be
paid in lieu thereof.
(iv) Conversion Disputes. In the case of any dispute with respect to
a conversion, the Corporation shall promptly issue such number of shares of
Common Stock as are not disputed in accordance with subparagraph (i) above. If
such dispute involves the calculation of the Conversion Price, the Corporation
shall submit the disputed calculations to an independent outside accountant via
facsimile within two (2) business days of receipt of the Notice of Conversion.
The accountant, at the Corporation's sole expense (unless the accountant
concludes that the Corporation's initial calculation was correct, in which event
at the holder's expense), shall audit the calculations and notify
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<PAGE>
the Corporation and the holder of the results no later than two business days
from the date it receives the disputed calculations. The accountant's
calculation shall be deemed conclusive, absent manifest error. The Corporation
shall then issue the appropriate number of shares of Common Stock in accordance
with subparagraph (i) above.
C. Limitations on Conversions. The conversion of this Debenture shall be
subject to the following limitations (each of which limitations shall be applied
independently):
(i) Cap Amount. If, notwithstanding the representations and
warranties of the Corporation contained in Section 3(c) of the Securities
Purchase Agreement, the Corporation is prohibited by Rule 4310(a)(25)(H) or Rule
4460(i) (as the case may be) of the National Association of Securities Dealers,
Inc. ("NASD"), or any successor or similar rule, or the rules or regulations of
any other securities exchange on which the Common Stock is then listed or
traded, from issuing a number of shares of Common Stock in excess of a
prescribed amount (the "Cap Amount"), then the Corporation shall not be required
to issue shares in excess of the Cap Amount; provided, however, that this
limitation in this Article III.C.(i) shall not apply and shall be of no further
force and effect after the date of the effectiveness of the shareholder approval
(the "Shareholder Approval Date") referred to in Section 4(o) of the Securities
Purchase Agreement. Assuming solely for purposes of this paragraph C that Rule
4310(a)(25)(H) or Rule 4460(i) is applicable, the Cap Amount shall be 1,494,800
shares. The Cap Amount shall be allocated pro rata to the Holders of the
Debentures as provided in Article IX.D. In the event the Corporation is
prohibited from issuing shares of Common Stock as a result of the operation of
this subparagraph (i), the Corporation shall comply with Article VI.
(ii) No Five Percent Holders. Unless waived in accordance with the
last sentence of this subparagraph, in no event shall a holder of the Debentures
be entitled to receive shares of Common Stock upon a conversion to the extent
that the sum of (x) the number of shares of Common Stock beneficially owned by
the Holder and its affiliates (exclusive of shares issuable upon conversion of
the unconverted portion of the Debentures or the unexercised or unconverted
portion of any other securities of the Corporation (including, without
limitation, the warrants (the "Warrants") issued by the Corporation pursuant to
the Securities Purchase Agreement) subject to a limitation on conversion or
exercise analogous to the limitations contained herein) and (y) the number of
shares of Common Stock issuable upon the conversion of the Debentures with
respect to which the determination of this subparagraph is being made, would
result in beneficial ownership by the holder and its affiliates of more than
4.99% of the outstanding shares of Common Stock. For purposes of this
subparagraph, beneficial ownership shall be determined in accordance with
Section 13(d) of the Securities Exchange Act of 1934, as amended, and Regulation
13 D-G thereunder, except as otherwise provided in clause (x) above. Except as
provided in the immediately succeeding sentence, the restriction contained in
this subparagraph (ii) shall not be altered, amended, deleted or changed in any
manner whatsoever unless the holders of a majority of the outstanding shares of
Common Stock and the holders of a majority of the outstanding principal amount
of the Debentures shall approve such alteration, amendment, deletion or change.
In applying the foregoing, such limitation should be applied in conjunction with
the application of limitations on conversion or exercise analogous to the
foregoing
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<PAGE>
limitation. Notwithstanding the foregoing, the holder of this Debenture may
waive the foregoing limitations and restrictions by written notice to the
Corporation.
ARTICLE IV
RESERVATION OF SHARES OF COMMON STOCK
A. Reserved Amount. On the Issue Date, the Corporation shall reserve
_________ of the authorized but unissued shares of Common Stock for issuance
upon conversion of the Debentures and thereafter the number of authorized but
unissued shares of Common Stock so reserved (as so increased, the "Reserved
Amount") shall not be decreased and shall at all times be sufficient to provide
for the conversion of the Debentures at the then current Floor Conversion Price
thereof. The Reserved Amount shall be allocated to the Holders of the Debentures
as provided in Article IX.D.
B. Increases to Reserved Amount. If the Reserved Amount for any three
consecutive trading days (the last of such three trading days being the
"Authorization Trigger Date") shall be less than 100% of the number of shares of
Common Stock issuable upon conversion of the Debentures at the then-current
Floor Conversion Price, the Corporation shall immediately notify the Holders of
the Debentures of such occurrence and shall take immediate action (including, if
necessary, seeking shareholder approval to authorize the issuance of additional
shares of Common Stock) to increase the Reserved Amount to 100% of the number of
shares of Common Stock then issuable upon conversion of the Debentures at the
then-current Floor Conversion Price. In the event the Corporation fails to so
increase the Reserved Amount within, in the event shareholder approval is
required, ninety (90) days, or, in the event only approval of the Company's
Board of Directors is required, ten (10) days after an Authorization Trigger
Date, each Holder of the Debentures shall thereafter have the option,
exercisable in whole or in part at any time and from time to time by delivery of
a Default Notice (as defined in Article VII.C) to the Corporation, to require
the Corporation to prepay for cash, at the Default Amount (as defined in Article
VII.B), a portion of the Holder's principal amount outstanding of the Debentures
(plus accrued interest thereon) such that, after giving effect to such
prepayment, the holder's allocated portion of the Reserved Amount exceeds 100%
of the total number of shares of Common Stock issuable to such holder upon
conversion of its Debenture at the then-current Floor Conversion Price. If the
Corporation fails to pay the Default Amount within five (5) business days after
its receipt of such Default Notice, then such Holder shall be entitled to the
remedies provided in Article VII.C. Subject to the limitations on issuance of
shares of Common Stock in excess of any Holder's Cap Amount, notwithstanding
anything else contained herein, if the Corporation has a sufficient number of
authorized shares of Common Stock, the Corporation shall immediately issue
additional shares of Common Stock to any Holder who has exceeded its allocated
portion of the Reserved Amount upon conversions by such Holder of its
Debentures.
C. Adjustment to Conversion Price. If the Corporation is prohibited, at
any time, from issuing shares of Common Stock upon conversion of the Debentures
to any Holder because the
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<PAGE>
Corporation does not then have available a sufficient number of authorized and
reserved shares of Common Stock, then the Fixed Conversion Price in respect of
any Debentures held by any Holder (including Debentures submitted to the
Corporation for conversion, but for which shares of Common Stock have not been
issued to any such Holder) shall be adjusted as provided in Article V.A.
ARTICLE V
FAILURE TO SATISFY CONVERSIONS
A. Conversion Defaults; Adjustments to Conversion Price. The following
shall constitute a "Conversion Default": (i) following the submission by a
Holder of a Notice of Conversion, the Corporation fails for any reason (other
than because of an event described in clause (iii) below) to deliver, on or
prior to the fourth business day following the expiration of the Delivery Period
for such conversion, such number of shares of Common Stock without a restrictive
legend (provided that appropriate stop transfer instructions may be given to the
transfer agent as provided in the Registration Rights Agreement) to which such
Holder is entitled upon such conversion (unless as of the Conversion Date the
Corporation is not required to have effective a registration statement covering
the resale of such shares under the terms of the Registration Rights Agreement
(defined below)), (ii) the Corporation provides notice to any Holder of a
Debenture at any time of its intention not to issue shares of Common Stock
without a restrictive legend (provided that appropriate stop transfer
instructions may be given to the transfer agent as provided in the Registration
Rights Agreement) upon exercise by any Holder of its conversion rights in
accordance with the terms of the Debentures (other than because of an event
described in clause (iii) below at a time when the Corporation is required under
the Registration Rights Agreement to have an effective registration statement
covering the resale of shares issuable upon conversion, or (iii) the Corporation
is prohibited, at any time, from issuing shares of Common Stock upon conversion
of the Debentures to any Holder because the Corporation (A) does not have
available at the date of such conversion a sufficient number of authorized and
reserved shares of Common Stock or (B) such issuance would exceed the then
unissued portion of such Holder's Cap Amount. In the case of a Conversion
Default described in clause (i) or (iii) above, the Fixed Conversion Price in
respect of any Debentures held by such Holder (including Debentures submitted to
the Corporation for conversion, but for which shares of Common Stock have not
been issued to such Holder) shall thereafter be the lesser of (x) the Fixed
Conversion Price on the date of the Conversion Default and (y) the lowest
Conversion Price in effect during the period beginning on, and including, such
date through and including (A) in the case of a Conversion Default referred to
in clause (i) above, the earlier of (1) the day such shares of Common Stock are
delivered to the Holder and (2) the day on which the holder regains its rights
as a holder of the Debentures with respect to such unconverted Debentures
pursuant to the provisions of Article IX.L hereof, and (B) in the case of a
Conversion Default referred to in clause (iii) above, the date on which the
prohibition on issuances of Common Stock terminates. In the case of a Conversion
Default described in clause (ii) above, the Fixed Conversion Price with respect
to any conversion thereafter shall be the lowest Conversion Price in effect at
any time during the period beginning on, and including, the date of the
occurrence of such Conversion Default through and
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including the Default Cure Date (as hereinafter defined). Following any
adjustment to the Fixed Conversion Price pursuant to this Article V.A, the Fixed
Conversion Price shall thereafter be subject to further adjustment for any
events described in Article VIII. Upon the occurrence of each reset of the Fixed
Conversion Price pursuant to this Paragraph A, the Corporation, at its expense,
shall promptly compute the new Fixed Conversion Price and prepare and furnish to
each Holder of the Debentures a certificate setting forth such new Fixed
Conversion Price and showing in detail each Conversion Price in effect during
such reset period.
"Default Cure Date" means (i) with respect to a Conversion Default
described in clause (i) of its definition, the date the Corporation effects the
conversion of all of the outstanding Debentures, and (ii) with respect to a
Conversion Default described in clause (ii) of its definition, the date the
Corporation issues freely tradeable shares of Common Stock in satisfaction of
all conversions of the Debentures in accordance with Article III.A, and (iii)
with respect to either type of a Conversion Default, the date on which the
Corporation prepays the Debentures held by such holder pursuant to paragraph C
of this Article V.
B. Buy-In Cure. Unless the Corporation has notified the applicable holder
in writing prior to the delivery by such holder of a Notice of Conversion that
the Corporation is unable to honor conversions, if (i) (a) the Corporation fails
for any reason to deliver during the Delivery Period shares of Common Stock to a
Holder upon a conversion of the Debentures or (b) there shall occur a Legend
Removal Failure (as defined in Article VII.A (iv) below) and (ii) thereafter,
such Holder purchases (in an open market transaction or otherwise) shares of
Common Stock to make delivery in satisfaction of a sale by such Holder of the
unlegended shares of Common Stock (the "Sold Shares") which such Holder
anticipated receiving upon such conversion (a "Buy-In"), the Corporation shall
pay such Holder (in addition to any other remedies available to the Holder) the
amount by which (x) such Holder's total purchase price (including brokerage
commissions, if any) for the unlegended shares of Common Stock so purchased
exceeds (y) the net proceeds received by such Holder from the sale of the Sold
Shares. For example, if a Holder purchases unlegended shares of Common Stock
having a total purchase price of $11,000 to cover a Buy-In with respect to
shares of Common Stock it sold for $10,000, the Corporation will be required to
pay the Holder $1,000. A Holder shall provide the Corporation written
notification and supporting documentation indicating any amounts payable to such
Holder pursuant to this Paragraph B. The Corporation shall make any payments
required pursuant to this Paragraph B in accordance with and subject to the
provisions of Article IX.J.
C. Right to Require Prepayment. If the Corporation fails, and such failure
continues uncured for five (5) business days after the Corporation has been
notified thereof in writing by the Holder, for any reason (other than because
such issuance would exceed such Holder's allocated portion of the Reserved
Amount or Cap Amount, for which failures the Holders shall have the remedies set
forth in Articles IV and VI, respectively) to issue shares of Common Stock
within 10 business days after the expiration of the Delivery Period with respect
to any conversion of the Debentures, then the Holder may elect at any time and
from time to time prior to the Default Cure Date for such Conversion Default, by
delivery of a Default Notice (as defined in Article VII.C) to the Corporation,
to have all or any portion of such Holder's outstanding Debentures prepaid by
the
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Corporation for cash, at the Default Amount (as defined in Article VII.B). If
the Corporation fails to pay such Default Amount within five business days after
its receipt of a Default Notice, then such Holder shall be entitled to the
remedies provided in Article VII.C.
ARTICLE VIII
INABILITY TO CONVERT DUE TO CAP AMOUNT
A. Obligation to Cure. If at any time prior to the Shareholder Approval
Date the then unissued portion of any Holder's Cap Amount is less than 100% of
the number of shares of Common Stock then issuable upon conversion of such
Holder's Debentures at the then-current Floor Conversion Price (a "Trading
Market Trigger Event"), the Corporation shall immediately notify the Holders of
Debentures of such occurrence and shall take immediate action (including, if
necessary, seeking the approval of its shareholders to authorize the issuance of
the full number of shares of Common Stock which would be issuable upon the
conversion of the Debentures but for the Cap Amount) to eliminate any
prohibitions under applicable law or the rules or regulations of any stock
exchange, interdealer quotation system or other self-regulatory organization
with jurisdiction over the Corporation or any of its securities on the
Corporation's ability to issue shares of Common Stock in excess of the Cap
Amount ("Trading Market Prohibitions"). In the event the Corporation fails to
eliminate all such Trading Market Prohibitions within ninety (90) days after the
Trading Market Trigger Event, then each Holder of Debentures shall thereafter
have the option, exercisable in whole or in part at any time and from time to
time until such date that all such Trading Market Prohibitions are eliminated,
by delivery of a Default Notice (as defined in Article VII.C) to the
Corporation, to require the Corporation to repay for cash, at the Default
Amount, a principal amount of the Holder's Debentures such that, after giving
effect to such repayment, the then unissued portion of such Holder's Cap Amount
exceeds 100% of the total number of shares of Common Stock issuable upon
conversion of such Holder's Debentures at the then-current Floor Conversion
Price. If the Corporation fails to pay the Default Amount within five (5)
business days after its receipt of a Default Notice, then such Holder shall be
entitled to the remedies provided in Articles VI.B and VII.C. On or after the
Shareholder Approval Date, the Corporation shall treat any such Trading Market
Prohibitions as eliminated.
B. Adjustment to Conversion Price. If the Corporation is prohibited, at
any time, from issuing shares of Common Stock upon conversion of the Debentures
to any Holder because such issuance would exceed the then unissued portion of
such Holder's Cap Amount because of applicable law or the rules or regulations
of any stock exchange, interdealer quotation system or other self-regulatory
organization with jurisdiction over the Corporation or its securities then the
Fixed Conversion Price in respect of any Debentures held by any Holder
(including Debentures submitted to the Corporation for conversion, but for which
shares of Common Stock have not been issued) shall be adjusted as provided in
Article V.A.
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ARTICLE IX
EVENTS OF DEFAULT
A. Events of Default. In the event (each of the events described in
clauses (i)-(ix) below after expiration of the applicable cure period (if any)
being an "Event of Default"):
(i) the Corporation fails (i) to pay the unconverted portion of the
principal hereof when due, whether at maturity, upon acceleration or otherwise
or (ii) to pay any unconverted portion of an installment of interest hereon when
due and such failure continues for a period of five (5) business days after the
due date hereof;
(ii) the Common Stock (including any of the shares of Common Stock
issuable upon conversion of the Debentures) is suspended from trading on any of,
or is not listed (and authorized) for trading on at least one of, the New York
Stock Exchange, the American Stock Exchange, the Nasdaq National Market or the
Nasdaq SmallCap Market for an aggregate of 10 trading days in any nine month
period;
(iii) the Registration Statements required to be filed by the
Corporation pursuant to Section 2(a) of that certain Registration Rights
Agreement by and among the Corporation and the other signatories thereto entered
into in connection with the Securities Purchase Agreement (the "Registration
Rights Agreement") have not been filed and declared effective within the time
period(s) described therein or any such Registration Statements, after being
declared effective, cannot be utilized by the Holders of the Debentures for the
resale of all of their Registrable Securities (as defined in the Registration
Rights Agreement) (other than solely for reasons within the control of the
Holders of the Debentures) for an aggregate of more than 30 days;
(iv) Provided that either a Registration Statement covering the
resale of shares of Common Stock issuable upon conversion of the Debentures is
in effect, or upon compliance with the requirements of Rule 144, the Corporation
fails to remove any restrictive legend on any certificate or any shares of
Common Stock issued to the Holders of the Debentures upon conversion of any of
the Debentures as and when required by this Debenture, the Securities Purchase
Agreement or the Registration Rights Agreement (but provided that appropriate
stop-transfer instructions may be given to the transfer agent as provided in the
Registration Rights Agreement) (a "Legend Removal Failure"), and any such
failure continues uncured for five business days after the Corporation has been
notified thereof in writing by the Holder;
(v) the Corporation provides notice to any Holder of the Debentures,
including by way of public announcement, at any time, of its intention not to
issue, or otherwise refuses to issue, shares of Common Stock to any Holder of
the Debentures upon conversion in accordance with the terms of the Debentures
(other than due to the circumstances contemplated by Articles IV or VI for which
the holders shall have the remedies set forth in such Articles);
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(vi) the Corporation shall:
(a) sell, convey or dispose of all or substantially all of its
assets (stockholder approval of such transaction being conclusive evidence that
such transaction involves the sale of all or substantially all of the assets of
the Corporation);
(b) merge, consolidate or engage in any other business
combination with any other entity (other than pursuant to a migratory merger
effected solely for the purpose of changing the jurisdiction of incorporation of
the Corporation and other than pursuant to a merger in which the Corporation is
the surviving or continuing entity and the voting capital stock of the
Corporation immediately prior to such merger, consolidation or combination
represents at least 50% of the voting power of the capital stock of the
Corporation after the merger, consolidation or combination) and its capital
stock is unchanged; or
(c) have fifty percent (50%) or more of the voting power of
its capital stock owned beneficially by one person, entity or "group" (as such
term is used under Section 13(d) of the Securities Exchange Act of 1934, as
amended) exclusive of Bruce Bendell, Doron Cohen or any of their family members
or affiliates; or
(vii) the Corporation otherwise shall breach any term hereunder
(including; without limitation, Article IV hereof) or under the Securities
Purchase Agreement or the Registration Rights Agreement, including, without
limitation, the representations and warranties in the Securities Purchase
Agreement or the Registration Rights Agreement and such breach continues uncured
for 10 business days after the Corporation has been notified thereof in writing
by any Holder and which breach actually causes a Material Adverse Effect (as
such term is defined in the Securities Purchase Agreement);
(viii) the Corporation or any subsidiary of the Corporation shall
make an assignment for the benefit of creditors, or apply for or consent to the
appointment of a receiver or trustee for it or for a substantial part of its
property or business; or such a receiver or trustee shall otherwise be
appointed; or
(ix) bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Corporation or
any subsidiary of the Corporation, which petition, if filed against the
Corporation, is not dismissed within ninety (90) days.
then, upon the occurrence of any such Event of Default, at the option of each
Holder, exercisable in whole or in part at any time and from time to time by
delivery of a Default Notice (as defined in Paragraph C below) to the
Corporation while such Event of Default continues, the Corporation shall pay the
Holders (and upon the occurrence of an Event of Default specified in
subparagraphs (viii) and (ix) of this Paragraph A, the Corporation shall be
required to pay the Holders), in satisfaction of its obligation to pay the
outstanding principal amount of the Debentures and accrued and unpaid interest
thereon, an amount equal to the Default Amount and such Default Amount, together
with all other
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ancillary amounts payable hereunder, shall immediately become due and payable,
all without demand, presentment or notice, all of which are hereby expressly
waived, together with all costs, including, without limitation, reasonable 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. For the avoidance
of doubt, the occurrence of any event described in clauses (v), (vi), (viii) or
(ix) above shall immediately constitute an Event of Default and there shall be
no cure period. Upon the Corporation's receipt of any Default Notice hereunder
(other than during the three trading day period following the Corporation's
delivery of a Default Announcement (as defined below) to all of the Holders in
response to the Corporation's initial receipt of a Default Notice from a holder
of the Debentures, the Corporation shall immediately (and in any event within
one business day following such receipt) deliver a written notice (a "Default
Announcement") to all holders of the Debentures stating the date upon which the
Corporation received such Default Notice and the amount of the Debentures
covered thereby. The Corporation shall not redeem any Debentures during the
three trading day period following the delivery of a required Default
Announcement hereunder. At any time and from time to time during such three
trading day period, each holder of the Debentures may request (either orally or
in writing) information from the Corporation with respect to the instant default
(including, but not limited to, the aggregate principal amount outstanding of
Debentures covered by Default Notices received by the Corporation) and the
Corporation shall furnish (either orally or in writing) as soon as practicable
such requested information to such requesting holder.
B. Definition of Default Amount. The "Default Amount" with respect to a
Debenture means an amount equal to the greater of:
(i) (V / CP) x M
and (ii) V x 114%
where:
"V" means the principal amount aggregate outstanding of the Debentures
being paid plus all accrued and unpaid interest thereon and any Prepayment
Default Payments (if any) through the payment date;
"CP" means the Conversion Price in effect on the date on which the
Corporation receives the Default Notice; and
"M" means (i) with respect to all repayments other than repayments
pursuant to Article VII.A(vi) hereof, the highest Closing Bid Price of the
Corporation's Common Stock during the period beginning on the date on which the
Corporation receives the Default Notice and ending on the date immediately
preceding the date of payment of the Default Amount and (ii) with respect to
repayments pursuant to Article VII.A(vi) hereof, the greater of (a) the amount
determined pursuant to clause (i)
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of this definition or (b) the fair market value, as of the date on which the
Corporation receives the Default Notice, of the consideration payable to the
holder of a share of Common Stock pursuant to the transaction which triggers the
repayment obligation. For purposes of this definition, "fair market value" shall
be determined by the mutual agreement of the Corporation and Holders of a
majority-in-interest of the then outstanding principal amount of the Debentures,
or if such agreement cannot be reached within five business days prior to the
date of repayment, by an investment banking firm selected by the Corporation and
reasonably acceptable to Holders of a majority-in-interest of the then
outstanding principal amount of the Debentures, with the costs of such appraisal
to be borne by the Corporation.
C. Failure to Pay Default Amounts. If the Corporation fails to pay any
Holder the Default Amount with respect to any Debenture within five business
days after its receipt of a notice requiring such repayment (a "Default
Notice"), then the holder of any Debenture delivering such Default Notice (i)
shall be entitled to interest on the Default Amount at a per annum rate equal to
the lower of twenty-four percent (24%) and the highest interest rate permitted
by applicable law from the date on which the Corporation receives the Default
Notice until the date of payment of the Default Amount hereunder, and (ii) shall
have the right, at any time and from time to time, to require the Corporation,
upon written notice, to immediately convert (in accordance with the terms of
Paragraph A of Article III) all or any portion of the Default Amount, plus
interest as aforesaid, into shares of Common Stock at the lowest Conversion
Price in effect during the period beginning on the date on which the Corporation
receives the Default Notice and ending on the Conversion Date with respect to
the conversion of such Default Amount. In the event the Corporation is not able
to repay all of the outstanding Debentures subject to Default Notices delivered
prior to the date upon which such repayment is to be effected, the Corporation
shall repay the outstanding Debentures from each holder pro rata, based on the
total amounts due the Debentures at the time of repayment included by such
holder in all Default Notices delivered prior to the date upon which such
repayment is to be effected relative to the total amounts due under the
Debentures at the time of repayment included in all of the Default Notices
delivered prior to the date upon which such repayment is to be effected.
ARTICLE X
ADJUSTMENTS TO THE CONVERSION PRICE
The Conversion Price shall be subject to adjustment from time to time as
follows:
A. Stock Splits, Stock Dividends, Etc. If, at any time on or after the
First Closing Date, the number of outstanding shares of Common Stock is
increased by a stock split, stock dividend, combination, reclassification or
other similar event, the Fixed Conversion Price and the Floor Conversion Price
shall be proportionately reduced, or if the number of outstanding shares of
Common Stock is decreased by a reverse stock split, combination or
reclassification of shares, or other similar event, the Fixed Conversion Price
and the Floor Conversion Price shall be proportionately increased. In such
event, the Corporation shall notify the Corporation's transfer agent of such
change on or before the effective date thereof.
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B. Adjustment Due to Merger, Consolidation, Etc. If, at any time after the
First Closing Date, there shall be (i) any reclassification or change of the
outstanding shares of Common Stock (other than a change in par value, or from
par value to no par value, or from no par value to par value, or as a result of
a subdivision or combination), (ii) any consolidation or merger of the
Corporation with any other entity (other than a merger in which the Corporation
is the surviving or continuing entity and its capital stock is unchanged), (iii)
any sale or transfer of all or substantially all of the assets of the
Corporation or (iv) any share exchange pursuant to which all of the outstanding
shares of Common Stock are converted into other securities or property (each of
(i) - (iv) above being a "Corporate Change"), then the Holders of the Debentures
shall thereafter have the right to receive upon conversion, in lieu of the
shares of Common Stock otherwise issuable, such shares of stock, securities
and/or other property as would have been issued or payable in such Corporate
Change with respect to or in exchange for the number of shares of Common Stock
which would have been issuable upon conversion (without giving effect to the
limitations contained in Article III.C) had such Corporate Change not taken
place, and in any such case, appropriate provisions shall be made with respect
to the rights and interests of the Holders of the Debentures to the end that the
economic value of the Debentures are in no way diminished by such Corporate
Change (as reasonably determined by the Holders of a majority of the principal
amount of the Debentures then outstanding) and that the provisions hereof
(including, without limitation, in the case of any such consolidation, merger or
sale in which the successor entity or purchasing entity is not the Corporation,
an immediate adjustment of the Fixed Conversion Price and the Floor Conversion
Price so that the Fixed Conversion Price and the Floor Conversion Price
immediately after the Corporate Change reflects the same relative value as
compared to the value of the surviving entity's common stock that existed
between the Fixed Conversion Price and the Floor Conversion Price, respectively,
and the value of the Corporation's Common Stock immediately prior to such
Corporate Change and an immediate revision to the Variable Conversion Price so
that it is determined as provided in Article II.H but based on the price of the
common stock of the surviving entity and the market in which such common stock
is traded) shall thereafter be applicable, as nearly as may be practicable in
relation to any shares of stock or securities thereafter deliverable upon the
conversion thereof. The Corporation shall not effect any Corporate Change unless
(i) each holder of the Debentures, along with notice sent to the holders of the
Common Stock of the Corporation, has received written notice of such transaction
at least 75 days prior thereto, but in no event later than 20 days prior to the
record date for the determination of shareholders entitled to vote with respect
thereto, and (ii) the resulting successor or acquiring entity (if not the
Corporation) assumes by written instrument (in form and substance reasonably
satisfactory to the Holders of a majority of the principal amount of the
Debentures then outstanding) the obligations of the Debentures. The above
provisions shall apply regardless of whether or not there would have been a
sufficient number of shares of Common Stock authorized and available for
issuance upon conversion of the Debentures outstanding as of the date of such
transaction, and shall similarly apply to successive reclassifications,
consolidations, mergers, sales, transfers or share exchanges.
C. Adjustment Due to Major Announcement. In the event the Corporation at
any time after the First Closing Date (i) makes a public announcement that it
intends to consolidate or merge with any other entity (other than a merger in
which the Corporation is the surviving or continuing entity and its capital
stock is unchanged) or to sell or transfer all or substantially all of the
assets of
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the Corporation or (ii) any person, group or entity (including the Corporation)
publicly announces a tender offer, exchange offer or another transaction to
purchase 50% or more of the Corporation's Common Stock or otherwise publicly
announces an intention to replace a majority of the Corporation's Board of
Directors by waging a proxy battle or otherwise (the date of the announcement
referred to in clause (i) or (ii) of this Paragraph C is hereinafter referred to
as the "Announcement Date"), then the Conversion Price shall, effective upon the
Announcement Date and continuing through the tenth trading day following the
earlier of the consummation of the proposed transaction or tender offer,
exchange offer or another transaction or the Abandonment Date (as defined
below), be equal to the lower of (x) the Conversion Price which would have been
applicable for an Optional Conversion occurring on the Announcement Date and (y)
the Conversion Price determined in accordance with Article II.E on the
Conversion Date set forth in the Notice of Conversion for the Optional
Conversion. From and after the tenth trading day following the Abandonment Date,
the Conversion Price shall be determined as set forth in Article II.E.
"Abandonment Date" means with respect to any proposed transaction or tender
offer, exchange offer or another transaction for which a public announcement as
contemplated by this Paragraph C has been made, the date upon which the
Corporation (in the case of clause (i) above) or the person, group or entity (in
the case of clause (ii) above) publicly announces the termination or abandonment
of the proposed transaction or tender offer, exchange offer or another
transaction which caused this Paragraph C to become operative.
D. Adjustment Due to Distribution. If, at any time after the First Closing
Date, the Corporation shall declare or make any distribution of its assets (or
rights to acquire its assets) to holders of Common Stock as a partial
liquidating dividend, by way of return of capital or otherwise (including any
dividend or distribution to the Corporation's shareholders in cash or shares (or
rights to acquire shares) of capital stock of a subsidiary (i.e. a spin-off)) (a
"Distribution"), then the Holders of the Debentures shall be entitled, upon any
conversion of the Debentures after the date of record for determining
shareholders entitled to such Distribution, to receive the amount of such assets
which would have been payable to the Holder with respect to the shares of Common
Stock issuable upon such conversion (without giving effect to the limitations
contained in Article III.C) had such Holder been the holder of such shares of
Common Stock on the record date for the determination of shareholders entitled
to such Distribution.
E. Issuance of Other Securities With Variable Conversion Price. If, at any
time after the First Closing Date, the Corporation shall issue any securities
which are convertible into or exchangeable for Common Stock ("Convertible
Securities") at a conversion or exchange rate based on a discount to the market
price of the Common Stock at the time of conversion or exercise, then the
Conversion Percentage in respect of any conversion of any portion of this
Debenture after such issuance shall be calculated utilizing the higher of the
greatest discount applicable to any such Convertible Securities and the discount
then in effect in calculating the Variable Conversion Price; provided, that no
adjustment will be made (i) upon the grant or exercise of any stock or options
which may hereafter be granted or exercised under any employee benefit plan of
the Corporation now existing or to be implemented in the future, or upon grant
or exercise of any stock or options to or by any officer, director, employee,
agent, consultant or other entity providing services to the Corporation, whether
or not under a plan, so long as the issuance of such stock or options is
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approved by a majority of the non-employee members of the Board of Directors of
the Corporation or a majority of the members of a committee of non-employee
directors established for such purpose; (ii) upon the issuance of any Debentures
or Warrants issued or issuable in accordance with the terms of the Securities
Purchase Agreement; (iii) upon the issuance of securities in connection with an
underwritten public offering of the Corporation; (iv) upon the issuance of
securities in connection with any merger, acquisition or consolidation, or
purchase of assets or business from another person, so long as the Corporation
is the surviving corporation; (v) upon the issuance of securities issued as the
result of anti-dilution rights granted to a third party; and (vi) in connection
with the issuance of securities upon the exercise of warrants or other rights
granted as "equity kickers" to the holders of Senior Indebtedness.
F. Purchase Rights. If, at any time after the First Closing Date, the
Corporation issues any Convertible Securities or rights to purchase stock,
warrants, securities or other property (the "Purchase Rights") pro rata to the
record holders of any class of Common Stock, then the Holders of the Debentures
will be entitled to acquire, upon the terms applicable to such Purchase Rights,
the aggregate Purchase Rights which such Holder could have acquired if such
holder had held the number of shares of Common Stock acquirable upon complete
conversion of the Debentures (without giving effect to the limitations contained
in Article III.C) immediately before the date on which a record is taken for the
grant, issuance or sale of such Purchase Rights, or, if no such record is taken,
the date as of which the record holders of Common Stock are to be determined for
the grant, issue or sale of such Purchase Rights.
G. Notice of Adjustments. Upon the occurrence of each adjustment or
readjustment of the Conversion Price pursuant to this Article VIII, the
Corporation, at its expense, shall promptly compute such adjustment or
readjustment and prepare and furnish to each Holder of the Debentures a
certificate setting forth such adjustment or readjustment and showing in detail
the facts upon which such adjustment or readjustment is based. The Corporation
shall, upon the written request at any time of any Holder of the Debentures,
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 any Debenture.
ARTICLE XI
MISCELLANEOUS
A. Failure or Indulgency Not Waiver. No failure or delay on the part of
any 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 preclude other or further exercise thereof or of
any other right, power or privilege.
B. Notices. Any notices required or permitted to be given under the terms
of this Debenture shall be sent by certified or registered mail (return receipt
requested) or delivered
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personally or by courier or by confirmed telecopy, and shall be effective five
days after being placed in the mail, if mailed, or upon receipt or refusal of
receipt, if delivered personally or by courier or confirmed telecopy, in each
case addressed to a party. The addresses for such communications shall be:
If to the Corporation:
Fidelity Holdings, Inc.
80-02 Kew Gardens Road
Suite 5000
Kew Gardens, NY 11415
Telecopy: (718) 793-2455
If to the Holder, to the address set forth under such Holder's name on the
signature page to the Securities Purchase Agreement executed by such Holder.
Each party shall provide notice to the other parties of any change in address.
C. Amendment Provision. This Debenture and any provision hereof may only
be amended by an instrument in writing signed by the Corporation and all of the
Holders. The term "Debenture" and all references thereto, as used throughout
this instrument, shall mean this instrument as originally executed, or if later
amended or supplemented, then as so amended or supplemented.
D. Assignability; Allocation of Cap Amount and Reserved Amount. This
Debenture shall be binding upon the Corporation and its successors and assigns
and shall inure to the benefit of the holder and its successors and assigns. The
initial Cap Amount and Reserved Amount shall be allocated pro rata among the
Holders of the Debentures based on the aggregate principal amount of Debentures
issued to each Holder. Each increase to the Cap Amount and the Reserved Amount
shall be allocated pro rata among the Holders of Debentures based on the
outstanding principal amount of Debentures held by each Holder at the time of
the increase in the Cap Amount or Reserved Amount. In the event a Holder shall
sell or otherwise transfer any of such Holder's Debentures, each transferee
shall be allocated a pro rata portion of such transferor's Cap Amount and
Reserved Amount. Any portion of the Cap Amount or Reserved Amount which remains
allocated to any person or entity which does not hold any Debentures shall be
allocated to the remaining Holders of Debentures, pro rata based on the
outstanding principal amount of Debentures then held by such Holders. Each
transferee of a Debenture shall agree in writing to be bound by the terms of the
Securities Purchase Agreement and shall make the representations and warranties
set forth in Section 2 thereof.
E. Cost of Collection. If default is made in the payment of this
Debenture, the Corporation shall pay the Holder hereof costs of collection,
including reasonable attorneys' fees.
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F. Governing Law; Jurisdiction. This Debenture shall be governed by and
construed in accordance with the laws of the State of New York without regard to
principles of choice of laws or conflict of laws that would defer to the
substantive law of another jurisdiction. The Corporation irrevocably consents to
the jurisdiction of the United States federal courts and the state courts
located in New York in any suit or proceeding based on or arising under this
Debenture and irrevocably agrees that all claims in respect of such suit or
proceeding shall be exclusively determined in such courts. The Corporation
irrevocably waives the defense of an inconvenient forum to the maintenance of
such suit or proceeding. The Corporation further agrees that service of process
upon the Corporation mailed by first class mail shall be deemed in every respect
effective service of process upon the Corporation in any such suit or
proceeding. Nothing herein shall affect the right of any Holder to serve process
in any other manner permitted by law. The Corporation agrees that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
G. Denominations. At the request of Holder, upon surrender of this
Debenture, the Corporation shall promptly issue new Debentures in the aggregate
outstanding principal amount hereof, in the form hereof, in such denominations
of at least $25,000 as Holder shall request.
H. Lost or Stolen Debentures. Upon receipt by the Corporation of (i)
evidence of the loss, theft, destruction or mutilation of any Debenture and (ii)
(y) in the case of loss, theft or destruction, of indemnity (without any bond or
other security) reasonably satisfactory to the Corporation, or (z) in the case
of mutilation, upon surrender and cancellation of any Debenture, the Corporation
shall execute and deliver a new Debenture of like tenor and date. However, the
Corporation shall not be obligated to reissue such lost or stolen Debenture if
the holder contemporaneously requests the Corporation to convert such Debenture.
I. Quarterly Statements of Available Shares. For each calendar quarter
beginning in the quarter in which the initial registration statement required to
be filed pursuant to Section 2(a) of the Registration Rights Agreement is
declared effective and thereafter so long as any Debentures are outstanding, the
Corporation shall deliver (or cause its transfer agent to deliver) if so
requested in writing by a Holder a written report notifying the holders of any
occurrence which prohibits the Corporation from issuing Common Stock upon any
such conversion. The report, if so delivered, shall also specify (i) the total
outstanding principal amounts of Debentures as of the end of such quarter, (ii)
the total number of shares of Common Stock issued upon all conversions of
Debentures prior to the end of such quarter, (iii) the total number of shares of
Common Stock which are reserved for issuance upon conversion of the Debentures
as of the end of such quarter and (iv) the total number of shares of Common
Stock which may thereafter be issued by the Corporation upon conversion of the
Debentures before the Corporation would exceed the Cap Amount and the Reserved
Amount. The Corporation (or its transfer agent) shall deliver the report for
each quarter to each Holder prior to the tenth day of the calendar month
following the quarter to which such report relates. In addition, the Corporation
(or its transfer agent) shall provide, within 15 days after delivery to the
Corporation of a written request by any holder, any of the information
enumerated in clauses (i) - (iv) of this Paragraph I as of the date of such
request. Simultaneously with delivering
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such quarterly statements or responding to such written request, the Corporation
shall issue a press release with substantially the same information.
J. Payment of Cash; Defaults. Whenever the Corporation is required to make
any cash payment to a Holder under the Debentures (as a Conversion Default
Payment, upon prepayment, repayment or otherwise), such cash payment shall be
made to the Holder within five business days after delivery by such Holder of a
notice specifying that the Holder elects to receive such payment in cash and the
method (e.g., by check, wire transfer) in which such payment should be made. If
such payment is not delivered within such five business day period, such Holder
shall thereafter be entitled to interest on the unpaid amount at a per annum
rate equal to the lower of twenty-four percent (24%) and the highest interest
rate permitted by applicable law until such amount is paid in full to the
Holder.
K. Restrictions on Shares. The shares of Common Stock issuable upon
conversion of this Debenture may not be sold or transferred unless (i) they
first shall have been registered under the Securities Act and applicable state
securities laws, (ii) the Corporation shall have been furnished with an opinion
of legal counsel (in form, substance and scope customary for opinions in such
circumstances) to the effect that such sale or transfer is exempt from the
registration requirements of the Securities Act or (iii) they are sold under
Rule 144 under the Act. Except as otherwise provided in the Securities Purchase
Agreement, each certificate for shares of Common Stock issuable upon conversion
of this Debenture that have not been so registered and that have not been sold
under 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, OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES. THE
SECURITIES REPRESENTED HEREBY MAY NOT BE OFFERED OR SOLD IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER APPLICABLE SECURITIES LAWS UNLESS OFFERED, SOLD
OR TRANSFERRED UNDER AN AVAILABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THOSE LAWS.
Upon the request of a holder of a certificate representing any shares of Common
Stock issuable upon conversion of this Debenture, the Corporation shall remove
the foregoing legend from the certificate and issue to such holder a new
certificate therefor free of any transfer legend, if (i) with such request, the
Corporation shall have received either (A) an opinion of counsel, in form,
substance and scope customary for opinions in such circumstances, to the effect
that any such legend may be removed from such certificate, or (B) satisfactory
documentation from Holder that Holder is selling such security in compliance
with Rule 144 or that such Holder and such security meet the requirements of
Rule 144(k) or (ii) a registration statement under the Securities Act covering
the resale of such securities is in effect. Nothing in this Debenture shall (i)
limit the Corporation's obligation under the Registration Rights
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Agreement, or (ii) affect in any way Holder's obligations to comply with
applicable securities laws upon the resale of the securities referred to herein.
L. Status as Debentureholder. Upon submission of a Notice of Conversion by
a Holder of the Debentures, (i) the principal amount of the Debentures and the
interest thereon covered thereby (other than any portion of the Debentures, if
any, which cannot be converted because their conversion would exceed such
Holder's allocated portion of the Reserved Amount or Cap Amount) shall be deemed
converted into shares of Common Stock as of the Conversion Date and (ii) the
Holder's rights as a holder of such Debentures shall cease and terminate (but
only with respect to that portion of the Debentures covered by such Notice of
Conversion), excepting only the right to receive certificates for such shares of
Common Stock and to any remedies provided herein or otherwise available at law
or in equity to such Holder because of a failure by the Corporation to comply
with the terms of the Debentures. In situations where Article V.B is applicable,
the number of shares of Common Stock referred to in clauses (i) and (ii) of the
immediately preceding sentence shall be determined on the date on which such
shares of Common Stock are delivered to the Holder. Notwithstanding the
foregoing, if a Holder has not received certificates for all shares of Common
Stock prior to the tenth business day after the expiration of the Delivery
Period with respect to a conversion of Debentures for any reason, then (unless
the Holder otherwise elects to retain its status as a holder of Common Stock by
so notifying the Corporation within five business days after the expiration of
such 10 business day period) the portion of the principal amount and interest
thereon subject to such conversion shall be deemed outstanding under the
Debentures and the Corporation shall, as soon as practicable, return the
Debentures to the Holder. In all cases, the Holder shall retain all of its
rights and remedies (including, without limitation, (i) the right to receive
payments pursuant to Article V.C to 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 Article V.A) for the Corporation's failure to convert the
Debentures.
M. Remedies Cumulative. The remedies provided in this Debenture shall be
cumulative and in addition to all other remedies available under this Debenture,
at law or in equity (including a decree of specific performance and/or other
injunctive relief), and nothing herein shall limit a holder's right to pursue
actual damages for any failure by the Corporation to comply with the terms of
this Debenture. The Corporation acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to the holders of the
Debentures and that the remedy at law for any such breach may be inadequate. The
Corporation therefore agrees, in the event of any such breach or threatened
breach, that the holders of the Debentures shall be entitled, in addition to all
other available remedies, to an injunction restraining any breach, without the
necessity of showing economic loss and without any bond or other security being
required.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, Borrower has caused this Debenture to be executed by
its duly authorized officer.
FIDELITY HOLDINGS, INC.
By:
-----------------------------
Name:
Title:
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Exhibit 1
NOTICE OF CONVERSION
To: Fidelity Holdings, Inc.
80-02 Kew Gardens Road
Suite 5000
Kew Gardens, NY 11415
Telecopy: (718) 793-2455
Attention: _______________
The undersigned hereby irrevocably elects to convert $____________ [principal]
[and] [interest] amount of the Debenture (the "Conversion"), into shares of
common stock ("Common Stock") of Fidelity Holdings, Inc. (the "Corporation")
according to the conditions of the Convertible Term Debenture dated January 25,
1999 (the "Debenture"), as of the date written below. If securities are to be
issued in the name of a person other than the undersigned, the undersigned will
pay all transfer taxes payable with respect thereto. No fee will be charged to
the holder for any conversion, except for transfer taxes, if any. A copy of the
Debenture is attached hereto (or evidence of loss, theft or destruction
thereof).
If so able, the Corporation shall electronically transmit the Common Stock
issuable pursuant to this Notice of Conversion to the account of the undersigned
or its nominee (which is ________________) with DTC through its Deposit
Withdrawal Agent Commission System ("DTC Transfer").
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of
this Debenture shall be made pursuant to registration of the Common Stock under
the Securities Act or pursuant to an exemption from registration under the Act.
In the event of partial exercise, please reissue an appropriate Debenture(s) for
the principal balance which shall not have been converted.
Check Box if Applicable:
|_| In lieu of receiving the shares of Common Stock issuable pursuant to this
Notice of Conversion by way of DTC Transfer, the undersigned hereby
requests that the Corporation issue and deliver to the undersigned
physical certificates representing such shares of Common Stock.
Date of Conversion: ____________________________________
Applicable Conversion Price: ___________________________
Amount of Accrued and Unpaid
Interest on the Principal
Amount to be converted, if any: ________________________
Amount of Conversion Default
Payments or Prepayment Default
Payments to be converted, if any: ______________________
Number of Shares of
Common Stock to be Issued: _____________________________
Signature: _____________________________________________
Name: __________________________________________________
Address: _______________________________________________
Exhibit 10.60
Placement Agency Agreement
January 25, 1999
The Zanett Securities Corporation
Tower 49, 31st Floor
12 East 49th Street
New York, NY 10017
Gentlemen:
This agreement ("Agreement") will confirm that Fidelity Holdings, Inc., a
Nevada corporation (the "Company"), has retained The Zanett Securities
Corporation ("Zanett" or the "Placement Agent") as its exclusive placement agent
to assist the Company, during the 30 day period commencing on the date hereof
(the "Term"), on a "best-efforts" basis, in connection with the placement of up
to 2,750 units (the "Units") at a price of $4,127.27 per Unit, each Unit
consisting of (i) $4,127.27 face amount of the Company's Convertible Term
Debentures (each, a "Debenture"), convertible into shares of the Company's
Common Stock, par value $0.01 per share (the "Common Stock"), (ii) 36.3636
shares of Common Stock (the "Purchased Shares"), (iii) Warrants to acquire
25.4545 shares of Common Stock, par value $0.01 per share, of Computer Business
Sciences, Inc. a Delaware corporation ("CBS") (each, a "CBS Warrant" and
collectively the "CBS Warrants") and (iv) Warrants to acquire 343.9394 shares of
Common Stock (each, a "Warrant" and collectively the "Warrants"). The Debentures
shall be in a form to be agreed upon by the Company and the Placement Agent. The
shares of Common Stock issuable upon conversion of the Debentures are referred
to herein as the "Conversion Shares" and the shares of Common Stock issuable
upon exercise of or otherwise pursuant to the Warrants are referred to herein as
the "Warrant Shares" and the shares of CBS Common Stock issuable upon exercise
of or otherwise pursuant to the CBS Warrants are referred herein as the "CBS
Shares". The Debentures, the Purchased Shares, the CBS Warrants, the CBS Shares,
the Warrants, the Conversion Shares and the Warrant Shares are collectively
referred to herein as the "Securities." The Company agrees that, during the
Term, Zanett shall have the exclusive right to offer and place the Securities
and that all conversations, negotiations, documents and other materials
exchanged between the Company and the Placement Agent shall not be disclosed or
released to any third party without the prior written consent of Zanett, which
consent shall not be unreasonably withheld or delayed. The Company acknowledges
that certain of the aforementioned Securities may be purchased by affiliates of
Zanett.
The Units are being offered to "accredited investors" in accordance with
Regulation D promulgated under the Securities Act of 1933, as amended (the
"Securities Act"). Each prospective investor ("Investor") subscribing to
purchase the Units will be required to deliver, among other things, a Securities
Purchase Agreement between the Company and the Investor (the "Securities
Purchase Agreement") in form and substance reasonably satisfactory to Zanett
and
<PAGE>
the Company, representing and warranting, among other things, that such Investor
is an "accredited investor" as such term is defined in Regulation D.
Contemporaneous with the execution and delivery of the Securities Purchase
Agreement, the Investors shall execute and deliver a Registration Rights
Agreement (the "Registration Rights Agreement") in form and substance reasonably
satisfactory to Zanett and the Company pursuant to which the Company will agree
to provide the Investors certain registration rights under the Securities Act
with respect to the Conversion Shares and Warrant Shares.
The Securities Purchase Agreement, the form of Debenture, the Warrants and
the Registration Rights Agreement are referred to herein collectively as the
"Offering Documents." The offering of Units described in the Offering Documents
is referred to herein as the "Offering."
1. Appointment of Placement Agent. Zanett is hereby appointed Placement
Agent of the Company for the purposes of assisting the Company in finding
qualified Investors to participate in the Offering. On the basis of the
representations and warranties and subject to the terms and conditions contained
herein, Zanett hereby accepts such agency and agrees to assist the Company in
finding qualified Investors to participate in the Offering during the Term.
Zanett's agency hereunder is not terminable by the Company except upon
termination of the Offering or at the end of the Term. Upon termination of the
Offering, all subscriptions received, if any, shall be returned to Investors
without interest or deduction.
2. Closing; Placement Fee and Warrant; Expenses.
a. Closing. Upon satisfaction of the conditions to the closing
contained in the Securities Purchase Agreement, the closings (each, a "Closing")
of the purchase and sale of the Units shall take place at the offices of Klehr,
Harrison, Harvey, Branzburg & Ellers LLP or such other mutually agreed place, at
such time and date (the "Closing Dates") as may be agreed upon between the
Placement Agent, the Investors and the Company.
b. Procedures at Closing. Counsel for the Placement Agent shall act
as escrow agent for the Closings (the "Escrow Agent"). At each Closing:
(i) The Company shall deliver to the Escrow Agent, on behalf
of the Placement Agent and the Investors, an opinion of the Company's outside
legal counsel, dated as of the applicable Closing Date, in such form as may be
reasonably acceptable to the Placement Agent and its counsel.
(ii) The Company shall deliver to the Escrow Agent
certificates from the Company, signed by the President or a Vice President
thereof, certifying that attached thereto is a true and correct copy of
resolutions adopted by the Company's Board of Directors authorizing (A) the
execution, delivery and performance of this Agreement, the Securities Purchase
Agreement, the Registration Rights Agreement, the Debentures, the Warrants and
other documentation related to the Offering, and (B) the issuance of the
Purchased Shares and the
2
<PAGE>
reservation for issuance and issuance of the Conversion Shares and the Warrant
Shares. CBS shall deliver to the Escrow Agent certificates from CBS, signed by
the President or a Vice President thereof, certifying that attached thereto is a
true and correct copy of resolutions adopted by CBS's Board of Directors
authorizing (A) the execution, delivery and performance of the Securities
Purchase Agreement and the CBS Warrants, and (B) the reservation for issuance of
the CBS Shares. Each certificate shall also certify that such resolutions have
not been modified, rescinded or amended and are in full force and effect.
(iii) The Company shall deliver to the Escrow Agent
certificates of good standing of the Company and of CBS Corp., dated as of a
recent date, from the Secretaries of States of their respective states of
incorporation.
(iv) Each Investor shall deliver to the Escrow Agent two
executed copies of the Securities Purchase Agreement and Registration Rights
Agreement signed by such Investor, and the Company shall deliver to the Escrow
Agent with respect to each Investor, two executed copies of its acceptance of
the Securities Purchase Agreement and Registration Rights Agreement executed by
such Investor.
(v) Each Investor shall have wire transferred immediately
available funds to an escrow account designated by the Escrow Agent in an amount
equal to that portion of the aggregate purchase price of the Units(s) being
purchased by such Investor due at such Closing.
(vi) The Company shall have delivered to the Escrow Agent the
duly executed Debentures and Warrants being purchased by the Investors, (and, at
the First Closing, the duly executed CBS Warrants and certificates evidencing
the Purchased Shares being purchased by the Investors) in such denominations as
the Investors shall request.
(vii) The Company and the Placement Agent shall instruct the
Escrow Agent to pay to the Company that portion of the purchase price
(collectively, the "Purchase Price") for the Units subscribed for due at such
Closing, less the Placement Agent Fee (as defined below) and other authorized
expenses of the Offering, out of the funds on deposit in the escrow account
received from Investors whose Securities Purchase Agreements have been accepted.
c. Placement Fee; Expenses. The Company covenants and agrees to pay
to the Placement Agent at each Closing a fee (the "Placement Agent Fees") equal
to six percent 6% of the aggregate Purchase Price paid at such Closing. Such
Placement Agent Fee shall be delivered by the Escrow Agent to Zanett by wire
transfer, in accordance with Zanett's written wiring instructions, from the
funds on deposit in the escrow account simultaneously with payment for and
delivery of the Units at each Closing under the Securities Purchase Agreement as
provided in paragraph 2(a) above. In addition, the Placement Agent shall be
entitled to receive from the Company a non-accountable expense allowance (the
"Expense Allowance") equal to nine-tenths of one percent (0.9%) of the aggregate
Purchase Price. Such Expense Allowance shall be
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<PAGE>
delivered in the same manner as the Placement Agent Fee. In addition, the
Company shall pay to the Placement Agent, on the first day of each calendar
month during which any Debentures or Warrants are outstanding, a monitoring and
financial advisory fee of One Thousand Seven Hundred Fifty Dollars ($1,750.00)
for which the Placement Agent shall periodically consult with the Company
concerning market conditions, investor perceptions of the Company and related
matters.
d. Stock and Warrants. In addition to the Placement Agent Fees, at
the First Closing under the Securities Purchase Agreement, the Company shall
issue to the Placement Agent or to its officers set forth on Schedule 2(d), each
of whom is an accredited investor (the "Zanett Officers"), as directed by the
Placement Agent (i) 18.1818 shares of the Company's Common Stock for each Unit,
(ii) CBS Warrants for 10.9091 CBS Shares for each Unit and (ii) Warrants, in
substantially the form attached hereto as Exhibit A, to purchase, in the
aggregate, 41.6667 shares of the Company's Common Stock for each Unit
("Placement Warrants"). At each of the Second Closing and the Third Closing
under the Security Purchase Agreement, the Company shall issue to the Placement
Agent or the Zanett Officers, as directed by the Placement Agent, Placement
Warrants to purchase, in the aggregate, 65.1515 shares of the Company's Common
Stock for each Unit. The shares of the Company's Common Stock issuable upon
exercise of the Placement Warrants shall hereinafter be referred to as the
"Placement Warrant Shares." The Company shall grant the Placement Agent certain
registration rights under the Securities Act with respect to the Placement
Warrant Shares pursuant to the Registration Rights Agreement.
e. Expenses of Offering. The Company shall be responsible for and
shall bear all expenses directly and necessarily incurred by it in connection
with the Offering. In the event the Closing does not occur during the Term, the
Company shall reimburse the Placement Agent for its reasonable attorneys' fees
and expenses and up to $3,500 of other reasonable, actual and accountable
out-of-pocket expenses incurred in connection with the Offering.
f. Non-Circumvention Period; Lockup Period; Additional Financing
Period.
(i) The Company agrees that, during the period beginning on
the date hereof and ending four (4) years following the later of the date hereof
and the date of the Closing (as defined in Section 2(a) hereof) (the
"Non-Circumvention Period"), it will not, without the prior written consent of
the Placement Agent, negotiate or contract or have discussions concerning any
such matters with any Investor or any other party introduced to the Company by
Placement Agent, each of which are listed Schedule 2(f)(i) hereto to obtain
additional financing in any form.
(ii) The Company agrees that, during the period beginning on
the date hereof and ending two (2) years following the first Closing Date (the
"Lock-Up Period"), it will not, without the prior written consent of the
Placement Agent, contract with any other party to obtain additional financing in
which any below market equity or equity-linked securities are issued
4
<PAGE>
("Future Offerings"); provided, that if at such time the outstanding principal
balance of, and accrued but unpaid interest on, the Debentures is less than 40%
of the aggregate original principal amount of the Debentures, and such Future
Offering is for an aggregate amount (including the aggregate exercise price of
warrants or similar rights) of $1,000,000 or less, such consent shall not
unreasonably withheld. In addition, and independent of the foregoing sentence,
the Company will not conduct any Future Offering during the period beginning on
the date hereof and ending one year after the conclusion of the Lock-Up Period
unless it shall have first delivered to the Placement Agent written notice of
such proposed Future Offering, including the terms and conditions thereof, and
providing the Placement Agent an option, which option must be exercised within
fifteen (15) days following delivery of such notice, to act as the placement
agent for such Future Offering on terms, including fees, no less favorable to
the Company as those set forth in such notice and to place the securities being
offered by the Company in the Future Offering to the Investors or to such other
persons or entities as the Placement Agent shall determine (the limitations
referred to in this and the immediately preceding sentence are hereinafter
collectively referred to as the "Capital Raising Limitation"). In the event that
the Placement Agent does not exercise the foregoing option, the Company may
proceed with such Future Offering on the terms and conditions set forth in the
notice to the Placement Agent. The Capital Raising Limitation shall not apply to
any transaction involving issuances of securities as consideration in a merger,
consolidation or acquisition of assets, or in connection with any strategic
partnership or joint venture (the primary purpose of which is not to raise
equity capital), or as consideration for the acquisition of a business, product
or license by the Company. The Capital Raising Limitation shall also not apply
to (i) the issuance of securities pursuant to an underwritten public offering,
(ii) the issuance of securities upon exercise or conversion of the Company's
options, warrants or other convertible securities outstanding as of the date
hereof or issued as part of the Offering, (iii) the grant of additional options
or warrants, or the issuance of additional securities, under any Company stock
option, bonus or restricted stock plan for the benefit of the Company's
employees, consultants or directors, or (iv) the issuance of securities upon the
exercise of warrants issued to a bank or other commercial financing institution
as an "equity kicker" in connection with floor plan financing or financing of
the acquisition of substantially all of the assets or equity securities of other
entities. In the event that the Purchasers (as defined in the Securities
Purchase Agreement) exercise their right to elect not to fund the second or
third tranche of the Units (as described in the Securities Purchase Agreement),
the provisions of the first sentence of this Section 2(f)(ii) shall no longer be
applicable and, for purposes of the second sentence of this Section 2(f)(ii),
the Capital Raising Limitations thereafter shall not apply to any Future
Offering the terms and conditions of which are not materially more favorable to
the investor than the second and third tranches under the Securities Purchase
Agreement.
3. Representations and Warranties and Covenants.
a. The Company represents and warrants to Zanett that:
(i) This Agreement has been duly authorized, executed and
delivered by the Company and, assuming the due execution by Zanett, constitutes
a legal, valid and binding
5
<PAGE>
agreement of the Company, enforceable against the Company in accordance with its
terms except (i) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, and other laws of general
application affecting enforcement of creditors' rights generally, as limited by
laws relating to the availability of specific performance, injunctive relief, or
other equitable remedies, or (ii) to the extent the indemnification provisions
contained in the Registration Rights Agreement may be limited by applicable
federal or state securities laws.
(ii) The Company has delivered to Zanett true and complete
copies of the SEC Documents (as defined in the Securities Purchase Agreement)
filed by the Company on or after December 31, 1996 with the Securities and
Exchange Commission (the "SEC") pursuant to the reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act").
(iii) The Company recognizes and confirms that Zanett (i) will
use and rely primarily on the SEC Documents and on information available from
generally recognized public sources in performing the services contemplated by
this Agreement without having independently verified the same; (ii) is
authorized to assist the Company in the structuring of the Offering with any
prospective purchaser who is an "accredited investor" as defined in Regulation D
under the Securities Act and to provide copies of the SEC Documents and forms of
the Securities Purchase Agreement and other Offering Documents to prospective
purchasers of the Company's securities in connection with the performance of
Zanett's services hereunder; and (iii) does not assume responsibility for the
accuracy or completeness of the SEC Documents.
(iv) In addition to the foregoing, the Company hereby
incorporates by reference all of the representations and warranties and
covenants to be set forth in the Securities Purchase Agreement and the other
Offering Documents with the same force and effect as if specifically set forth
herein.
(v) So long as the Debentures remain outstanding, (i) the
Company shall provide Zanett, within three (3) business days of the filing or
preparation thereof, with such financial and other statements including, without
limitation, management letters and consolidated financial statements as are
provided to any other lenders to or security holders of the Company; (ii) in the
event any current officer, director, employee, consultant or other agent ceases,
subsequent to the date hereof, to have such relationship with the Company and
such cessation has, or is likely to have, a material adverse effect on the
Company, taken as a whole, the Company shall promptly notify Zanett of such
event, which notification shall comprehensively describe such circumstances;
(iii) the Company shall, on a regular basis, provide to Zanett updates of any
material litigation and/or governmental proceedings which could reasonably be
expected to have a material adverse effect on the business of the Company; and
(iv) the Company shall promptly provide to Zanett notice of any event of default
under any agreement or other document with any lender or holder of any security
of the Company, which default reasonably could be expected to have a material
adverse effect on the Company, taken as a whole. Zanett shall hold in confidence
and shall not make any disclosure (except to an Investor who has agreed in
writing to restrictions
6
<PAGE>
on disclosure substantially equivalent to this Subsection) or use of (including
without limitation market activities) any such information disclosed to it
pursuant to clauses (i) through (iv) above which the Company determines in good
faith to be confidential, and of which determination Zanett is so notified,
unless (a) the release of such information is ordered pursuant to a subpoena or
other order from a court or government body of competent jurisdiction or (b) the
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. Anything contained
herein to the contrary notwithstanding, Placement Agent's obligations to proceed
with the Offering is conditioned upon Placement Agent's due diligence
investigation of the Company. Zanett shall be fully informed by the Company of
any events which might have a material affect on the financial condition of the
Company. If, in Zanett's opinion, the condition of the Company, financial or
otherwise, and its prospects are affected in a material and/or adverse manner
and do not fulfill Zanett's expectations, Zanett shall have the sole discretion
to review and determine its continued interest in the Offering. In the event
that Zanett elects not to proceed with the Offering, this Agreement shall
terminate.
(vi) So long as the Debentures remain outstanding, the Company
shall make available, during regular business hours on one (1) Business Day's
prior written notice, all records and books of account of the Company for
inspection by Zanett. The Company shall permit Zanett, during regular business
hours on one (1) Business Day's prior written notice, to inspect its properties.
(vii) The Company has the requisite corporate power and
authority to enter into and perform its obligations under this Agreement and to
issue the Placement Warrants in accordance with the terms hereof. The execution
and delivery of this Agreement and the Placement Warrants by the Company and the
consummation by it of the transactions contemplated hereby (including, without
limitation, the issuance of the Placement Warrants and the reservation for
issuance and issuance of the Placement Warrant Shares issuable upon exercise of
the Placement Warrants) have been duly authorized by the Company's Board of
Directors and no further consent or authorization of the Company, its Board of
Directors, or its shareholders is required, except for the shareholder approval
described in Section 4(n) of the Securities Purchase Agreement.
(viii) The Placement Warrant and the Placement Warrant Shares
issuable upon the exercise thereof are duly authorized and, upon issuance of the
Placement Warrants in accordance with the terms hereof and the Warrant Shares
upon exercise of the Placement Warrants 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 the shareholders of the Company,
other than restrictions on transfer imposed by federal and state securities
laws.
(ix) The execution, delivery and performance of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby will not (A) result in a violation of the Company's
Certificate of Incorporation or By-laws or (B)
7
<PAGE>
conflict with, or constitute a default (or an event which with notice or lapse
of time or both would become a default) under, or give to others any rights of
termination, amendment, acceleration or cancellation of, any material agreement,
indenture or instrument to which the Company is a party, or, to its knowledge,
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 by which any property or asset of the Company is bound or affected
(except, with respect to clause (B), for such conflicts, defaults, terminations,
amendments, accelerations, cancellations and violations as would not,
individually or in the aggregate, have a material adverse effect on the
operation, properties, prospects or financial condition of the Company
("Material Adverse Effect")). The Company is not in violation of its Certificate
of Incorporation or By-laws and is not in default (and no event has occurred
which with notice or lapse of time of both would put the Company in default)
under, nor has there occurred any event giving others (with notice or lapse of
time or both) any rights of termination, amendment, acceleration or cancellation
of, any agreement, indenture or instrument to which the Company is a party,
except for possible defaults as would not, individually or in the aggregate,
have a Material Adverse Effect. The business of the Company is not being
conducted, and shall not be conducted, in violation of any law, ordinance or
regulation of any governmental entity, except for possible violations which
either singly or in the aggregate do not have a Material Adverse Effect. Except
as specifically contemplated by this Agreement and as required under the
Securities 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 in accordance with the terms hereof.
(x) The Company shall at all times have authorized, and
reserved for the purpose of issuance, a sufficient number of Placement Warrant
Shares to provide for the full exercise of the outstanding Placement Warrants.
(xi) The Company shall promptly secure the listing of the
Placement Warrant Shares upon each national securities exchange or automated
quotation system, if any, upon which shares of Common Stock are then listed
(subject to official notice of issuance) and shall maintain, so long as any
other shares of Common Stock shall be so listed, such listing of all Placement
Warrant Shares from time to time issuable upon exercise of the Placement
Warrants.
b. The Zanett Officers each individually represent and warrant to
the Company that:
(i) The Zanett Officer is acquiring the Placement Warrants and
the Placement Warrant Shares for its own account and not with a present view
towards the public sale or distribution thereof.
(ii) The Zanett Officer is an "Accredited Investor" as that
term is defined in Rule 501(a) of Regulation D.
8
<PAGE>
(iii) The Zanett Officer understands that the Placement
Warrants and the Placement Warrant Shares are being issued to the Zanett Officer
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 Zanett Officer's compliance with, the
representations, warranties, agreements, acknowledgments and understandings set
forth herein in order to determine the availability of such exemptions and the
eligibility of the Zanett Officer to acquire the Placement Warrants and the
Placement Warrant Shares.
(iv) The Zanett Officer understands that (i) except as
provided in the Registration Rights Agreement, the sale or resale of the
Placement Warrants and the Placement Warrant Shares issuable upon exercise
thereof have not been and are not being registered under the Securities Act or
any state securities laws, and may not be transferred unless (a) the resale of
the Securities has been registered thereunder; or (b) the Zanett Officer shall
have delivered to the Company an opinion of counsel (which opinion shall be in
form, substance and scope customary for opinions of counsel in comparable
transactions) to the effect that the securities to be sold or transferred may be
sold or transferred pursuant to an exemption from such registration; or (c) the
Securities are sold under Rule 144 promulgated under the Securities Act (or a
successor rule) ("Rule 144"); or (d) the Securities are sold or transferred to a
non-broker dealer affiliate of the Zanett Officer who agrees to sell or
otherwise transfer such securities only in accordance with the provisions of the
terms hereof and who is an Accredited Investor; and (ii) neither the Company nor
any other person is under any obligation to register such Securities under the
Securities Act or any state securities laws (other than pursuant to the
Registration Rights Agreement). Notwithstanding the foregoing or anything else
contained herein to the contrary, such securities may be pledged as collateral
in connection with a bona fide margin account or other lending arrangement so
long as the pledgee is an accredited investor.
(v) This Agreement has been duly and validly authorized,
executed and delivered on behalf of Placement Agent and duly and validly
executed and delivered by each Zanett Officer and is the valid and binding
agreement of each of them enforceable against each of them in accordance with
its terms.
(vi) Neither the Placement Agent nor the Zanett Officers have
any authority to act on behalf of, or otherwise bind, the Company.
c. The Placement Agent represents and warrants to the Company that:
(i) The Placement Agent is (i) a registered broker-dealer
under the Securities Exchange Act of 1934, (ii) a member in good standing of the
National Association of Securities Dealers, Inc. ("NASD") and (iii) registered
as a broker-dealer in any state in which it is required to be in order to offer
and sell the Securities in such state.
9
<PAGE>
(ii) The Placement Agent will cooperate with the Company to
ensure that the offering and sale of the Securities complies with the
requirements of Rule 506, including, without limitation, the general conditions
contained in Regulation D, the federal securities laws and the state securities
or "blue sky" laws of the jurisdiction in which the Securities are offered, and
the Placement Agent will not make an offer of Securities in any jurisdictions in
which such offer would be unlawful. The Placement Agent shall fully conform with
all Federal, state and NASD rules and regulations (including without limitation
those described in NASD Notices to Members) with respect to escrow provisions
and requirements.
(iii) The Placement Agent will not offer the Securities by any
form of general solicitation or general advertising (as prohibited by Rule
502(c) of Regulation D), including any communication published in any newspaper,
magazine or electronic media, or by any seminar or meeting whose attendees have
been invited by any general solicitation or general advertising. Additionally,
the Placement Agent will not employ any sales literature except the Securities
Purchase Agreement.
(iv) The Placement Agent has the necessary power and authority
to enter into this Agreement and to consummate the transactions contemplated
hereby.
(v) The Placement Agent is a corporation duly organized and
validly existing under the laws of the state of Delaware; and the consummation
of the transactions herein contemplated will not result in any violation of, or
be in conflict with, or constitute a default under, any material agreement or
instrument to which the Placement Agent is a party or by which the Placement
Agent or its properties are bound, or to its knowledge, any judgment, decree,
order or any statute, rule or regulation applicable to the Placement Agent.
(vi) Neither the Placement Agent nor any of its directors or
officers are subject to disqualification under Regulation D or applicable state
securities laws.
4. Publicity. The Company shall not make any reference to Zanett, the
Zanett Officers or to any of their affiliates in any release or other
communication without Zanett's prior written consent, which shall not be
unreasonably withheld or delayed; provided, that the foregoing shall not
prohibit the Company from complying with applicable law. Without Zanett's prior
written consent, which shall not be unreasonably withheld or delayed, no advice
rendered by Zanett in connection with the services performed by Zanett pursuant
to this Agreement will be quoted by the Company, its affiliates or
representatives nor will any such advice be referred to in any report, document,
release or other communication, whether oral or written, prepared or issued or
transmitted by such person, except to the extent required by law (in which case
the appropriate party shall so advise Zanett in writing prior to such use and
shall consult with Zanett with respect to the form and timing of the
disclosure).
10
<PAGE>
5. Indemnification and Contribution.
a. To the extent permitted by law, the Company will indemnify, hold
harmless and defend Zanett and each of its directors, officers, partners,
members, employees, agents and each person who controls Zanett within the
meaning of the Securities Act or the Exchange Act, if any, (each, a "Zanett
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
transaction contemplated by this Agreement, the retention of Zanett as Placement
Agent under this Agreement, the performance of services by Zanett hereunder or
any involvement or alleged involvement of Zanett in the Offering or (ii) any
breach of any of the Company's representations, warranties or covenants
contained herein. The Company shall reimburse each of the Zanett Indemnified
Persons, promptly as such expenses are incurred and are due and payable, for any
reasonable legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 5(a) shall not (i) apply in instances where the Claims
were the result of Zanett's gross negligence or based on Zanett's wilful
misconduct, and (ii) 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.
b. To the extent permitted by law, Zanett will indemnify, hold
harmless and defend the Company and each of its directors, officers, partners,
members, employees, agents and each person who controls the Company within the
meaning of the Securities Act or the Exchange Act, if any, (each, a "Company
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 failure
by Zanett to comply with Federal, state or any other applicable securities laws
or (ii) any breach of any of Zanett's representations, warranties or covenants
contained herein. Zanett shall reimburse each of the Company Indemnified
Persons, promptly as such expenses are incurred and are due and payable, for any
reasonable legal fees or other reasonable expenses incurred by them in
connection with investigating or defending any such Claim. Notwithstanding
anything to the contrary contained herein, the indemnification agreement
contained in this Section 5(b) shall not apply to amounts paid in settlement of
any Claim if such settlement is effected without the prior written consent of
Zanett, which consent shall not be unreasonably withheld.
c. Promptly after receipt by a Zanett Indemnified Person or Company
Indemnified Person, as the case may be (each an "Indemnified Person") under this
Section 5 of notice of the commencement of any action (including any
governmental action), such Indemnified Person shall, if a Claim in respect
thereof is made against the Company under Section 5(a) or
11
<PAGE>
against Zanett under Section 5(b), deliver to the Company or Zanett, as the case
may be (each an "Indemnifying Party") a written notice of the commencement
thereof, and the Indemnifying Person shall have the right to participate in,
and, to the extent the Indemnifying Person so desires, to assume control of the
defense thereof with counsel mutually satisfactory to the Indemnifying Person
and the Indemnified Person; provided, however, that an Indemnified Person shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the Indemnifying Person, if, in the reasonable opinion of counsel retained by
the Indemnified Person, the representation by such counsel of the Indemnified
Person and the Indemnifying Person would be inappropriate due to actual or
potential differing interests between such Indemnified Person and any other
party represented by the Indemnifying Person's counsel in such proceeding. The
Indemnifying Person shall pay for only one separate legal counsel for the
Indemnified Persons, and such legal counsel shall be selected by the
Indemnifying Person. The failure to deliver written notice to the Indemnifying
Person within a reasonable time of the commencement of any such action shall not
relieve the Indemnifying Person of any liability to the Indemnified Person under
this Section 5, except to the extent that the Indemnifying Person is actually
prejudiced in its ability to defend such action. The indemnification required by
this Section 5 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.
d. To the extent any indemnification by the Indemnifying Person of
an Indemnified Person is prohibited or limited by law or otherwise unavailable
in respect of any Claim, the Indemnifying Person agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 5 to the fullest extent permitted by law. In this regard, the
Indemnifying Person shall contribute to the amount paid or payable by such
Indemnified Person as a result of any such Claim (i) in such portion as is
appropriate to reflect the relative benefits received by the Indemnifying
Person, on the one hand, and the Indemnified Person, on the other, from the
structuring and issuance of the securities in the Offering or any other
transaction in which Zanett rendered services hereunder or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Indemnifying
Person, on the one hand, and of the Indemnified Person, on the other, in
connection with untrue statements or omissions or other actions (or alleged
untrue statements, omissions or other actions) which resulted in such Claim as
well as any other relevant equitable considerations. The relative benefits
received by the Indemnifying Person, on the one hand, and the Indemnified
Person, on the other, shall be deemed to be in the same proportion as the total
gross proceeds received by the Indemnifying Person in the Offering or any other
financing bears to such Indemnified Person's compensation. The relative fault of
the Indemnifying Person on the one hand and of the Indemnified Person on the
other shall be determined by reference to, among other things, whether such
untrue statements or omissions or other actions (or alleged untrue statements,
omissions or other actions) relate to information supplied or action taken by
the Indemnifying Person, on the one hand, by the Indemnified Person, on the
other, and the relevant persons' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statements,
omission or actions. The amount paid or payable by a party as
12
<PAGE>
a result of the Claim shall be deemed to include any legal or other fees or
expenses reasonably incurred by such party in connection with investigating or
defending any action or claim. The parties agree that it would not be just and
equitable if contribution pursuant to this Section 5 were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to above.
e. The aforesaid indemnity and contribution agreements shall apply
to any related activities engaged in by any Indemnified Person prior to this
date and to any modification of this Agreement, and shall remain in full force
and effect regardless of any investigation made by or on behalf of either party
or any of its respective agents, employees, officers, directors or controlling
persons and shall survive the issuance of any securities in any transaction
referred to hereunder (including the Offering) and any termination of this
Agreement or Placement Agent's engagement hereunder. The Indemnifying Person
agrees to promptly notify the Indemnified Person of the commencement of any
litigation or proceeding against it or any of its directors, officers, agents or
employees in connection with the transactions contemplated hereby.
f. The Indemnifying Person also agrees that no Indemnified Person
shall have any liability (whether direct or indirect, in contract or tort or
otherwise) to the Indemnifying Person, its owners, creditors or security holders
for or in connection with advice or services rendered or to be rendered by
Zanett pursuant to this Agreement, the transactions contemplated hereby or any
Indemnified Person's actions or inactions in connection with any such advice,
services or transactions except for liabilities (and related expenses) of the
Indemnifying Person that are determined by a final judgment of a court of
competent jurisdiction to have resulted primarily from such Indemnified Person's
gross negligence or wilful misconduct in connection with any such advice,
actions, inactions or services.
6. Survival of Certain Provisions. The representations, warranties,
covenants and provisions contained in Section 2(f), Section 3, Section 4 and
Section 5 hereof shall survive in full force and effect until that date which is
three (3) years from the date hereof (or such longer period as may be specified
in such provisions) regardless of (a) any completion or termination of any
financing contemplated by this Agreement (including the Offering), (b) any
termination of this Agreement, or (c) any investigation made by or on behalf of
Placement Agent or any affiliate of Placement Agent, and shall be binding upon,
and shall inure to the benefit of, any successors, assigns, heirs and personal
representatives of the Company, Zanett, the Indemnified Parties and any holder
of Placement Warrants.
7. Miscellaneous.
a. All notices, requests, demands and other communications which are
required or may be given hereunder shall be in writing and shall be deemed to
have been duly given when delivered personally, receipt acknowledged or five (5)
days after being sent by registered or certified mail, return receipt requested,
postage prepaid. All notices shall be made to
13
<PAGE>
the parties at the addresses designated above or at such other or different
addresses which party may subsequently provided with notice thereof, and, to
their respective legal counsel, as follows:
(i) If to Placement Agent, to
The Zanett Securities Corporation
Tower 49, 31st Floor
12 East 49th Street
New York, NY 10017
Attention: Claudio Guazzoni
- with a copy to -
Klehr, Harrison, Harvey, Branzburg & Ellers
1401 Walnut Street
Philadelphia, PA 19102
Attention: Lawrence D. Rovin, Esquire
(ii) If to the Company, to
Fidelity Holdings, Inc.
80-02 Kew Gardens Road
Suite 5000
Kew Gardens, NY 11415
Attention: Doron Cohen, President
-with a copy to -
Littman Krooks Roth & Ball P.C.
655 Third Avenue, 20th Floor
New York, New York 10017
Attention: Mitchell C. Littman, Esquire
b. This Agreement may be executed simultaneously in two or more
counterparts, each of which shall be deemed an original, but all of which shall
constitute one and the same instrument. This Agreement, once executed by a
party, may be delivered to the other parties hereto by facsimile transmission of
a copy of this Agreement bearing the signature of the party so delivering this
Agreement.
c. This Agreement shall be governed by, and construed in accordance
with, the laws of the State of New York (without regard to its conflict of laws
provisions). The Company hereby agrees to submit to the exclusive jurisdiction
of an arbitration panel of the National Association of Securities Dealers, Inc.
located in the City of New York in connection
14
<PAGE>
with any suit, action or proceeding related to this Agreement or any of the
matters contemplated hereby, irrevocably waives any defense of lack of personal
jurisdiction and irrevocably agrees that all claims in respect of any suit,
action or proceeding may be heard and determined in by such panel. The Company
irrevocably waives, to the fullest extent it may effectively do so under
applicable law any objection which it may now or hereafter have to the laying of
venue of any such suit, action or proceeding brought before any such court and
any claims that any such suit, action or proceeding brought in any such
arbitration panel has been brought in an inconvenient forum. Each party further
agrees to pay or reimburse the other party for all reasonable costs and expenses
incurred by the other party in connection with the enforcement of any of its
rights under this Agreement, including without limitation, all attorneys' fees
and expenses of its counsel.
d. The section headings in this Agreement have been inserted as a
matter of convenience of reference and are not a part of this Agreement.
e. This Agreement may not be modified or amended except in writing
duly signed by the parties hereto.
f. If any term, provision, covenant or restriction contained in this
Agreement is held by a court of competent jurisdiction or other authority to be
invalid, void, unenforceable or against its regulatory policy, the remainder of
the terms, provisions, covenants and restrictions contained in this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated.
g. Each party to this Agreement has participated in the negotiation
and drafting of this Agreement. As such, the language used herein shall be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any party to
this Agreement.
15
<PAGE>
Please sign and return the original and one copy of this letter to
indicate your acceptance of the terms set forth herein whereupon this letter and
your acceptance shall constitute a binding agreement between you and the
Company.
Very truly yours,
FIDELITY HOLDINGS, INC.
By: /s/ Doron Cohen
---------------------------------
Name: Doron Cohen
Title: President
Accepted and Agreed to this 25th day of January, 1999.
THE ZANETT SECURITIES CORPORATION
By: /s/ Claudio Guazzoni
---------------------------
Name: Claudio Guazzoni
Title: President
/s/ Claudio Guazzoni
- ---------------------------------
Claudio Guazzoni
/s/ David McCarthy
- ---------------------------------
David McCarthy
/s/ Tony Milbank
- ---------------------------------
Tony Milbank
16
<PAGE>
Schedule 2(d)
<TABLE>
<CAPTION>
Number of Warrants Number of Shares of Number of CBS
Officer per Unit Common Stock per Unit Warrants per Unit
------- -------- --------------------- -----------------
<S> <C> <C> <C> <C>
Claudio Guazzoni 1st: 15.6250 6.8182 4.0909
2nd: 24.4318
3rd: 24.4318
David McCarthy 1st: 15.6250 6.8182 4.0909
2nd: 24.4318
3rd: 24.4318
Tony Milbank 1st: 10.4167 4.5455 2.7273
2nd: 16.2879
3rd: 16.2879
Total
</TABLE>
Exhibit 10.61
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of January 25,
1999 by and among FIDELITY HOLDINGS, INC., a corporation organized under the
laws of the State of Nevada (the "Company"), with headquarters located at 80-02
Kew Gardens Road, Suite 5000, Kew Gardens, New York 11415, COMPUTER BUSINESS
SCIENCES, INC., a corporation organized under the laws of the State of Delaware
and a wholly-owned subsidiary of the Company ("CBS") and each of the purchasers
(collectively, the "Purchasers") set forth on the execution pages hereof (the
"Execution Pages").
WHEREAS:
A. The Company, CBS and each Purchaser are executing and delivering this
Agreement in reliance upon the exemption from securities registration afforded
by the provisions of Regulation D ("Regulation D"), as promulgated by the United
States Securities and Exchange Commission (the "SEC") under the Securities Act
of 1933, as amended (the "Securities Act") and Section 4(2) of the Securities
Act.
B. The Company and CBS desire to sell, and the Purchasers, severally and
not jointly, desire to purchase, upon the terms and conditions stated in this
Agreement up to 2,750 Units (the "Units"), each Unit consisting of no less than
one and up to three tranches, (a) in the first tranche, (i) a Convertible
Debenture in the principal amount of One Thousand Dollars ($1,000) of the
Company, in the form attached hereto as Exhibit A (the "Debentures"),
convertible on certain terms and conditions into shares of the Company's common
stock, par value $0.01 per share (the "Common Stock"), (ii) 36.3636 shares of
Common Stock, (iii) warrants (the "Warrants"), in the form attached hereto as
Exhibit B, to acquire 83.3333 shares of Common Stock and (iv) warrants (the "CBS
Warrants") in the form attached hereto as Exhibit C, to acquire 25.4545 shares
of common stock, par value $0.01 per share, of CBS (the "CBS Shares"), and (b),
in the second tranche, (i) a Debenture in the principal amount of One Thousand
Five Hundred Sixty-Three and 64/100 Dollars ($1,563.64) and (ii) Warrants to
acquire 130.3030 shares of Common Stock and (c) in the third tranche, (i)
Debentures in an aggregate principal amount of One Thousand Five Hundred
Sixty-Three and 64/100 Dollars ($1,563.64) and (ii) Warrants to purchase
130.3030 shares of Common Stock. The shares of Common Stock issuable upon
conversion of or otherwise pursuant to the Debentures are referred to herein as
the "Conversion Shares" and the shares of Common Stock issuable upon exercise of
or otherwise pursuant to the Warrants are referred to herein as the "Warrant
Shares." The Debentures, the Common Stock, the Warrants, the CBS Warrants, the
CBS Stock, the Conversion Shares and the Warrant Shares are collectively
referred to herein as the "Securities."
C. Contemporaneous with the execution and delivery of this Agreement, the
Company and the Purchasers are executing and delivering a Registration Rights
Agreement, in the form
<PAGE>
attached hereto as Exhibit D (the "Registration Rights Agreement"), pursuant to
which the Company has agreed to provide certain registration rights under the
Securities Act and the rules and regulations promulgated thereunder, and
applicable state securities laws.
NOW, THEREFORE, the Company and the Purchasers hereby agree as follows:
1. PURCHASE AND SALE OF UNITS
a. Purchase of Units. The issuance, sale and purchase of the Debentures,
the Common Stock, the CBS Warrants and the Warrants shall occur in three
tranches with separate closings, hereinafter referred to as the "First Closing,"
the "Second Closing" and the "Third Closing," respectively. Each of the First
Closing, the Second Closing and the Third Closing is hereinafter referred to as
a "Closing". On the date of each Closing, subject to the satisfaction (or
waiver) of the relevant conditions set forth in Section 6 and Section 7 below,
the Company shall issue and sell to each Purchaser, and each Purchaser severally
(but not jointly) agrees to purchase from the Company, such Units for the
relevant purchase price as is set forth on such Purchaser's Execution Page
attached hereto (the "Purchase Price"). Each Purchaser's obligation to purchase
Units hereunder is distinct and separate from each other Purchaser's obligation
to purchase and no Purchaser shall be required to purchase hereunder more than
the principal amount of its Debentures and the number of its Common Stock, CBS
Warrants and Warrants set forth on such Purchaser's Execution Page hereto
notwithstanding any failure by any other Purchaser to purchase Units hereunder
nor shall any Purchaser have any liability by reason of any such failure by any
other Purchaser.
b. Form of Payment. At each Closing, each Purchaser shall pay the
aggregate Purchase Price of the Securities being purchased by such Purchaser
hereunder at such Closing by wire transfer of immediately available funds to the
Company, in accordance with the Company's written wiring instructions, in each
case, against delivery of the duly executed Debentures, certificates
representing the Common Stock and duly executed CBS Warrants (at the First
Closing only) and duly executed Warrants being purchased by such Purchaser and
the Company shall deliver such Debentures, certificates, Warrants and CBS
Warrants, each bearing the restrictive legend set forth in Section 2(f), against
delivery of such aggregate Purchase Price.
c. Closing Date. Subject to the satisfaction (or waiver) of the relevant
conditions thereto set forth in Section 6 and Section 7 below, the date and time
of the issuance and sale of the Units shall be (i) in the case of the First
Closing, 12:00 noon Eastern Time on January 25, 1999 and (ii) in the case of the
Second Closing and the Third Closing, 12:00 noon Eastern Time on the fifth (5th)
trading day following notification of satisfaction (or waiver) of the relevant
conditions to such Closing and (iii) in the case of the Third Closing 12:00 noon
Eastern Time on the fifth (5th) trading day following notification of
satisfaction (or waiver) of the relevant conditions to such Closing, or, in each
case, such other time as may be mutually agreed upon by the Company and the
Purchasers. The date of the First Closing, the Second Closing, or the Third
Closing, as the case may be, shall hereinafter be referred to as the "First
Closing Date," "Second Closing Date," or the "Third Closing Date,"
2
<PAGE>
respectively. Each Closing shall occur at the offices of Klehr, Harrison,
Harvey, Branzburg & Ellers, LLP, 1401 Walnut Street, Philadelphia, Pennsylvania
19102.
2. PURCHASERS' REPRESENTATIONS AND WARRANTIES
Each Purchaser severally represents and warrants to the Company as
follows:
a. Investment Purpose. The Purchaser is purchasing the Securities for the
Purchaser's own account, not as nominee or agent, for investment purposes only
and not with a present view towards the public sale or distribution thereof,
except pursuant to sales that are exempt from the registration requirements of
the Securities Act and/or sales registered under the Securities Act. The
Purchaser understands that the Purchaser must bear the economic risk of this
investment indefinitely, unless the Securities are registered pursuant to the
Securities Act and any applicable state securities or blue sky laws or an
exemption from such registration is available, and that the Company has no
present intention of registering the resale of any such Securities other than as
contemplated by the Registration Rights Agreement. Notwithstanding anything in
this Section 2(a) to the contrary, by making the representations herein, the
Purchaser does not agree to hold the Securities for any minimum or other
specific term and reserves the right to dispose of the Securities at any time,
provided that any such deposition shall be in accordance with or pursuant to a
registration statement or an exemption under the Securities Act. By executing
this Agreement, the Purchaser further represents that the Purchaser does not
presently have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to such person or to any third
person, with respect to any of the Securities. The Purchaser has not been formed
for the specific purpose of acquiring the Securities. The Purchaser is not a
registered broker-dealer and is not engaged in the business of being a
broker-dealer.
b. Accredited Investor Status. The Purchaser is an "Accredited Investor"
as that term is defined in Rule 501(a) of Regulation D.
c. Reliance on Exemptions. The Purchaser understands that the Units are
being offered and sold to the Purchaser in reliance upon specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Purchaser's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Purchaser set forth herein in order to
determine the availability of such exemptions and the eligibility of the
Purchaser to acquire the Units. The Purchaser understands that the resale of
Securities is "restricted" under applicable U.S. Federal and state securities
laws and that, pursuant to these laws, the Purchaser must hold the Securities
indefinitely unless they are registered for resale with the Securities and
Exchange Commission and qualified by state authorities, or an exemption from
such registration and qualification requirements is available. The Purchaser
acknowledges that the Company has no obligation to register or qualify the
Securities for resale except as set forth in the Registration Rights Agreement.
The Purchaser further acknowledges that if an exemption from registration or
qualification is available, it may be conditioned on various requirements
including, but not limited to, the time and manner of sale, the
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holding period for the Securities, and on requirements relating to the Company
which are outside of the Purchaser's control.
d. Information. The Purchaser and its counsel have been furnished all
materials relating to the business, management, finances and operations of the
Company and of CBS materials relating to the offer and sale of the Units which
have been specifically requested by the Purchaser or its counsel. The Purchaser
and its counsel have been afforded access and the opportunity to ask questions
of the Company and have received what the Purchaser believes to be satisfactory
answers to any such inquiries. Although neither such inquiries nor any other due
diligence investigation conducted by the Purchaser or its counsel or any of its
representatives shall modify, amend or affect the Purchaser's right to rely on
the Company's representations and warranties contained in Section 3 below,
Purchaser acknowledges and agrees that it has conducted its own due diligence
investigation of the Company and CBS. The Purchaser understands that its
investment in the Units involves a high degree of risk. Specifically, Purchaser
acknowledges that CBS, following the merger described in Section 4(k) below,
will be a private company engaged in developing technology which may never prove
to become commercially accepted and that no assurance can be given that CBS will
effect an initial public offering in the near future or ever.
e. Governmental Review. The Purchaser understands that no United States
federal or state agency or any other government or governmental agency has
passed upon or made any recommendation or endorsement of the Units. THE
SECURITIES OFFERED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, OR THE SECURITIES LAWS OF CERTAIN STATES AND ARE BEING OFFERED
AND SOLD IN RELIANCE ON EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS OF SAID
ACT AND SUCH LAWS. THE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY
AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER SAID
ACT AND SUCH LAWS PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. THE
SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE
COMMISSION, ANY STATE SECURITIES COMMISSION OR ANY OTHER REGULATORY AUTHORITY,
NOR HAVE ANY OF THE FOREGOING AUTHORITIES PASSED UPON OR ENDORSED THE MERITS OF
THIS OFFERING OR THE ACCURACY OR ADEQUACY OF THIS AGREEMENT. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
f. Transfer or Resale. The Purchaser understands that (i) except as
provided in the Registration Rights Agreement, the sale or resale of the
Securities have not been and are not being registered under the Securities Act
or any state securities laws, and may not be transferred unless (a) the resale
of the Securities has been registered thereunder, or (b) the Purchaser shall
have delivered to the Company an opinion of counsel (which opinion shall be in
form, substance and scope customary for opinions of counsel in comparable
transactions) to the effect that the Securities to be sold or transferred may be
sold or transferred under an exemption from such registration, or (c) sold under
Rule 144 promulgated under the Securities Act (or a successor rule) ("Rule
144"), or (d) sold
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or transferred to an affiliate of the Purchaser which agrees in writing to be
bound by the terms hereof and which makes written representations and warranties
as set forth in this Section 2; and (ii) neither the Company nor any other
person is under any obligation to register such Securities under the Securities
Act or any state securities laws or to comply with the terms and conditions of
any exemption thereunder (in each case, other than pursuant to the Registration
Rights Agreement).
g. Legends. The Purchaser understands that the Debentures, the
certificates for the Common Stock, the CBS Warrants and the Warrants and, until
such time as the Conversion Shares, Warrant Shares and/or CBS Shares have been
registered under the Securities Act as contemplated by the Registration Rights
Agreement or otherwise may be sold by the Purchaser under Rule 144, the
certificates for the Conversion Shares, Warrant Shares and CBS Shares, may bear
a restrictive legend in substantially the following form:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, or the
securities laws of any state of the United States. The securities
represented hereby may not be offered or sold in the absence of an
effective registration statement for the securities under applicable
securities laws unless offered, sold or transferred under an
available exemption from the registration requirements of those
laws.
The legend set forth above shall be removed and the Company shall issue a
certificate without such legend to the holder of any Security upon which such
legend is stamped, if, unless otherwise required by state securities laws, (a)
the resale of such Security is registered pursuant to an effective registration
statement under the Securities Act or (b) such holder provides the Company with
an opinion of counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that a public sale or transfer
of such Security may be made without registration under the Securities Act or
(c) such holder provides the Company with reasonable assurances that the resale
of such Security is covered by Rule 144(k). The Purchaser agrees to sell all
Securities, including those represented by a certificate(s) from which the
legend has been removed, only pursuant to an effective registration statement or
under an exemption from the registration requirements of the Securities Act. In
the event the above legend is removed from any Security subject to an effective
registration statement and thereafter the effectiveness of the registration
statement covering such Security is suspended or the Company determines that a
supplement or amendment thereto is required by applicable securities laws, then
upon reasonable advance notice to the Purchaser the Company may require that the
above legend be placed on any such Security subject to an effective registration
statement, or may place appropriate "stop transfer" instructions with its
transfer agent, and the Purchaser shall cooperate in the prompt replacement of
such legend. The Company shall use its best efforts to remove such suspension or
file such amendment as promptly as possible, and such legend shall be removed or
"stop transfer" instructions canceled, when such Security again may be sold
pursuant to an effective registration statement or such legend otherwise may be
removed under conditions (b) or (c) above.
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h. Authorization; Enforcement. This Agreement , when executed and
delivered by the Purchaser, will constitute the valid and legally binding
obligation of the Purchaser, enforceable against the Purchaser in accordance
with its terms, except (a) as limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance, and any other laws of general
application affecting enforcement of creditors' rights generally, and as limited
by laws relating to the availability of a specific performance, injunctive
relief, or other equitable remedies, or (b) to the extent the indemnification
provisions contained in the Registration Rights Agreement may be limited by
applicable federal or state securities laws.
i. Residency. The Purchaser is a resident of the jurisdiction set forth
under the Purchaser's name on the Execution Page hereto executed by such
Purchaser.
j. No General Solicitation. The Purchaser is unaware of, is no way relying
on, and did not become aware of the offering of the Securities through or as a
result of, any form of general solicitation or general advertising including,
without limitation, any article, notice, advertisement or other communication
published in any newspaper, magazine or similar media or broadcast over
television or radio, in connection with the offering and sale of the Securities
and is not subscribing for Securities and did not become aware of the offering
of the Securities through or as a result of any seminar or meeting to which the
Purchaser was invited by, or any solicitation of a subscription by, a person not
previously known to the Purchaser in connection with investments in securities
generally.
k. No Finders. The Purchaser has taken no action which would give rise to
any claim by any person for brokerage commissions, finders' fees or the like
relating to this Agreement or the transactions contemplated hereby, except for
Zanett Securities Corporation, the sole placement agent in connection with the
offering of Securities, whose fees shall be the sole responsibility of the
Company.
l. Knowledge and Experience. The Purchaser has such knowledge and
experience in financial, tax, and business matters, and, in particular,
investments in securities, so as to enable it to utilize the information made
available to it in connection with the offering of the Securities to evaluate
the merits and risks of an investment in the Securities and the Company and to
make an informed investment decision with respect thereto. The Purchaser is not
relying on the Company or any of its employees or agents with respect to the
legal, tax, economic and related considerations of an investment in the
Securities, and the Purchaser has relied on the advice of, or has consulted
with, only his own advisors. The Purchaser has significant prior investment
experience, including investment in non-listed and non-registered securities.
The Purchaser is knowledgeable about investment considerations in
development-stage companies. The Purchaser has a sufficient net worth to sustain
a loss of its entire investment in the Company in the event such a loss should
occur. The Purchaser's overall commitment to investments which are not readily
marketable is not exces sive in view of its net worth and financial
circumstances and the purchase of the Securities will not cause such commitment
to become excessive. The investment is a suitable one for the Purchaser. The
Purchase has reviewed or had the opportunity to review the Company's public
filings under the Securities Exchange Act of 1934 (the "Exchange Act") as filed
with the SEC.
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<PAGE>
m. No Need for Liquidity. The Purchaser has adequate means of providing
for such Purchaser's current financial needs and foreseeable contingencies and
has no need for liquidity of the investment in the Securities for an indefinite
period of time.
n. Limited Trading Market of the Company. The Purchaser represents and
warrants that it understands that the Common Stock thinly trades and no
assurance can be given that an active market for the Common Stock will develop
or be maintained.
o. No Trading Market for CBS. The Purchaser understands and acknowledges
that there is no trading market for CBS securities nor is there any assurance
that such market shall ever develop or be maintained.
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY AND CBS.
a. The Company represents and warrants to each Purchaser as follows:
(i) Organization and Qualification. The Company and each of its
subsidiaries is a corporation duly organized and existing in good standing under
the laws of the jurisdiction in which it is incorporated, and has the requisite
corporate power to own its properties and to carry on its business as it is now
being conducted. 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 and where the failure so to qualify would have a Material Adverse
Effect. "Material Adverse Effect" means any material adverse effect on (i) the
Securities, (ii) the ability of the Company to perform its obligations hereunder
and under the Debentures, the Warrants or the Registration Rights Agreement or
(iii) the business, operations, properties, financial condition or previously
publicly announced prospects of the Company and its subsidiaries, taken as a
whole.
(ii) Authorization; Enforcement. (i) The Company has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement, the Debentures, the Warrants and the Registration Rights
Agreement, to issue and sell the Debentures, the Common Stock and the Warrants,
in accordance with the terms hereof and to issue Conversion Shares upon
conversion of the Debentures in accordance with the terms of the Debentures and
to issue the Warrant Shares upon exercise of the Warrants in accordance with the
terms of such Warrants; (ii) the execution, delivery and performance of this
Agreement, the Debentures, the Warrants and the Registration Rights Agreement by
the Company and the consummation by it of the transactions contemplated hereby
and thereby (including, without limitation, the issuance of the Debentures,
Common Stock and Warrants and the issuance and reservation for issuance of the
Conversion Shares and Warrant Shares) have been duly authorized by the Company's
Board of Directors and no further consent or authorization of the Company, its
Board or Directors or its stockholders is required (under the rules promulgated
by the
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<PAGE>
National Association of Securities Dealers ("NASD") or otherwise, except for the
shareholder approval required pursuant to Rule 4310(a)(25)(H) promulgated by the
NASD); (iii) this Agreement has been duly executed and delivered by the Company;
and (iv) assuming due execution and delivery of this Agreement, the Placement
Agency Agreement and the Registration Rights Agreement by parties other than the
Company and compliance by Zanett with applicable Federal and state securities
laws, this Agreement constitutes, and, upon execution and delivery by the
Company of the Debentures, the Warrants and the Registration Rights Agreement,
such instruments and agreements will constitute, valid and binding obligations
of the Company enforceable against the Company in accordance with their terms
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium, fraudulent conveyance, and other laws of general application
affecting enforcement of creditors' rights generally, as limited by laws
relating to the availability of specific performance, injunctive relief, or
other equitable remedies, or (ii) to the extent the indemnification provisions
contained in the Registration Rights Agreement may be limited by applicable
federal or state securities laws.
(iii) Capitalization. The capitalization of the Company and CBS as
of the date hereof, including the authorized capital stock, the number of shares
issued and outstanding, the number of shares issuable and reserved for issuance
pursuant to stock option plans, the number of shares issuable and reserved for
issuance pursuant to securities exercisable for, or convertible into or
exchangeable for any shares of capital stock and the number of shares to be
reserved for issuance upon conversion of Debentures and exercise of Warrants is
set forth on Schedule 3(a)(iii). All of such outstanding shares of capital stock
have been, or upon issuance will be, validly issued, fully paid and
nonassessable. No shares of capital stock of the Company (including the
Conversion Shares and the Warrant Shares) are subject to preemptive rights or
any other similar rights of the stockholders of the Company or any liens or
encumbrances, pursuant to the Company's Certificate of Incorporation or bylaws
or any agreement to which the Company is a party. Except for the obligation of
the Company to issue the Conversion Shares in accordance with the terms of the
Debentures and the Warrant Shares in accordance with the terms of the Warrants
and except as disclosed in Schedule 3(a)(iii), as of the date of this Agreement,
(i) there are no outstanding options, warrants, scrip, rights to subscribe to,
calls or commitments of any character whatsoever relating to, or securities or
rights convertible into or exercisable or exchangeable for, any shares of
capital stock of the Company or any of its subsidiaries, or arrangements by
which the Company or any of its subsidiaries is or may become bound to issue
additional shares of capital stock of the Company or any of its subsidiaries,
and (ii) there are no agreements or arrangements under which the Company or any
of its subsidiaries is obligated to register the sale of any of its or their
securities under the Securities Act (except the Registration Rights Agreement).
Except as set forth on Schedule 3(a)(iii), there are no securities or
instruments containing antidilution or similar provisions that will be triggered
by the issuance of the Securities in accordance with the terms of this
Agreement, the Debentures or the Warrants. The Company has furnished to each
Purchaser true and correct copies of the Company's and CBS's Certificates of
Incorporation as in effect on the date hereof ("Certificates of Incorporation"),
the Company's and CBS's By-laws as in effect on the date hereof (the "By-laws"),
and all other instruments and agreements governing securities convertible into
or exercisable or exchangeable for capital stock of the Company or CBS.
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(iv) Issuance of Shares. The Conversion Shares and Warrant Shares
are duly authorized and reserved for issuance, and, upon conversion of the
Debentures in accordance with the terms of the Debentures, and exercise of the
Warrants in accordance with the terms thereof, will be validly issued, fully
paid and non-assessable, and free from all taxes, liens, claims and encumbrances
and will not be subject to preemptive rights or other similar rights of
stockholders of the Company and will not impose personal liability upon the
holder thereof other than restrictions on transfer imposed by Federal and state
securities laws.
(v) No Conflicts. Except as set forth in Schedule 3(a)(v), the
execution, delivery and performance of this Agreement, the Debentures, the
Warrants and the Registration Rights Agreement by the Company, and this
Agreement and the CBS Warrants by CBS and the consummation by the Company and
CBS of the transactions contemplated hereby and thereby (including, without
limitation, the issuance and reservation for issuance, as applicable, of the
Common Stock, Warrants, Conversion Shares and Warrant Shares, CBS Warrants and
CBS Shares) will not (i) result in a violation of the Certificates of
Incorporation or By-laws or (ii) conflict with, or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, any material agreement, indenture or instrument to which the
Company or any of its subsidiaries is a party, or, to the Company's knowledge,
result in a violation of any material law, rule, regulation, order, judgment or
decree (including U.S. federal and state securities laws and regulations and
rules or regulations of any self-regulatory organizations to which either the
Company or its securities are subject) applicable to the Company or any of its
subsidiaries or by which any property or asset of the Company or any of its
subsidiaries is bound or affected (except, with respect to clause (ii), for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations 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, to the Company's knowledge, neither the Company nor any of its subsidiaries
is in default (and no event has occurred which, with notice or lapse of time or
both, would put the Company or any of its subsidiaries in default) under, nor
has there occurred any event giving others (with notice or lapse of time or
both) any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture or instrument to which the Company or any of its
subsidiaries is a party, except for actual or possible violations, defaults or
rights as would not, individually or in the aggregate, have a Material Adverse
Effect. The businesses of the Company and its subsidiaries are not being
conducted, and shall not be conducted so long as any Debentures are outstanding,
in violation of any law, ordinance or regulation of any governmental entity,
except for actual or possible violations, if any, the sanctions for which either
singly or in the aggregate would not have a Material Adverse Effect. Except as
specifically contemplated by this Agreement and as required under the Securities
Act and any applicable state securities laws, the Company is not required to
obtain any consent, approval, authorization or order of, or make any filing or
registration with, any court or governmental agency or any regulatory or self
regulatory agency in order for it to execute, deliver or perform any of its
obligations under this Agreement, the Debentures, the Warrants or the
Registration Rights Agreement, in each case in accordance with the terms hereof
or thereof, the failure to obtain would have a Material Adverse Effect. Except
as disclosed in Schedule 3(a)(v),
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the Company is not in violation of the listing requirements of the Nasdaq
Smallcap Market ("NASDAQ") and the Company does not reasonably anticipate that
the Common Stock will be delisted by NASDAQ for the foreseeable future.
(vi) SEC Documents, Financial Statements. Since December 31, 1996,
the Company has timely filed (giving effect to applicable extension periods) all
reports, schedules, forms, statements and other documents required to be filed
by it with the SEC pursuant to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (all of the foregoing
filed prior to the date hereof and after December 31, 1995, and all exhibits
included therein and financial statements and schedules thereto and documents
incorporated by reference therein, being hereinafter referred to herein as the
"SEC Documents"). The Company has delivered to the Purchasers true and complete
copies of the SEC Documents. As of their respective dates, the SEC Documents
complied in all material respects with the requirements of the Exchange Act or
the Securities Act, as the case may be, and the rules and regulations of the SEC
promulgated thereunder applicable to the SEC Documents, and none of the SEC
Documents, at the time they were filed with the SEC, contained any untrue
statement of a material fact or omitted to state a material fact required to be
stated therein or necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. None of the
statements made in any such SEC Documents is, or has been, required to be
updated or amended under applicable law, where the failure to update or amend
would have a Material Adverse Effect. As of their respective dates, the
financial statements of the Company included in the SEC Documents complied as to
form in all material respects with applicable accounting requirements and the
published rules and regulations of the SEC applicable with respect thereto. Such
financial statements have been prepared in accordance with U.S. generally
accepted accounting principles, 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
typical year-end audit adjustments). Except as set forth in the financial
statements of the Company included in the SEC Documents filed prior to the date
hereof, the Company has no liabilities, contingent or otherwise, other than (i)
liabilities incurred in the ordinary course of business subsequent to the date
of such financial statements 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 liabilities and obligations referred to in clauses (i) and
(ii), individually or in the aggregate, are not material to the financial
condition or operating results of the Company. Neither the Company nor any of
its officers, directors, employees or agents have provided Purchasers with any
material nonpublic information.
(vii) Absence of Certain Changes. Since December 31, 1997, there has
been no change and no development in the business, properties, operations,
financial condition, results of operations or previously publicly announced
prospects of the Company or any of its subsidiaries
10
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which has had or reasonably could have a Material Adverse Effect, except as
disclosed in Schedule 3(a)(vii) or in the SEC Documents filed prior to the date
hereof.
(viii) Absence of Litigation. Except as expressly disclosed in the
SEC Documents filed prior to the date hereof, there is no action, suit,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its subsidiaries, threatened against or
affecting the Company, any of its subsidiaries, or any of their respective
directors or officers in their capacities as such which could reasonably be
anticipated to have a Material Adverse Effect. To the Company's knowledge, there
are no facts which, if known by a potential claimant or governmental authority,
could give rise to a claim or proceeding which, if asserted or conducted with
results unfavorable to the Company or any of its subsidiaries, could reasonably
be anticipated to have a Material Adverse Effect.
(ix) Intellectual Property. Each of the Company and its subsidiaries
owns or is licensed to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, permits, know-how (including trade secrets and other
unpatented and/or unpatentable proprietary or confidential information, systems
or procedures) and other similar rights and proprietary knowledge (collectively,
"Intangibles") which are material for the conduct of its business as now being
conducted and as described in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1997. To the best knowledge of the Company,
neither the Company nor any subsidiary of the Company infringes or is in
material conflict with any right of any other person with respect to any
Intangibles which, individually or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would have a Material Adverse Effect.
Neither the Company nor any of its subsidiaries has received written notice of
any pending conflict with or infringement upon such third party Intangibles
which alleged pending conflict or alleged infringement, if adversely determined,
would have a Material Adverse Effect. Neither the Company nor any of its
subsidiaries has entered into any consent Agreement, indemnification agreement,
forbearance to sue or settlement agreements with respect to the validity of the
Company's or its subsidiaries' ownership or right to use its Intangibles and, to
the best knowledge of the Company, there is no reasonable basis for any such
claim to be successful. The Intangibles are valid and enforceable and to the
Company's knowledge, no registration relating thereto has lapsed, expired or
been abandoned or canceled or is the subject of cancellation or other
adversarial proceedings, and all applications therefor are pending and in good
standing. The Company and its subsidiaries have complied, in all material
respects, with their respective contractual obligations relating to the
protection of the Intangibles used pursuant to licenses. To the best knowledge
of the Company, no person is infringing on or violating the Intangibles owned or
used by the Company of its subsidiaries.
(x) Foreign Corrupt Practices. Neither the Company, nor any of its
subsidiaries, nor any director, officer, agent, employee or other person acting
on behalf of the Company or any subsidiary has, in the course of his actions
for, or on behalf of, the Company, used any corporate funds for any unlawful
contribution, gift, entertainment or other unlawful expenses relating to
political
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activity; made any direct or indirect unlawful payment to any foreign or
domestic government official or employee from corporate funds; violated or is in
violation of any provision of the U.S. Foreign Corrupt Practices Act of 1977; or
made any bribe, rebate, payoff, influence payment, kickback or other unlawful
payment to any foreign or domestic government official or employee.
(xi) Disclosure. All information relating to or concerning the
Company and its subsidiaries set forth in this Agreement or provided by the
Company to the Purchasers pursuant to Section 2(d) hereof or otherwise provided
by the Company to the Purchasers in connection with the transactions
contemplated hereby is true and correct in all material respects and the Company
has not omitted to state any material fact necessary in order to make the
statements made herein or therein, in light of the circumstances under which
they were made, not misleading. No event or circumstance has occurred or exists
with respect to the Company or its subsidiaries or their respective businesses,
properties, prospects, operations or financial conditions, which has not been
publicly disclosed but, under applicable law, rule or regulation, would be
required to be disclosed by the Company in a registration statement filed on the
date hereof by the Company under the Securities Act with respect to a primary
issuance of the Company's securities.
(xii) Acknowledgment Regarding the Purchasers' Purchase of the
Securities. The Company acknowledges and agrees that none of the Purchasers or
the Placement Agent is acting as a financial advisor or fiduciary of the Company
(or in any similar capacity) with respect to this Agreement or the transactions
contemplated hereby, and the relationship between the Company and each of the
Purchasers and the Placement Agent is "arms length" and that any statement made
by any Purchaser or the Placement Agent or any of their respective
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is not advice or a recommendation and is merely incidental
to such Purchaser's purchase of Securities or such Placement Agent's role as a
placement agent and has not been relied upon by the Company, its officers or
directors in any way. The Company further acknowledges that the Company's
decision to enter into this Agreement has been based solely on an independent
evaluation by the Company and its representatives.
(xiii) Form S-3 Eligibility. Except for the circumstances described
in Schedule 3(a)(xiii), the Company is currently eligible to register the resale
of its Common Stock on a registration statement on Form S-3 under the Securities
Act. Except as set forth in Schedule 3(a)(xiii), There exist no facts or
circumstances that would prohibit or delay the preparation and filing of a
registration statement on Form S-3 with respect to the Registrable Securities
(as defined in the Registration Rights Agreement).
(xiv) No General Solicitation. Neither the Company nor any
distributor participating on the Company's behalf in the transactions
contemplated hereby (if any) nor any person acting for the Company, or any such
distributor, has conducted any "general solicitation," as such term is defined
in Regulation D, with respect to any of the Securities being offered hereby.
(xv) No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security
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or solicited any offers to buy any security under circumstances that would
require registration of the Securities being offered hereby under the Securities
Act or cause this offering of Securities to be integrated with any prior
offering of securities of the Company for purposes of the Securities Act or any
applicable stockholder approval provisions.
(xvi) Brokers. The Company has taken no action which would give rise
to any claim by any person for brokerage commissions, finder's fees or similar
payments by any Purchaser relating to this Agreement or the transactions
contemplated hereby except for dealings with The Zanett Securities Corporation,
whose commissions and fees will be paid by the Company.
(xvii) Acknowledgment of Dilution. The number of Conversion Shares
issuable upon conversion of the Debentures may increase substantially in certain
circumstances, including the circumstance wherein the trading price of the
Common Stock declines (subject to the Floor Conversion Price set forth in the
Debentures). The Company's executive officers have studied and fully understand
the nature of the Securities being sold hereunder. The Company acknowledges that
its obligation to issue Conversion Shares upon conversion of the Debentures in
accordance with the terms of the Debentures is absolute and unconditional,
regardless of the dilution that such issuance may have on the ownership
interests of other stockholders. Taking the foregoing into account, the
Company's Board of Directors has determined in its good faith business judgment
that the issuance of the Debentures and the Warrants hereunder and the
consummation of the other transactions contemplated hereby are in the best
interests of the Company and its stockholders.
(xviii) Tax Status. Except as set forth in the SEC Documents filed
prior to the date hereof or on Schedule 3(a)(xviii), the Company and each of its
subsidiaries has made or filed all federal, state and local income and all other
tax returns, reports and declarations required by any jurisdiction to which it
is subject (unless and only to the extent that the Company and each of its
subsidiaries has set aside on its books provisions reasonably adequate for the
payment of all unpaid and unreported taxes) and has paid all taxes and other
governmental assessments and charges that are material in amount, shown or
determined to be due on such returns, reports and declarations, except those
being contested in good faith and has set aside on its books provisions
reasonably adequate for the payment of all taxes for periods subsequent to the
periods to which such returns, reports or declarations apply. 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. Except as set forth in Schedule 3(a)(xviii), the Company has not executed
a waiver with respect to any statute of limitations relating to the assessment
or collection of any federal, state or local tax. Except as set forth in
Schedule 3(a)(xviii), none of the Company's tax returns has been or is being
audited by any taxing authority.
(xix) Title. The Company and its subsidiaries have good and
merchantable title in fee simple to all real property and good and marketable
title to all personal property owned by them which is material to the business
of the Company and its subsidiaries, in each case free and clear of all liens,
encumbrances and defects except such as are described in Schedule 3(a)(xix) or
such as do not materially affect the value of such property and do not
materially interfere with the use made and
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proposed to be made of such property by the Company and its subsidiaries. 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 are not material and do not materially interfere with
the use made and proposed to be made of such property and buildings by the
Company and its subsidiaries.
b. CBS represents and warrants to each Purchaser as follows:
(i) Organization and Qualification. CBS and each of its subsidiaries
is a corporation duly organized and existing in good standing under the laws of
the jurisdiction in which it is incorporated, and has the requisite corporate
power to own its properties and to carry on its business as it is now being
conducted. CBS 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 and where the failure so to qualify would have a CBS Material Adverse
Effect. "CBS Material Adverse Effect" means any material adverse effect on (i)
the CBS Warrants or CBS Shares, (ii) the ability of the CBS to perform its
obligations hereunder and under the CBS Warrants or (iii) the business,
operations, properties, financial condition or previously publicly announced
prospects of CBS and its subsidiaries, taken as a whole.
(ii) Authorization; Enforcement. (i) CBS has the requisite corporate
power and authority to enter into and perform its obligations under this
Agreement and the CBS Warrants, to issue and sell the CBS Warrants in accordance
with the terms hereof and to issue the CBS Shares upon exercise of the CBS
Warrants in accordance with the terms of such CBS Warrants; (ii) the execution,
delivery and performance of this Agreement and the CBS Warrants by the CBS and
the consummation by it of the transactions contemplated hereby and thereby
(including, without limitation, the issuance of the CBS Warrants and the
issuance and reservation for issuance of the CBS Shares) have been duly
authorized by CBS's Board of Directors and no further consent or authorization
of CBS, its Board or Directors or its stockholders is required; (iii) this
Agreement has been duly executed and delivered by CBS; and (iv) assuming due
execution and delivery of this Agreement by parties other than CBS and
compliance by Zanett with applicable Federal and state securities laws, this
Agreement constitutes, and, upon execution and delivery by the Company of the
CBS Warrants, such instruments and agreements will constitute, valid and binding
obligations of CBS enforceable against CBS in accordance with their terms except
as limited by applicable bankruptcy, insolvency, reorganization, moratorium,
fraudulent conveyance, and other laws of general application affecting
enforcement of creditors' rights generally, as limited by laws relating to the
availability of specific performance, injunctive relief, or other equitable
remedies.
(iii) Issuance of Shares. The CBS Shares are duly authorized and
reserved for issuance, and, upon exercise of the CBS Warrants in accordance with
the terms thereof, will be validly issued, fully paid and non-assessable, and
free from all taxes, liens, claims and encumbrances and will not be subject to
preemptive rights or other similar rights of stockholders of CBS and will not
impose personal liability upon the holder thereof other than restrictions on
transfer imposed by Federal and state securities laws.
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4. COVENANTS.
a. Best Efforts. The parties shall use their commercially reasonable
efforts timely to satisfy each of the conditions described in Section 6 and
Section 7 of this Agreement.
b. Form D; Blue Sky Laws. The Company agrees to cooperate with the filing
of a Form D with respect to the Securities as required under Regulation D. The
Company shall, on or before the applicable Closing Date, cooperate with The
Zanett Securities Corporation ("Zanett") to take such action as the Company
shall reasonably determine is necessary to qualify the Securities for sale to
the Purchasers pursuant to this Agreement under applicable securities or "blue
sky" laws of the states of the United States or obtain exemption therefrom, and
shall provide evidence of any such action so taken to the Purchasers on or prior
to the First Closing Date. In a timely fashion after the First Closing, the
Company agrees to file a Form 8-K concerning this Agreement and the transactions
contemplated hereby, which Form 8-K shall attach this Agreement and its Exhibits
as exhibits to such Form 8-K.
c. Reporting Status. So long as any Purchaser beneficially owns any of the
Securities, the Company shall timely file all reports required to be filed with
the SEC pursuant to the Exchange Act, and the Company shall not terminate its
status as an issuer required to file reports under the Exchange Act even if the
Exchange Act or the rules and regulations thereunder would permit such
termination.
d. Use of Proceeds. The Company shall use the proceeds from the sale of
the Units as set forth on Schedule 4(d).
e. Financial Information. The Company agrees to send the following reports
to each Purchaser until such Purchaser transfers, assigns or sells all of its
Securities: (i) within ten (10) business days after the filing with the SEC, a
copy of its Annual Report on Form 10-K or Form 10- KSB, its Quarterly Reports on
Form 10-Q or Form 10-QSB, its proxy statements and any Current Reports on Form
8-K; and (ii) within one (1) business day after release, copies of all press
releases issued by the Company or any of its subsidiaries.
f. 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 Debentures and issuance of the
Conversion Shares in connection therewith and the full exercise of the Warrants
and the issuance of the Warrant Shares in connection therewith, subject to and
as otherwise required by the Debentures and the Warrants, and for the issuance
of shares of Common Stock pursuant to Section 4(e) below. In that regard, a
"sufficient number of shares" with respect to the Debentures shall be deemed to
be equal to the number of shares of Common Stock required to be reserved for
issuance by the Company pursuant to Article IV of the Debentures, including
without limitation, any increase in the number of shares so reserved that may be
required in certain circumstances pursuant to such Article. The Company shall
not reduce the number of shares reserved for issuance upon conversion of the
Debentures and the full exercise of the Warrants
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(except as a result of any such conversion or exercise) without the consent of
the Purchasers. Following the Merger, CBS(Del) shall at all times have
authorized and reserved for the purpose of issuance a sufficient number of
shares of its common stock to provide for the full exercise of the CBS Warrants
and the issuance of the CBS Shares in connection therewith.
g. Listing. The Company shall promptly secure the listing of the
Conversion Shares and Warrant Shares upon each national securities exchange or
automated quotation system, if any, upon which shares of Common Stock are then
listed (subject to official notice of issuance) and shall maintain, so long as
any purchaser owns any Securities, such listing of all of the Conversion Shares
and Warrant Shares; provided, however, that the Purchasers acknowledge and agree
that the Company may be required to obtain shareholder approval for the issuance
of the Conversion Shares and the Warrant Shares subsequent to the First Closing
in order to secure such listing with respect to listing a number of shares in
excess of the Cap Amount (as defined in the Debenture). The Company will take
all action necessary to continue the listing and trading of its Common Stock on
the NASDAQ, the Nasdaq National Market ("NNM"), the New York Stock Exchange
("NYSE") or the American Stock Exchange ("AMEX") and will comply in all respects
with the Company's reporting, filing and other obligations under the bylaws or
rules of such exchanges and the NASD, as applicable. In the event the Common
Stock is not eligible to be traded on any of the NASDAQ, NNM, NYSE or AMEX and
the Common Stock is not eligible for listing on any such exchange or system, the
Company shall use its best efforts to cause the Common Stock to be eligible for
trading on the over-the-counter bulletin board at the earliest practicable date
and remain eligible for trading while any Securities are outstanding. The
Company shall promptly provide to the Purchasers copies of any notices it
receives regarding the continued eligibility of the Common Stock for trading in
the over-the-counter market or, if applicable, any securities exchange
(including the NASDAQ) on which securities of the same class or series issued by
the Company are then listed or quoted, if any.
h. Corporate Existence. So long as a Purchaser beneficially owns any
Securities, the Company shall maintain its corporate existence, except in the
event of a merger, consolidation or sale of all or substantially all of the
Company's assets, as long as the surviving or successor entity in such
transaction (i) assumes the Company's obligations hereunder and under the
Debentures, the Warrants and the agreements and instruments entered into in
connection herewith (except as expressly provided herein) regardless of whether
or not the Company would have had a sufficient number of shares of Common Stock
authorized and available for issuance in order to effect the conversion of all
Debentures and the exercise in full of all Warrants outstanding as of the date
of such transaction and (ii) is a publicly traded corporation whose common stock
is listed for trading on the NASDAQ, NYSE or AMEX. Notwithstanding the
foregoing, the Company covenants and agrees that it will not engage in any
merger, consolidation or sale of all or substantially all of its assets at any
time prior to the effectiveness of the registration statement required to be
filed pursuant to the Registration Rights Agreement without (A) providing each
Purchaser with written notice of such transaction at least sixty (60) days prior
to the consummation of the transaction and (B) obtaining the written consent of
all of the Purchasers of the then outstanding principal amount of the Debentures
on or before the 10th day after the delivery of such notice by the Company.
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i. No Integrated Offerings. The Company shall not make any offers or sales
of any security (other than pursuant to this Agreement and the Registration
Rights Agreement) under circumstances that would require registration of the
Securities being offered or sold hereunder under the Securities Act or cause the
offering of the Securities to be integrated with any other offering of
securities by the Company for purposes of any stockholder approval provision
applicable to the Company or its securities.
j. Redemptions and Dividends. So long as any Purchaser beneficially owns
any Debentures, the Company shall not, without first obtaining the written
approval of such Purchaser, redeem, or declare or pay any cash dividend or
distribution on, any shares of capital stock of the Company.
k. CBS Reorganization. Within fifteen (15) days following the date of this
agreement, CBS shall effect a merger (the "Merger") with Computer Business
Sciences, Inc., a new York corporation ("CBS(NY)"), pursuant to which CBS will
be the surviving entity with no change to its capital structure.
l. CBS Offering. In the event that (i) the Merger does not occur in a
timely fashion, (ii) during the period commencing with the First Closing Date
and ending with the first anniversary of the First Closing Date (the "CBS
Deadline"), CBS(Del) or CBS, whoever is the issuer of the CBS Warrants, does not
successfully complete an initial public offering (an "IPO") for shares of its
common stock (pursuant to an effective registration statement which also covers
the resale of the CBS Shares to the extent required by Section 8 of the CBS
Warrants), (iii) following an IPO, the average Closing Bid Price (calculated in
a manner consistent with the definition thereof in the Debentures) of CBS(Del)
or CBS, as the case may be, common stock is less than $5.00 for the twenty (20)
trading days commencing either (A) sixty (60) days following closing on the IPO,
if the Purchasers are not subject to "lockup" agreements, or (B) with the first
trading day following expiration of any "lock-up" period, or (iv) at any time
CBS, as the case may be, fails to issue CBS Shares upon a Purchaser's exercise
of CBS Warrants, then the Company shall immediately on written demand from a
Purchaser accompanied by such Purchaser's CBS Warrants and/or certificates
evidencing such Purchaser's CBS Shares endorsed in blank, issue to such
Purchaser, in exchange for such CBS Warrants and/or CBS Shares, shares of Common
Stock equal to the sum of the surrendered CBS Shares and the CBS Shares issuable
upon exercise of the surrendered CBS Warrants.
m. No Manipulations. So as long as a Purchaser beneficially owns any
Debentures or Warrants, neither the Purchaser nor any person acting on behalf of
such Purchaser shall take any action intended to decrease the trading price of
the Company's Common Stock during any period in which the Conversion Price (as
defined in the Debenture) is being computed for purposes of any conversion under
the Debenture. For as long as the Debentures or Warrants are outstanding, each
Purchaser agrees not to effect "short" sales in the Common Stock, loan shares or
otherwise participate in any transaction which could be considered as a "short
sale" under the rules and regulations promulgated under the Exchange Act (a
"Short Sale") and agrees to prohibit each
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stockholder, executive, employee, representative, affiliate, officer, director
or control person of the Purchaser from effecting any Short Sale.
Notwithstanding the foregoing, so long as an effective registration statement
covering a resale of Common Stock of Purchaser is timely delivered, the
provisions of this subsection (n) shall not prohibit a sale, including a Short
Sale, by a Purchaser of shares of Common Stock effected within two business days
of the date on which a notice of conversion of the Debenture is delivered to the
Company entitling such Purchaser to receive a number of shares of Common Stock
at least equal to the number of shares so sold.
n. Proxy. The Company shall use its best efforts to cause Doron Cohen and
Bruce Bendell to each execute a proxy in form and substance satisfactory to the
Purchasers (collectively, the "Proxies") wherein such persons would agree with
the Company to vote all shares of Common Stock they own in favor of the
transactions contemplated by this Agreement in connection with the shareholder
vote required by Section 4(o) hereof and the Company shall use its best efforts
to enforce such Proxies in any such shareholder vote.
o. Stockholders' Meeting. The Company shall use its best efforts to hold
its 1999 annual meeting of stockholders prior to September 30, 1999 for the
purpose, among other things, of voting upon and approving this Agreement, the
Debentures, Warrants and Registration Rights Agreement, the issuance of
Conversion Shares and Warrant Shares and the transactions contemplated hereby
and thereby, including, without limitation, the issuance of the Securities. The
Company shall, through its Board of Directors, recommend to its stockholders
approval of such matters. The Company shall use its best efforts to solicit from
its stockholders proxies in favor of such matters.
p. The Company and the Placement Agent, on behalf of the Purchasers, shall
negotiate in good faith milestones to be met by the Company (the "Company
Milestones") prior to closing on the second and third tranches.
5. TRANSFER AGENT INSTRUCTIONS.
a. The Company shall instruct its transfer agent to issue certificates,
registered in the name of each Purchaser or its nominee, for the Conversion
Shares and the Warrant Shares in such amounts as specified from time to time by
such Purchaser to the Company upon conversion or exercise, as the case may be.
To the extent and during the periods provided in Section 2(f) and Section 2(g)
of this Agreement, all such certificates shall bear the restrictive legend
specified in Section 2(g) of this Agreement.
b. The Company warrants that no instruction other than such instructions
referred to in this Section 5, and stop transfer instructions to give effect to
Sections 2(f) and 2(g) hereof in the case of the transfer of the Conversion
Shares and the Warrant Shares prior to registration of the resale of the
Conversion Shares and the Warrant Shares under the Securities Act or without an
exemption therefrom, will be given by the Company to its transfer agent and that
the Warrant Shares and Conversion Shares shall otherwise be freely transferable
on the books and records of the Company as and to the extent, but only to the
extent, provided in this Agreement and the Registration Rights
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Agreement; provided that the Company may issue stop transfer instructions with
respect to the resale of the Warrant Shares and Conversions Shares following
registration thereof requiring that the selling party represent in writing that
it has complied with applicable law in effecting such resale. Nothing in this
Section shall affect in any way each Purchaser's obligations, requirements and
agreement set forth in Section 2(g) hereof to resell the Securities pursuant to
an effective registration statement or under an exemption from the registration
requirements of applicable securities law.
c. If a Purchaser provides the Company and its transfer agent with an
opinion of counsel, which opinion of counsel shall be in form, substance and
scope customary for opinions of counsel in comparable transactions, to the
effect that the Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from registration, or a Purchaser provides the Company
with reasonable assurances that the resale of such Securities is covered by Rule
144(k) or pursuant to an effective registration statement, the Company shall
permit the transfer, and, in the case of the Conversion Shares and Warrant
Shares, promptly instruct its transfer agent to issue one or more certificates
in such name and in such denominations as specified by such Purchaser.
6. CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL.
The obligation of the Company hereunder to issue and sell the Units to a
Purchaser hereunder is subject to the satisfaction, at or before the relevant
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 by providing prior written notice to each
Purchaser. The obligations of the Company and CBS to issue and sell the
Securities to any Purchaser hereunder are distinct and separate from their
obligation to issue and sell Securities to any other Purchaser hereunder and any
failure by one or more Purchasers to fulfill the conditions set forth herein or
to consummate the purchase of Securities hereunder will not relieve the Company
and CBS of their obligations with respect to any other Purchaser.
a. At or prior to the First Closing, the applicable Purchaser shall have
executed this Agreement and the Registration Rights Agreement, and delivered
executed copies to the Company.
b. The applicable Purchaser shall have delivered the Purchase Price for
that portion of the Units being purchased by it at such Closing in accordance
with Section 1(b) above.
c. The representations and warranties of the applicable Purchaser shall be
true and correct in all material respects as of the date when made and as of the
date and time of such Closing as though made at that time (except for
representations and warranties that relate to a specific date, which
representations and warranties shall be true and correct as of such date), and
the applicable Purchaser shall have performed, satisfied and complied in all
material respects with the covenants, agreements and conditions required by this
Agreement to be performed, satisfied or complied with by the applicable
Purchaser at or prior to the applicable Closing Date.
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d. No litigation, statute, rule, regulation, executive order, decree,
ruling or injunction shall have been enacted, entered, promulgated or endorsed
by any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby that prohibits the consummation of any of the transactions contemplated
by this Agreement.
e. With respect to the Second and Third Closings, the Company has elected
to close by written notice to the Placement Agent.
7. CONDITIONS TO EACH PURCHASER'S OBLIGATION TO PURCHASE.
The obligation of each Purchaser hereunder to purchase the Units to be
purchased by it hereunder is subject to the satisfaction, at or before the
relevant Closing Date, of each of the following conditions, provided that these
conditions are for such Purchaser's sole benefit and may be waived by such
Purchaser at any time in the Purchaser's sole discretion:
a. With respect to the First Closing:
(i) The Company shall have executed this Agreement and the
Registration Rights Agreement, and delivered executed copies of each to such
Purchaser.
(ii) The Company shall have delivered to such Purchaser such
Purchaser's duly executed Debentures, Warrants and CBS Warrants, and
certificates representing the Common Stock being purchased by such Purchaser (in
such denominations as such Purchaser shall request in writing prior to Closing)
in accordance with Section 1(b) above.
(iii) The Common Stock shall be authorized for quotation on NASDAQ
and trading in the Common Stock (or NASDAQ generally) shall not have been
suspended by the SEC or NASDAQ.
(iv) 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
First Closing Date as though made at that time (except for representations and
warranties that relate to a specific date, which representations and warranties
shall be true and correct as of such date) and the Company shall have performed,
satisfied and complied in all material respects with the covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the First Closing Date. Each Purchaser shall
have received a certificate, executed by the Chief Executive Officer of the
Company, dated as of the First Closing Date, to the foregoing effect and as to
such other matters as may be reasonably requested by any Purchaser in writing
prior to Closing.
(v) No litigation, statute, rule, regulation, executive order,
decree, ruling, injunction, action or proceeding shall have been enacted,
entered, promulgated or endorsed by any
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court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby that
questions the validity of, or challenges or prohibits the consummation of, any
of the transactions contemplated by this Agreement.
(vi) Such Purchaser shall have received an opinion of the Company's
counsel, dated as of the First Closing Date, in form, scope and substance
reasonably satisfactory to such Purchaser and in substantially the form of
Exhibit E attached hereto.
(vii) The Company shall have delivered evidence reasonably
satisfactory to each Purchaser that the Company's transfer agent has agreed to
act in accordance with irrevocable instructions in the form attached hereto as
Exhibit F.
(viii) There shall have been no changes and no developments in the
business, properties, operations, financial condition, results of operations or
publicly announced prospects of the Company and its subsidiaries, taken as a
whole, which have had or will have a Material Adverse Effect, since the date
hereof, and no information, of which the Purchasers are not currently aware,
shall come to the attention of the Purchasers that is materially adverse to the
Company.
(viii) The Purchasers shall have completed their due diligence
regarding the Company to their complete satisfaction in their sole discretion.
b. With respect to the Second Closing:
(i) The Company shall have delivered to such Purchaser such
Purchaser's duly executed Debentures and Warrants (in such denominations as such
Purchaser shall request in writing prior to the Closing in accordance with
Section 1(b) above.
(ii) The Common Stock shall be authorized for quotation on NASDAQ
and trading in the Common Stock (or NASDAQ generally) shall not have been
suspended by the SEC or NASDAQ.
(iii) 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
Second Closing Date as though made at that time (except for representations and
warranties that relate to a specific date, which representations and warranties
shall be true and correct as of such date) and the Company shall have performed,
satisfied and complied in all material respects with the covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Second Closing Date. Each Purchaser shall
have received a certificate, executed by the Chief Executive Officer of the
Company, dated as of the Second Closing Date, to the foregoing effect and as to
such other matters as may be reasonably requested by any Purchaser.
(iv) No litigation, statute, rule, regulation, executive order,
decree, ruling, injunction, action or proceeding shall have been enacted,
entered, promulgated or endorsed by any
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court or governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby that
questions the validity of, or challenges or prohibits the consummation of, any
of the transactions contemplated by this Agreement.
(v) The Purchasers shall have received an opinion of the Company's
counsel, dated as of the Second Closing Date, in form, scope and substance
reasonably satisfactory to the Purchasers and in substantially the form of
Exhibit E attached hereto.
(vi) The Company shall have delivered evidence reasonably
satisfactory to each Purchaser that the Company's transfer agent has agreed to
act in accordance with irrevocable instructions in the form attached hereto as
Exhibit F.
(vii) There shall have been no changes and no developments in the
business, properties, operations, financial condition, results of operations or
publicly announced prospects of the Company and its subsidiaries, taken as a
whole, which have had or will have a Material Adverse Effect, since the date
hereof, and no information, of which the Purchasers are not currently aware,
shall come to the attention of the Purchasers that is materially adverse to the
Company.
(viii) The First Closing shall have occurred.
(ix) The Company Milestones for the Second Closing shall have been
met.
(x) The Placement Agent, on behalf of the Purchasers, has elected to
close by written notice to the Company.
c. With respect to the Third Closing:
(i) The Company shall have delivered to such Purchaser such
Purchaser's duly executed Debentures and Warrants (in such denominations as such
Purchaser shall request in writing prior to the Closing) in accordance with
Section 1(b) above.
(ii) The Common Stock shall be authorized for quotation on NASDAQ
and trading in the Common Stock (or NASDAQ generally) shall not have been
suspended by the SEC or NASDAQ.
(iii) 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
Third Closing Date as though made at that time (except for representations and
warranties that relate to a specific date, which representations and warranties
shall be true and correct as of such date) and the Company shall have performed,
satisfied and complied in all material respects with the covenants, agreements
and conditions required by this Agreement to be performed, satisfied or complied
with by the Company at or prior to the Third Closing Date. Each Purchaser shall
have received a certificate, executed by the Chief Executive Officer of the
Company, dated as of the Third Closing Date, to the foregoing
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effect and as to such other matters as may be reasonably requested by any
Purchaser in writing prior to Closing.
(iv) No litigation, statute, rule, regulation, executive order,
decree, ruling, injunction, action or proceeding shall have been enacted,
entered, promulgated or endorsed by any court or governmental authority of
competent jurisdiction or any self-regulatory organization having authority over
the matters contemplated hereby that questions the validity of, or challenges or
prohibits the consummation of, any of the transactions contemplated by this
Agreement.
(v) The Purchasers shall have received an opinion of the Company's
counsel, dated as of the Third Closing Date, in form, scope and substance
reasonably satisfactory to the Purchasers and in substantially the form of
Exhibit E attached hereto.
(vi) The Company shall have delivered evidence reasonably
satisfactory to each Purchaser that the Company's transfer agent has agreed to
act in accordance with irrevocable instructions in the form attached hereto as
Exhibit F.
(vii) There shall have been no changes and no developments in the
business, properties, operations, financial condition, results of operations or
publicly announced prospects of the Company and its subsidiaries, taken as a
whole, which have had or will have a Material Adverse Effect, since the date
hereof, and no information, of which the Purchasers are not currently aware,
shall come to the attention of the Purchasers that is materially adverse to the
Company.
(viii) The Second Closing shall have occurred.
(ix) The Company Milestones for the Third Closing shall have been
met.
(x) This Agreement, the Debentures, Warrants and Registration Rights
Agreement and the transactions contemplated hereby and thereby, including,
without limitation, the issuance of the Securities, shall have been approved and
adopted by the stockholders of the Company at the stockholders' meeting referred
to in Section 4(o) hereof.
(xi) The Placement Agent, on behalf of the Purchasers, has elected
to close by written notice to the Company.
8. GOVERNING LAW; MISCELLANEOUS.
a. Governing Law; Jurisdiction. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
principles of choice of law or conflict of laws that would defer to the
substantive law of another jurisdiction. The Company irrevocably consents to the
jurisdiction of the United States federal courts and the state courts located in
the City of New York in the State of New York in any suit or proceeding based on
or arising under this Agreement and irrevocably agrees that all claims in
respect of such suit or proceeding shall be
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determined exclusively in such courts. The Company irrevocably waives the
defense of an inconvenient forum to the maintenance of such suit or proceeding.
The Company further agrees that service of process mailed by first class mail
shall be deemed in every respect effective service of process in any such suit
or proceeding. Nothing herein shall affect the right of any Purchaser to serve
process in any other manner permitted by law. The Company agrees that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
b. Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when counterparts have been signed by each party and
delivered to the other party. This Agreement, once executed by a party, may be
delivered to the other parties hereto by facsimile transmission of a copy of
this Agreement bearing the signature of the party so delivering this Agreement.
In the event any signature is delivered by facsimile transmission, the party
using such means of delivery shall cause the manually executed Execution Page(s)
hereof to be physically delivered to the other party within five (5) days of the
execution hereof.
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 other agreements
and instruments referenced herein contain the entire understanding of the
parties with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor any Purchaser
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived other than by an
instrument in writing signed by the party to be charged with enforcement and no
provision of this Agreement may be amended other than by an instrument in
writing signed by the Company and each Purchaser.
f. Notices. Any notices required or permitted to be given under the terms
of this Agreement shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier or by confirmed telecopy, and
shall be effective five days after being placed in the mail, if mailed, or upon
receipt or refusal of receipt, if delivered personally or by courier or
confirmed telecopy, in each case addressed to a party. The addresses for such
communications shall be:
24
<PAGE>
If to the Company:
Fidelity Holdings, Inc.
80-02 Kew Gardens Road
Suite 5000
Kew Gardens, NY 11415
Telecopy: (718) 793-2455
Attention: Chief Executive Officer
With a copy to:
Littman Krooks Roth & Ball P.C.
655 Third Avenue
New York, NY 10017
Telecopy: (212) 490-2020
Attention: Mitchell C. Littman, Esquire
If to a Purchaser, to the address set forth under such Purchaser's name on
the signature page hereto executed by the Purchaser.
Each party shall provide notice to the other parties of any change in
address.
g. Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties and their successors and assigns. Except as
provided herein, neither the Company nor any Purchaser shall assign this
Agreement or any rights or obligations hereunder. Notwithstanding the foregoing,
any Purchaser may assign its rights hereunder to any of its "affiliates," as
that term is defined under the Exchange Act, without the consent of the Company
or to any other person or entity with the consent of the Company, so long as
each assignee agrees in writing to be bound by the terms hereof and to make the
representations and warranties set forth in Section 2 hereof. This provision
shall not limit a Purchaser's right to transfer the Securities pursuant to the
terms of this Agreement, the Debentures, the Warrants or the Registration Rights
Agreement or to assign such Purchaser's rights hereunder and/or thereunder to
any such transferee. In addition, and notwithstanding anything to the contrary
contained in this Agreement, the Debentures, the Warrants or the Registration
Rights Agreement, the Securities may be pledged and all rights of Purchaser
under this Agreement or any other agreement or document related to the
transaction contemplated hereby may be assigned, without further consent of the
Company, to a bona fide pledgee in connection with a Purchaser's margin or
brokerage accounts.
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.
25
<PAGE>
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 any Purchasers. Moreover, none of the representations and
warranties made by the Company herein shall act as a waiver of any rights or
remedies a Purchaser may have under applicable federal or state securities laws.
j. Indemnity. (i) The Company agrees to indemnify and hold harmless each
Purchaser and each other holder of the Securities and all of their stockholders,
officers, directors, employees, partners, members, agents and direct or indirect
investors and affiliates and any of the foregoing person's agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the
"Purchaser Indemnitees") from and against any and all actions, causes of action,
suits, claims, losses, costs, penalties, fees, liabilities and damages and
expenses in connection therewith (irrespective of whether any such Indemnitee is
a party to the action for which indemnification hereunder is sought), and
including reasonable attorneys' fees and disbursements (the "Indemnified
Liabilities"), incurred by any Purchaser Indemnitee as a result of, or arising
out of, or relating to (a) any misrepresentation or breach of any representation
or warranty made by the Company in this Agreement, the Debentures, the Warrants,
the Registration Rights Agreement or any other certificate, instrument or
document contemplated hereby or thereby, (b) any breach of any covenant,
agreement or obligation of the Company contained in this Agreement, the
Debentures, the Warrants, the Registration Rights Agreement or any other
certificate, instrument or document contemplated hereby or thereby, (c) any
cause of action, suit or claim brought or made against such Indemnitee and
arising out of or resulting from the execution, delivery, performance or
enforcement of this Agreement, the Debentures, the Warrants, the Registration
Rights Agreement or any other certificate, instrument or document contemplated
hereby or thereby, (d) any transaction financed or to be financed in whole or in
part, directly or indirectly, with the proceeds of the issuance of the
Securities or (e) the status of such Purchaser or holder of the Securities as an
investor in the Company. To the extent that the foregoing undertaking by the
Company may be unenforceable for any reason, the Company shall make the maximum
contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law.
(ii) Each Purchaser, severally and not jointly, agrees to indemnify
and hold harmless the Company and all of its stockholders, officers, directors,
employees, agents or other representatives (including, without limitation, those
retained in connection with the transactions contemplated by this Agreement)
(collectively, the "Company Indemnitees") from and against any and all
"Indemnified Liabilities" incurred by any Company Indemnitee as a result of, or
arising out of, or relating to (a) any misrepresentation or breach of any
representation or warranty made by the Purchaser in this Agreement, or (b) any
breach of any covenant, agreement or obligation of the Purchaser contained in
this Agreement.
k. Publicity. The Company and each Purchaser shall have the right to
approve before issuance 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
26
<PAGE>
entitled, without the prior approval of the Purchasers, to make any press
release which does not name the Purchasers or SEC, NASDAQ or NASD filings with
respect to such transactions as is required by applicable law and regulations
(although the Purchasers shall be consulted by the Company in connection with
any such press release and filing prior to its release and shall be provided
with a copy thereof).
l. 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.
m. Termination. In the event that the First Closing Date shall not have
occurred on or before January 31, 1999, unless the parties agree otherwise, this
Agreement shall terminate at the close of business on such date. Notwithstanding
any termination of this Agreement, any party not in breach of this Agreement
shall preserve all rights and remedies it may have against another party hereto
for a breach of this Agreement prior to or relating to the termination hereof.
n. Joint Participation in Drafting. Each party to this Agreement has
participated in the negotiation and drafting of this Agreement, the Debentures,
the Warrants and the Registration Rights Agreement. As such, the language used
herein and therein shall be deemed to be the language chosen by the parties
hereto to express their mutual intent, and no rule of strict construction will
be applied against any party to this Agreement.
o. Equitable Relief. The Company acknowledges that a breach by it of its
obligations hereunder will cause irreparable harm to a Purchaser by vitiating
the intent and purpose of the transactions contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
hereunder (including, but not limited to, its obligations pursuant to Section 5
hereof) will be inadequate and agrees, in the event of a breach or threatened
breach by the Company of the provisions of this Agreement (including, but not
limited to, its obligations pursuant to Section 5 hereof), that a Purchaser
shall be entitled, in addition to all other available remedies, to an injunction
restraining any breach and requiring immediate issuance and transfer, without
the necessity of showing economic loss and without any bond or other security
being required.
p. "Trading day" and "business day" shall mean any day on which the New
York Stock Exchange is open for trading.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
27
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused
this Agreement to be duly executed as of the date first above written.
FIDELITY HOLDINGS, INC. CBS CORP.
By: /s/ Doron Cohen By: /s/ Doron Cohen
------------------- -------------------
Name: Doron Cohen Name: Doron Cohen
Title: President Title: President
By: By:
------------------- -------------------
Name: Name:
Title: Title:
PURCHASER:
ZANETT LOMBARDIER, LTD. PURCHASE PRICE
First Second Third
Closing Closing Closing
By: /s/ Gianluca Cicogna $500,000 $781,818.18 $781,818.18
---------------------------
Name: Gianluca Cicogna
Title: Director to Advisor
RESIDENCE: Cayman Islands
ADDRESS: c/o Bank Julius Baer Trust Co.
Kirk House, P.O. Box 1100
Grand Cayman, Cayman Islands
British West Indies
Telecopy: (345) 949-0993
Attention: Peter Goulden
with copies of all notices to:
The Zanett Securities Corporation
Tower 49, 31st Floor
12 East 49th Street
New York, New York 10017
Telecopy: (212) 343-2121
Attention: Claudio Guazzoni
SUBSCRIPTION AMOUNT:
Number of Units 500
28
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused
this Agreement to be duly executed as of the date first above written.
FIDELITY HOLDINGS, INC.
By: /s/ Doron Cohen
-------------------
Name: Doron Cohen
Title: President
PURCHASER:
GOLDMAN SACHS PERFORMANCE PURCHASE PRICE
PARTNERS, L.P.
By: Commodities Corporation LLC, First Second Third
its general partner Closing Closing Closing
By: /s/ Karen M. Judge $1,120,000 $1,751,272.73 $1,751,272.73
---------------------
Name: Karen M. Judge
Title: Vice President
RESIDENCE: Delaware
ADDRESS: c/o Commodities Corporation LLC
701 Mount Lucas Road
CN 850
Princeton, NJ 08540
SUBSCRIPTION AMOUNT:
Number of Units 1,120
29
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchasor and the Company have caused
this Agreement to be duly executed as of the date first above written.
FIDELITY HOLDINGS, INC.
By: /s/ Doron Cohen
-------------------
Name: Doron Cohen
Title: President
PURCHASER:
GOLDMAN SACHS PERFORMANCE PURCHASE PRICE
PARTNERS (OFFSHORE), L.P.
By: Commodities Corporation LLC, First Second Third
its general partner Closing Closing Closing
By: /s/ Karen M. Judge $880,000 $1,376,000 $1,376,000
---------------------
Name: Karen M. Judge
Title: Vice President
RESIDENCE: Cayman Islands
ADDRESS: P.O. Box 309
South Church Street
George Town, Grand Cayman
Cayman Islands
with copies of all notices to:
c/o Commodities Corporation LLC
701 Mount Lucas Road
CN 850
Princeton, NJ 08540
SUBSCRIPTION AMOUNT:
Number of Units 880
30
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused
this Agreement to be duly executed as of the date first above written.
FIDELITY HOLDINGS, INC. CBS CORP.
By: /s/ Doron Cohen By: /s/ Doron Cohen
------------------- -------------------
Name: Doron Cohen Name: Doron Cohen
Title: President Title: President
By: By:
------------------- -------------------
Name: Name:
Title: Title:
PURCHASER:
BRUNO GUAZZONI PURCHASE PRICE
First Second Third
Closing Closing Closing
/s/ Bruno Guazzoni $230,000 $359,636.36 $359.636.36
- ---------------------
Bruno Guazzoni
RESIDENCE: New York
ADDRESS:
c/o The Zanett Securities Corporation
Tower 49, 31st Floor
12 East 49th Street
New York, New York 10017
Telecopy: (212) 343-2121
Attention: Bruno Guazzoni
SUBSCRIPTION AMOUNT:
Number of Units 230
31
<PAGE>
IN WITNESS WHEREOF, the undersigned Purchaser and the Company have caused
this Agreement to be duly executed as of the date first above written.
FIDELITY HOLDINGS, INC. CBS CORP.
By: /s/ Doron Cohen By: /s/ Doron Cohen
------------------- -------------------
Name: Doron Cohen Name: Doron Cohen
Title: President Title: President
By: By:
------------------- -------------------
Name: Name:
Title: Title:
PURCHASER:
DAVID McCARTHY PURCHASE PRICE
First Second Third
Closing Closing Closing
/s/ David McCarthy $20,000 $31,272.73 $31,272.73
- ---------------------
David McCarthy
RESIDENCE: New York
ADDRESS:
c/o The Zanett Securities Corporation
Tower 49, 31st Floor
12 East 49th Street
New York, New York 10017
Telecopy: (212) 343-2121
Attention: Bruno Guazzoni
SUBSCRIPTION AMOUNT:
Number of Units 20
32
Exhibit 10.62
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of January 25,
1999, by and among FIDELITY HOLDINGS, INC., a corporation organized under the
laws of the State of Nevada, with headquarters located at 80-02 Kew Gardens
Road, Suite 5000, Kew Gardens, NY 11415 (the "Company"), and the undersigned
(together with affiliates, the "Initial Investors").
WHEREAS:
A. In connection with that certain Securities Purchase Agreement dated as
of the date hereof by and among the Company and the Initial Investors (the
"Purchase Agreement"), the Company has agreed, upon the terms and subject to the
conditions contained therein, to issue and sell to the Initial Investors (i)
Convertible Term Debentures (the "Debentures") that are convertible into shares
(the "Conversion Shares") of the Company's Class A Common Stock, par value
$0.001 per share (the "Common Stock"), upon the terms and subject to the
limitations and conditions set forth in the form of Debenture, (ii) shares of
Common Stock (the "Purchased Shares"), and (iii) Warrants (the "Investor
Warrants") to acquire shares (the "Warrant Shares") of Common Stock;
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
"Securities Act"), and applicable state securities laws; and
C. The Company has agreed to issue to The Zanett Securities Corporation or
its assigns (the "Placement Agent") shares of Common Stock and Warrants (the
"Placement Warrants" and, together with the Investor Warrants, the "Warrants")
to purchase shares of Common Stock, pursuant to that certain Placement Agency
Agreement, dated as of even date herewith, by and between the Company and the
Placement Agent and has agreed to provide the Placement Agent the rights set
forth herein. For purposes of this Agreement, the Placement Agent shall be
deemed an "Initial Investor," the shares of common stock issued to it at Closing
shall be deemed "Purchased Shares," and the shares of Common Stock issuable upon
the exercise of, or otherwise pursuant to, the Placement Agent Warrants shall be
deemed "Warrant Shares."
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and the Initial
Investors hereby agree as follows:
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall have the
following meanings:
<PAGE>
(i) "Investors" means the Initial Investors and any
transferees or assignees who agree 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 Securities Act and pursuant to Rule 415 under
the Securities 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 Purchased Shares, the
Conversion Shares and the Warrant Shares (including any Conversion Shares
issuable in redemption of any Debentures and any Warrant Shares issuable with
respect to Exercise Default Payments under the Warrants) issued or issuable with
respect to the Debentures and the Warrants and any shares of capital stock
issued or issuable, from time to time (with any adjustments), as a distribution
on or in exchange for or otherwise with respect to any of the foregoing, but
excluding any shares of Common Stock satisfying the foregoing sold by an
Investor in a transaction in which such Investor's registration rights under
this Agreement are not assigned.
(iv) "Registration Statement" means a registration statement
of the Company under the Securities 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. Subject to this Subsection 2(a), the
Company shall prepare and, on or before March 11, 1999 (the "First Filing Date",
and thereafter within 45 days after each Closing Date (as defined in the
Securities Purchase Agreement) (each a "Filing 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 all of the Registrable Securities issued at such Closing or upon
the conversion of Debentures (assuming conversion at the Floor Conversion Price)
or exercise of Warrants issued at such Closing, subject to the consent of the
Initial Investors (as determined pursuant to Section 11(j) hereof)) covering the
resale of at least 1,410,417 Registrable Securities following the First Closing
and 1,970,834 Registrable Securities following each of the Second and Third
Closings, which Registration Statements, to the extent allowable under the
Securities Act and the Rules promulgated thereunder (including Rule 416), shall
each 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 and exercise of the Warrants to prevent dilution
resulting from stock splits, stock dividends or similar transactions. The
Registrable Securities initially set forth in each Registration Statement shall
be allocated to the Investors as set forth in Section 11(k) hereof. Each
Registration Statement (and each
2
<PAGE>
amendment or supplement thereto, and each request for acceleration of
effectiveness thereof) shall be provided to (and subject to the approval of) the
Initial Investors and their counsel prior to its filing or other submission.
Notwithstanding anything to the contrary contained in this Agreement, the
Company shall have the right to defer the filing of a Registration Statement (i)
for such reasonable period of time until the Company receives or prepares
financial statements for the fiscal period most recently ended prior to such
written request, if necessary to avoid the use of stale financial statements or
(ii) for a reasonable period of time not to exceed 90 days if the Company would
be required to divulge in such Registration Statement the existence of any fact
relating to a material business transaction or negotiation not otherwise
required to be disclosed and the Board of Directors of the Company shall
determine in good faith that the disclosure of such fact at such time would not
be in the best interest of the Company (the "Deferral Period").
b. Underwritten Offering. If any offering pursuant to a Registration
Statement pursuant to Section 2(a) hereof involves an underwritten offering, the
Investors who hold a majority in interest of the Registrable Securities subject
to such underwritten offering, with the consent of the Initial Investors, shall
have the right to select one legal counsel to represent the Investors and an
investment banker or bankers and manager or managers to administer the offering,
which investment banker or bankers or manager or managers shall be reasonably
satisfactory to the Company. In the event that any Investors elect not to
participate in such underwritten offering, the Registration Statement covering
all of the Registrable Securities shall contain appropriate plans of
distribution reasonably satisfactory to the Investors participating in such
underwritten offering and the Investors electing not to participate in such
underwritten offering (including, without limitation, the ability of
nonparticipating Investors to sell from time to time and at any time during the
effectiveness of such Registration Statement).
c. Registration Deadline; Payments by the Company. The Company shall
cause each Registration Statement required to be filed pursuant to Section 2(a)
hereof to become effective as soon as practicable, but in no event later than
120 days after the applicable Filing Date deadline, or at the end of the
applicable Deferral Period, as the case may be (the "Registration Deadline");
provided, that in the event that the effectiveness of a Registration Statement
is delayed beyond the Registration Deadline solely as the result of the SEC's
failure to provide or respond to comments on a timely basis, or by reason of any
other unilateral action of or position taken by the SEC with respect to the
filing, and notwithstanding the Company's best efforts, the Registration
Deadline shall be deemed extended by a period equal to such delay. If (i) any
Registration Statement(s) covering the Registrable Securities required to be
filed by the Company pursuant to Section 2(a) hereof is not filed with the SEC
by the applicable Filing Date or is not declared effective by the SEC on or
before the applicable Registration Deadline, or if, after a Registration
Statement has been declared effective by the SEC, sales of all of the applicable
Registrable Securities (including any Registrable Securities required to be
registered pursuant to Section 3(b) hereof) cannot be made pursuant to such
Registration Statement (by reason of a stop order or the Company's failure to
update the Registration Statement or any other reason outside the control of the
Investors) or (ii) the Common Stock is not listed or included for quotation on
the Nasdaq SmallCap Market (the "SmallCap"), the Nasdaq National Market (the
"NNM"), the New York Stock Exchange (the "NYSE") or the American Stock
3
<PAGE>
Exchange (the "AMEX") at any time after the applicable Registration Deadline,
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 Investor an amount equal to the product of (i) the aggregate
Purchase Price of the Debentures, Purchased Shares, CBS Shares and Warrants held
by such Investor and purchased at the applicable Closing (including, without
limitation, Debentures that have been converted into Conversion Shares and
Warrants that have been exercised for Warrant Shares then held by such Investor)
(the "Aggregate Purchase Price"), multiplied by (ii) one hundredth (.01), for
each thirty (30) day period (or portion thereof) (A) after the Filing Date and
prior to the date on which the Registration Statement required to be filed
pursuant to Section 2(a) hereof is filed with the SEC, (B) after the
Registration Deadline and prior to the date on which the Registration Statement
required to be filed pursuant to Section 2(a) hereof is declared effective by
the SEC, and (C) during which sales of any Registrable Securities cannot be made
pursuant to the Registration Statement after the Registration Statement has been
declared effective or the Common Stock is not listed or included for quotation
on the SmallCap, NNM, NYSE or AMEX; provided, however, that there shall be
excluded from each such period any delays which are solely attributable to
changes (other than corrections of Company mistakes with respect to information
previously provided by the Investors) 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. (For
example, if the Registration Statement is not effective by the Registration
Deadline, the Company would pay $10,000 for each thirty (30) day period
thereafter with respect to each $1,000,000 of Aggregate Purchase Price until the
Registration Statement becomes effective). Such amounts shall be paid in cash
or, at each Investor's option, may be convertible into Common Stock at the
"Conversion Price" (as defined in the Debenture) then in effect. 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 after 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 IV of the Debenture), 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. Restrictions on Sale. Notwithstanding the effectiveness of a
Registration Statement filed pursuant to Section 2(a) hereof, the Investors
hereby agree not to transfer, sell, assign, hypothecate or otherwise dispose of
any Registrable Securities without the prior written consent of the Company
prior to July 26, 1999.
e. Piggy-Back Registrations. 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 Securities
4
<PAGE>
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(e) written notice of such determination and, if within fifteen (15) days after
the 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, 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(e) 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(e) is an underwritten offering, then each Investor whose
Registrable Securities are included in such Registration Statement shall, unless
otherwise agreed by the Company, offer and sell such Registrable Securities in
an underwritten offering using the same underwriter or underwriters and, subject
to the provisions of this Agreement (to the extent not inconsistent with the
terms of such underwritten offering), on the same terms and conditions as other
shares of Common Stock included in such underwritten offering.
f. Eligibility for Form S-3. The Company represents and warrants
that, to its knowledge, except as set forth in Schedule 3(a)(xiii) to the
Securities Purchase Agreement, it meets the requirements for the use of Form S-3
for registration of the sale by the Initial Investors and any other Investor 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:
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a. The Company shall prepare and file with the SEC each Registration
Statement required by Section 2(a) as soon as practicable after the date hereof
(but in no event later than the applicable Filing Date), and cause such
Registration Statement relating to Registrable Securities to become effective as
soon as practicable after such filing (but in no event later than the applicable
Registration Deadline), and keep the Registration Statements effective pursuant
to Rule 415 at all times until such date as is the earlier of (i) the date on
which at least 90% of the Registrable Securities have been sold, (ii) the date
on which all of the Registrable Securities (in the reasonable opinion of counsel
to the Initial Investors) may be immediately sold to the public without
registration or restriction pursuant to Rule 144(k) under the Securities Act or
any successor provision, or (iii) the date on which all restrictive legends
(including without limitation the legend required by Section 2(g) of the
Securities Purchase Agreement and Article IX.K of the Debentures) have been
removed from all Registrable Securities and all "stop transfer" instructions
issued to the Company's transfer agent have been canceled (the "Registration
Period"), which Registration Statement (including any amendments or supplements
thereto and prospectuses contained therein and all documents incorporated by
reference 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
Statements and the prospectuses used in connection with the Registration
Statements as may be necessary to keep the Registration Statements effective at
all times during the Registration Period, and, during such period, comply with
the provisions of the Securities Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statements
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statements. In the event the number of
shares available under the Registration Statements filed pursuant to this
Agreement is, for any three (3) consecutive trading days (the last of such three
(3) trading days being the "Registration Trigger Date"), insufficient to cover
one hundred percent (100%) of the Registrable Securities issued or issuable upon
conversion (without giving effect to any limitations on conversion contained in
Section III.C of the Debentures and assuming conversion at the Floor Conversion
Price then in effect) of the Debentures and exercise of the Warrants (without
giving effect to any limitations on exercise contained in Section 7 of the
Warrants), the Company shall amend the Registration Statements, or file a new
Registration Statement (on the short form available therefor, if applicable), or
both, so as to cover one hundred percent (100%) of the Registrable Securities
issued or issuable (without giving effect to any limitations on conversion or
exercise contained in the Debentures and assuming conversion at the Floor
Conversion Price then in effect) as of the Registration Trigger Date, in each
case, as soon as practicable, but in any event within fifteen (15) days after
the Registration Trigger Date (based on the market price then in effect of the
Common Stock and other relevant factors on which the Company reasonably elects
to rely). The Company shall cause such amendment(s) and/or new Registration
Statement to become effective as soon as practicable following the filing
thereof. The Company shall cause such amendment and/or new Registration
Statement to become effective as soon as practicable following the filing
thereof. In the event the Company fails to obtain the effectiveness of any such
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Registration Statement within sixty (60) days after a Registration Trigger Date,
each Investor shall thereafter be entitled to the remedies provided for in
Section 2(c) above.
c. The Company shall furnish to each Investor whose Registrable
Securities are included in the Registration Statements and its legal counsel (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one copy of each Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, and, in the case of the Registration Statements 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 (including, without limitation, any request to
accelerate the effectiveness of any Registration Statement or amendment
thereto), 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, if
any, thereof which contains information for which the Company has sought
confidential treatment), (ii) on the date of effectiveness of a Registration
Statement or any amendment thereto, a notice stating that the Registration
Statement or amendment has been declared effective, and (iii) 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.
d. The Company shall use its best efforts to (i) register and
qualify the Registrable Securities covered by the Registration Statements under
such other securities or "blue sky" laws of such jurisdictions in the United
States as each Investor who holds Registrable Securities being offered
reasonably requests, (ii) prepare and file in those jurisdictions such
amendments (including post-effective amendments) and supplements to such
registrations and qualifications as may be necessary to maintain the
effectiveness thereof during the Registration Period, (iii) take such other
actions as may be necessary to maintain such registrations and qualifications in
effect at all times during the Registration Period, and (iv) take all other
actions reasonably necessary or advisable to qualify the Registrable Securities
for sale in such jurisdictions; provided, however, that the Company shall not be
required in connection therewith or as a condition thereto to (a) qualify to do
business in any jurisdiction where it would not otherwise be required to qualify
but for this Section 3(d), (b) subject itself to general taxation in any such
jurisdiction, (c) file a general consent to service of process in any such
jurisdiction, (d) provide any undertakings that cause the Company undue expense
or burden, or (e) make any change in its charter or bylaws, which in each case
the Board of Directors of the Company determines to be contrary to the best
interests of the Company and its stockholders.
e. In the event the Investors who hold a majority in interest of the
Registrable Securities being offered in an offering select underwriters for the
offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering.
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
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a result of which the prospectus included in a Registration Statement, as then
in effect, includes an untrue statement of a material fact or omission to state
a material fact required to be stated therein or necessary to make the
statements therein not misleading (including without limitation any transfer of
Registrable Securities by a person named as a selling shareholder in a
Registration Statement), and use its best efforts promptly to prepare a
supplement or amendment to such 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.
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 practicable moment (including in each case by amending or supplementing
such Registration Statement) 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
(and if such Registration Statement is supplemented or amended, deliver such
number of copies of such supplement or amendment to each Investor as such
Investor may reasonably request).
h. The Company shall permit a single firm of counsel designated by
the Initial Investors to review each Registration Statement and all amendments
and supplements thereto 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.
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 Securities 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 a Registration Statement.
j. At the request of any Investor, the Company shall make available,
on the date of effectiveness of a Registration Statement (i) an opinion, dated
as of such date, from counsel representing the Company addressed to the
Investors and in form, scope and substance as is customarily given in an
underwritten public offering and (ii) in the case of an underwriting, a letter,
dated such date, from the Company's independent certified public accountants in
form and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and the Investors.
k. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to a
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Investors, and (iv) one firm of attorneys
retained by all such underwriters (collectively, the "Inspectors") all pertinent
financial and other records, and pertinent corporate documents and properties of
the Company (collectively, the "Records"), as shall be reasonably deemed
necessary by each Inspector to enable each Inspector to exercise its due
diligence responsibility, and cause the Company's officers, directors and
employees
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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) or
use of any Record or other information which the Company determines in good
faith to be confidential, and of which determination the Inspectors are so
notified, unless (a) the disclosure of such Records is necessary to avoid or
correct a misstatement or omission in any Registration Statement, (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 shall be deemed to limit the Investors' ability to
sell Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.
l. The Company shall hold in confidence and not make any disclosure
of information concerning an Investor provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement, or (v) such Investor
consents to the form and content of any such disclosure. 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 use its best efforts to promptly secure the
designation and quotation of all of the Registrable Securities covered by the
Registration Statements on the NNM or the SmallCap and, without limiting the
generality of the foregoing, to arrange for or maintain 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 first Registration Statement.
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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 a Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or 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 opinion of such
counsel in the form attached hereto as Exhibit 1.
p. At the reasonable request of any Investor, the Company shall
prepare and file with the SEC such amendments (including post-effective
amendments) and supplements to a Registration Statement and the prospectus used
in connection with a Registration Statement as may be necessary in order to
change the plan of distribution set forth in such Registration Statement.
q. The Company shall comply with all applicable laws related to a
Registration Statement and offering and sale of securities and all applicable
rules and regulations of governmental authorities in connection therewith
(including, without limitation, the Securities Act and the Securities Exchange
Act of 1934, as amended, and the rules and regulations promulgated by the SEC).
r. The Company shall take all such other actions as any Investor or
the underwriters, if any, reasonably request in order to expedite or facilitate
the disposition of the Registrable Securities.
s. From and after the date of this Agreement, the Company shall not,
and shall not agree to, allow the holders of any securities of the Company to
include any of their securities in any Registration Statement under Section 2(a)
hereof or any amendment or supplement thereto under Section 3(b) hereof without
the consent of the holders of a majority in interest of the Registrable
Securities.
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
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shall execute such documents in connection with such registration as the Company
may reasonably request. At least five (5) 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 offered 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 not to participate in such
underwritten distribution.
d. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Sections 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 Sections 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 distribution
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements in usual and
customary form entered into by the Company, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements, and (iii) agrees to pay its pro rata share of all underwriting
discounts and commissions and any expenses in excess of those payable by the
Company pursuant to Section 5 below.
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f. Each Investor agrees that all resales of Registrable Securities
that are covered by an effective Registration Statement shall be made only in
compliance with applicable provisions of the Securities Act and applicable state
law.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualifications fees, printers and accounting fees, the
fees and disbursements of counsel for the Company, the fees and disbursements
contemplated by Section 3(k) hereof, and the reasonable fees (up to $5,000 in
the aggregate) and disbursements of one counsel selected by the Investors
pursuant to Section 2(b) hereof shall be borne by the Company. In addition, the
Company shall pay all of the Investors' costs and expenses (including legal
fees) incurred in connection with the enforcement of the rights of the Investors
hereunder.
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, members, employees, agents and each
person who controls any Investor within the meaning of Section 15 of the
Securities Act or Section 20 of the Securities Exchange Act of 1934, as amended
(the "Exchange 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 Securities Act, the Exchange 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 Investors and each other Indemnified Person, promptly as such expenses are
incurred and are due and payable, for any reasonable legal fees or other
reasonable, actual and appropriate out of pocket
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expenses incurred by them in connection with investigating or defending any such
Claim. Notwithstanding anything to the contrary contained herein, the
indemnification agreement contained in this Section 6(a): (i) shall not apply to
a Claim arising out of or based upon a Violation which occurs in reliance upon
and in conformity with information furnished in writing to the Company by such
Indemnified Person expressly for use in a Registration Statement or any such
amendment thereof or supplement thereto; (ii) shall not apply to amounts paid in
settlement of any Claim if such settlement is effected without the prior written
consent of the Company, which consent shall not be unreasonably withheld; and
(iii) with respect to any preliminary prospectus, shall not inure to the benefit
of any Indemnified Person if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented, if 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 hereof.
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, its employees, agents and
each person, if any, who controls the Company within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange 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 Securities Act or the Exchange Act (collectively and together
with an Indemnified Person, an "Indemnified Party"), against any Claim to which
any of them may become subject, under the Securities Act, the Exchange Act or
otherwise, insofar as such Claim arises out of or is based upon any Violation,
in each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished to the
Company by such Investor expressly for use in connection with such Registration
Statement; and subject to Section 6(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 actually
received by 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 hereof. Notwithstanding anything to the
contrary contained herein, the indemnification agreement contained in this
Section 6(b) with respect to any preliminary prospectus shall not inure to the
benefit of any Indemnified Party if the untrue statement or omission
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of material fact contained in the preliminary prospectus was corrected on a
timely basis in the prospectus, as then amended or supplemented, and the
Indemnified Party failed to utilize such corrected prospectus.
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 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 such indemnifying party shall not be entitled to assume such
defense and 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 conflicts of interest between such Indemnified Person or
Indemnified Party and any other party represented by such counsel in such
proceeding or the actual or potential defendants in, or targets of, any such
action include both the Indemnified Person or the Indemnified Party and the
indemnifying party and any such Indemnified Person or Indemnified Party
reasonably determines that there may be legal defenses available to such
Indemnified Person or Indemnified Party which are different from or in addition
to those available to such indemnifying party. 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
the Initial Investors if they hold Registrable Securities included in such
Registration Statement), if the Investors are entitled to indemnification
hereunder, or by 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 person guilty of
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fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any seller of Registrable
Securities who was not guilty of such fraudulent misrepresentation, and (iii)
contribution (together with any indemnification or other obligations under this
Agreement) by any seller of Registrable Securities shall be limited in amount to
the net amount of proceeds received by such seller from the sale of such
Registrable Securities pursuant to such Registration Statement.
8. REPORTS UNDER THE EXCHANGE ACT.
With a view to making available to the Investors the benefits of Rule 144
promulgated under the Securities 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. File with the SEC in a timely manner and make and keep available
all reports and other documents required of the Company under the Securities Act
and the Exchange 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 and
availability of such reports and other documents is required for the applicable
provisions of Rule 144; and
b. Furnish to each Investor so long as such Investor owns
Debentures, Warrants or Registrable Securities, promptly upon request, (i) a
written statement by the Company that it has complied with the reporting
requirements of Rule 144, the Securities Act and the Exchange 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
under Rule 144 without registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights of the Investors hereunder, including the right to have the
Company register Registrable Securities pursuant to this Agreement, shall be
automatically assignable by each Investor to any transferee of all or any
portion of the Debentures, the Warrants or the Registrable Securities if: (i)
Debenture are transferred in increments of $10,000 and the Warrants and
Registrable Securities are transferred in increments of that number of shares of
Common Stock issuable in relation to such increments of $10,000 of face amount
of the Debentures, (ii) 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 after such assignment, (iii) the Company is 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, (iv) following such transfer or assignment, the further disposition
of such securities by the transferee or assignee is restricted under the
Securities Act and applicable state securities laws (unless and to the extent
registered hereunder), (v) the transferee or assignee agrees in writing for the
benefit of the Company to be bound by all of the
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provisions contained herein, and (vi) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement.
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 and Investors who
hold a majority in interest of the Registrable Securities; provided, however,
that no amendment hereto which restricts the ability of an Investor to elect not
to participate in an underwritten offering shall be effective against any
Investor which does not consent in writing to such amendment provided, further,
however, that no consideration shall be paid to an Investor by the Company in
connection with an amendment hereto unless each Investor similarly affected by
such amendment receives a pro-rata amount of consideration from the Company.
Unless an Investor otherwise agrees, each amendment hereto must similarly affect
each Investor. 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 of
this Agreement shall be sent by certified or registered mail (return receipt
requested) or delivered personally or by courier or by confirmed telecopy, and
shall be effective five (5) days after being placed in the mail, if mailed, or
upon receipt or refusal of receipt, if delivered personally or by courier or
confirmed telecopy, in each case addressed to a party. The addresses for such
communications shall be:
If to the Company:
80-02 Kew Gardens Road
Suite 5000
Kew Gardens, NY 11415
Telecopy: (718) 793-4830
Attention: Chief Executive Officer
and if to any Investor, at such address as such Investor shall have provided in
writing to the Company, or at such other address as each such party furnishes by
notice given in accordance with this Section 11(b).
16
<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 governed by and construed in accordance
with the laws of the State of New York without regard to principles of choice of
law or conflict of laws that would defer to the substantive law of another
jurisdiction. The Company irrevocably consents to the jurisdiction of the United
States federal courts and the state courts located in the City of New York in
the State of New York in any suit or proceeding based on or arising under this
Agreement and irrevocably agrees that all claims in respect of such suit or
proceeding shall be determined exclusively in such courts. The Company
irrevocably waives the defense of an inconvenient forum to the maintenance of
such suit or proceeding. The Company further agrees that service of process upon
the Company, mailed by first class mail shall be deemed in every respect
effective service of process upon the Company in any such suit or proceeding.
Nothing herein shall affect the Investors' right to serve process in any other
manner permitted by law. The Company agrees that a final non-appealable judgment
in any such suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.
e. This Agreement, the Securities Purchase Agreement (including all
schedules and exhibits thereto) and the Warrants constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and thereof.
This Agreement, the Securities Purchase Agreement and the Warrants 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.
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j. All consents, approvals and other determinations to be made by
the Investors or the Initial Investors pursuant to this Agreement shall be made
by the Investors or the Initial Investors holding a majority in interest of the
Registrable Securities (determined as if all Debentures and Warrants then
outstanding had been converted into or exercised for Registrable Securities)
held by all Investors or Initial Investors, as the case may be.
k. The initial number of Registrable Securities included on any
Registration Statement and each increase (if any) to the number of Registrable
Securities included thereon shall be allocated pro rata among the Investors
based on the number of Registrable Securities held by each Investor at the time
of such establishment or increase, as the case may be. In the event an Investor
shall sell or otherwise transfer any of such holder's Registrable Securities,
each transferee shall be allocated a pro rata portion of the number of
Registrable Securities included on a Registration Statement for such transferor.
Any shares of Common Stock included on a Registration Statement and which remain
allocated to any person or entity which does not hold any Registrable Securities
shall be allocated to the remaining Investors, pro rata based on the number of
shares of Registrable Securities then held by such Investors. For the avoidance
of doubt, the number of Registrable Securities held by any Investors shall be
determined as if all Debentures and Warrants then outstanding were converted
into or exercised for Registrable Securities on the date of determination.
l. Each party to this Agreement has participated in the negotiation
and drafting of this Agreement. At such, the language used herein shall be
deemed to be the language chosen by the parties hereto to express their mutual
intent, and no rule of strict construction will be applied against any party to
this Agreement.
m. For purposes of this Agreement, the term "business day" means any
day other than a Saturday or Sunday or a day on which banking institutions in
the State of New York are authorized or obligated by law, regulation or
executive order to close.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
18
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
FIDELITY HOLDINGS, INC.
By: /s/ Doron Cohen
-------------------
Name: Doron Cohen
Title: President
By:
-------------------
Name:
Title:
INITIAL INVESTORS:
ZANETT LOMBARDIER, LTD. GOLDMAN SACHS PERFORMANCE PARTNERS, L.P.
By: Commodities Corporation LLC, general partner
By: /s/ Gianluca Cicogna By: /s/ Karen M. Judge
---------------------- -----------------------
Name: Name: Karen M. Judge
--------------------
Title: Title: Vice President
-------------------
GOLDMAN SACHS PERFORMANCE
PARTNERS (OFFSHORE), L.P.
By: Commodities Corporation LLC, general partner
By: /s/ Karen M. Judge
------------------
Name: Karen M. Judge
Title: Vice President
/s/ David McCarthy /s/ Bruno Guazzoni
- ------------------------- -----------------------
David McCarthy Bruno Guazzoni
<PAGE>
EXHIBIT 1
to
Registration
Rights
Agreement
[Date]
[Name and address
of transfer agent]
RE: Fidelity Holdings, Inc.
Ladies and Gentlemen:
We are counsel to Fidelity Holdings, Inc., a corporation organized under
the laws of the State of Nevada (the "Company"), and we understand that [Name of
Investor] (the "Holder") has purchased from the Company Convertible Subordinated
Term Dentures (the "Debentures") that are convertible into shares of the
Company's Common Stock, par value $.001 per share (the "Common Stock"), and (ii)
warrants (the "Warrants") to acquire shares of Common Stock. Pursuant to a
Registration Rights Agreement, dated as of January 25, 1999, by and among the
Company, the Holder and the other signatories thereto (the "Registration Rights
Agreement"), the Company agreed with the Holder, among other things, to register
the Registrable Securities (as that term is defined in the Registration Rights
Agreement) under the Securities Act of 1933, as amended (the "Securities Act"),
upon the terms provided in the Registration Rights Agreement. In connection with
the Company's obligations under the Registration Rights Agreement, on _______,
____, the Company filed a Registration Statement on Form S-___ (File No. 333-
_____________) (the "Registration Statement") with the Securities and Exchange
Commission (the "SEC") relating to the Registrable Securities, which names the
Holder as a selling stockholder thereunder. The Registration Statement was
declared effective by the SEC on _________________, 1999.
[Other customary introductory and scope of examination language to be
inserted]
Based on the foregoing, we are of the opinion that the Registrable
Securities have been registered for resale under the Securities Act.
[Other customary language to be included including compliance with
delivery of resale prospectus.]
Very truly yours,
cc: [Name of Investor]
