SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 8-K
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CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported) February 8, 2000
FIDELITY HOLDINGS, INC.
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(Exact Name of Registrant as Specified in Its Charter)
Nevada 000-29182 11-3292094
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(State or Other Jurisdiction (Commission (I.R.S. Employer
of Incorporation) File Number) Identification No.)
80-02 Kew Gardens Road, Kew Gardens, NY 11415
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(Address of Principal (Zip Code)
Executive Offices)
Registrant's telephone number, including area code: 718/520-6500
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(Former Name or Former Address, if Changed Since Last Report)
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PART II. OTHER INFORMATION
Item 5. OTHER EVENTS
On June 24, 1999, Fidelity Holdings, Inc. (the "Company") entered into an
agreement with three investors, pursuant to which the Company has the right or
obligation to sell, under certain circumstances, in a series of private
placement transactions, up to $20.0 million of the Company's common stock (the
"Common Stock") and warrants in three tranches. Pursuant to a Securities
Purchase Agreement (the "Agreement")February 8, 2000 (the "Closing Date"), a
portion representing four-sevenths of the second tranche closed on the Closing
Date and the Company sold an aggregate of 266,667 shares of common stock for an
aggregate of $4,000,000 or $15 per share. Shares issued upon closing of
subsequent tranches, if any, will be priced at 105% of the average closing bid
price of the Common Stock for the five trading days preceding the applicable
closing date.
Under the terms of the Agreement and the adjustable warrant issued in connection
with the Agreement, the purchasers will be entitled to acquire additional shares
exercisable at $.01 per share, pursuant to a "reset" formula which takes into
account the market price of the Common Stock at future dates, commencing 40
trading days after the date on which the purchasers may resell the shares
pursuant to a registration statement (the "Effectiveness Date"). There are three
reset periods for the adjustable warrant issued in connection with each tranche,
covering 34%, 33% and 33%, respectively of the number of shares issued on the
applicable tranche closing date. The first reset period is 40 trading days after
the effective date of a registration statement to be filed in connection with
that tranche. The second reset period is the 40 trading days beginning after the
end of the first reset period. The third reset period is 40 trading days
beginning after the end of the second reset period. The number of shares to be
issued during each reset period is calculated by (a) multiplying the number of
shares subject to price adjustment by (b) an amount equal to 115% of the
applicable tranche purchase price less the reset price and dividing the result
by the reset price. For each reset period, the reset price is the average of the
lowest ten trading days' closing bid prices during the preceding 40 trading-day
period. In the event that the reset price for any reset period is less than
$10.00 per share (the "Floor Price") the adjustable warrant will vest with
respect to shares up to the floor price (the "Initial Shares") and with respect
to shares whose vesting would exceed the number of Initial Shares, the Company
will have the option of paying cash in lieu of issuing such Initial Shares at
the amount equal to the difference between the reset price and $10.00. The
adjustable warrants will cease to vest in the event that, after the
Effectiveness Date, the average market price of the Common Stock exceeds $22.50
over a specified period and under certain conditions.
The Company and the purchasers have agreed that in the event an adjustment to
the number of shares of Common Stock issuable under any adjustable warrants
should result in the issuance of an amount that would exceed 19.999% of the
Common Stock outstanding on the closing date of a particular tranche, the
Company would, at the purchasers' option, either seek shareholder approval for
the issuance of such additional shares or make a cash payment to the purchasers
pursuant to a formula, which would result in the issuance of an aggregate of
less than 20% of the outstanding Common Stock.
The purchasers have agreed that, until the expiration of the final reset period
in connection with the adjustable warrants, they will not enter into certain
short sales of the Common Stock. These restrictions are set forth in the
Agreement attached as an exhibit to this report.
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In addition, the Company issued warrants to the purchasers enabling them to
purchase up to an aggregate of 266,667 shares of common stock at a purchase
price of $16.00 per share, exercisable for a five-year period.
If specified closing conditions are satisfied, the Company and the purchasers
will be entitled upon satisfaction of certain milestones to be established with
respect to tranche three, to effect three investments during applicable periods
ending 100 trading days after the expiration date for adjustable warrants issued
in the preceding tranche. The amount of the investment in tranche three would be
$7 million. The closing conditions applicable to third tranche include, among
other things, that the registration statement required to be filed by the
Company with the Securities and Exchange Commission in connection with each
previous tranche has been declared effective and remained effective prior to the
closing of such tranche and (i) that the average daily trading volume and per
share market value of the Common Stock on the Nasdaq Stock Market has met
certain thresholds for the 10 trading days preceding the applicable tranche
closing date and (ii) solely with respect to the third tranche, that certain
milestones to be determined by the purchasers have been satisfied by the
Company.
The Company has entered into a Registration Rights Agreement with the purchasers
requiring the Company to register shares purchased by the purchasers pursuant to
the Agreement under the Securities Act of 1933, as amended, as well as the
shares issuable pursuant to the exercise of the warrants issued to the
purchasers. The Registration Rights Agreement contains provisions for the
payment of certain liquidated damages by the Company in the event of failure to
comply with certain of its terms.
The Company has agreed to pay legal expenses of the purchasers incurred in
connection with the private placement, not to exceed $20,000. A finder's fee of
up to 5% of the purchase price, payable 2.5% in cash and 2.5% in Common Stock is
being paid to International Securities Corporation in connection with the
transaction. The sale was effected to the purchasers in reliance upon exemptions
provided under Section 4(2) of the Securities Act of 1933, as amended, and
Regulation D and Rule 506 promulgated thereunder.
The Company has granted a right of first refusal in favor of the purchasers with
respect to below-market, non-public issuances of its securities during the
period which commenced on December 8, 1999 and ending 180 days after the
Effectiveness Date. Securities not subject to the right of first refusal include
securities issued under the Company's stock option plans, shares issued upon
exercise of currently outstanding warrants and securities issued in connection
with strategic transactions involving the Company or in connection with certain
commercial financings. The right of first refusal shall expire with respect to
any purchaser who ceases to own at least 20% of the Common Stock issued on
December 8, 1999 and the Common Stock issuable upon exercise of the warrants
purchased by it.
Use of Proceeds
The Company is using the net proceeds from the Offering primarily for
developmental activities in its telecommunications and plastics divisions, and
also for working capital purposes of the Company and its subsidiaries, including
possible acquisitions.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
(C) Exhibits
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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.
4.18 -- Form of Closing Warrant
4.19 -- Form of Adjustable Warrant
10.68 -- Securities Purchase Agreement dated as of February 8, 2000, by and
among Fidelity Holdings, Inc. and Strong River Investments, Inc., Montrose
Investments Ltd. and Augusta Street LLC.
10.69 -- Registration Rights Agreement dated as of February 8, 2000, by and
among Fidelity Holdings, Inc. and Strong River Investments, Inc., Montrose
Investments Ltd. and Augusta Street LLC.
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
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Doron Cohen, President & CEO
Dated: February 15, 2000
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NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN COMPLIANCE WITH
APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
FIDELITY HOLDINGS, INC.
WARRANT
Warrant No. [ ] Dated: February 8, 2000
Fidelity Holdings, Inc., a Nevada corporation (the "Company"), hereby
certifies that, for value received, [ ], or its registered assigns ("Holder"),
is entitled, subject to the terms set forth below, to purchase from the Company
up to a total of [ ] shares of common stock, $.01 par value per share (the
"Common Stock"), of the Company (each such share, a "Warrant Share" and all such
shares, the "Warrant Shares") at an exercise price equal to $16.00 per share (as
adjusted from time to time as provided in Section 9, the "Exercise Price"), or
to convert all or a portion of the Warrant Shares into a warrant to purchase a
pro-rata portion of the stock of a Spun-Off Entity (as defined in Section 11)
pursuant to the provisions of Section 11, at any time and from time to time from
and after the date hereof and through and including February 8, 2005 (the
"Expiration Date"), and subject to the following terms and conditions:
1. Registration of Warrant. The Company shall register this Warrant,
upon records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, and the Company shall not be affected by
notice to the contrary.
2. Registration of Transfers and Exchanges.
(a) The Company shall register the transfer of any portion of
this Warrant in the Warrant Register, upon surrender of this Warrant, with the
Form of Assignment attached
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hereto duly completed and signed, to the Transfer Agent or to the Company at the
office specified in or pursuant to Section 3(b). Upon any such registration or
transfer, a new warrant to purchase Common Stock, in substantially the form of
this Warrant (any such new warrant, a "New Warrant"), evidencing the portion of
this Warrant so transferred shall be issued to the transferee and a New Warrant
evidencing the remaining portion of this Warrant not so transferred, if any,
shall be issued to the transferring Holder. The acceptance of the New Warrant by
the transferee thereof shall be deemed the acceptance of such transferee of all
of the rights and obligations of a holder of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof by
the Holder to the office of the Company specified in or pursuant to Section 3(b)
for one or more New Warrants, evidencing in the aggregate the right to purchase
the number of Warrant Shares which may then be purchased hereunder. Any such New
Warrant will be dated the date of such exchange.
3. Duration and Exercise of Warrants.
(a) This Warrant shall be exercisable by the registered Holder
on any business day before 6:30 P.M., New York City time, at any time and from
time to time on or after the date hereof to and including the Expiration Date.
At 6:30 P.M., New York City time on the Expiration Date, the portion of this
Warrant not exercised prior thereto shall be and become void and of no value.
Prior to the Expiration Date, the Company may not call or otherwise redeem this
Warrant without the prior written consent of the Holder.
(b) Subject to Sections 2(b), 6 and 10, upon surrender of this
Warrant, with the Form of Election to Purchase attached hereto duly completed
and signed, to the Company at its address for notice set forth in Section 12 and
upon payment of the Exercise Price multiplied by the number of Warrant Shares
that the Holder intends to purchase hereunder, in the manner provided hereunder,
all as specified by the Holder in the Form of Election to Purchase, the Company
shall promptly (but in no event later than 3 business days after the Date of
Exercise (as defined herein)) issue or cause to be issued and cause to be
delivered to or upon the written order of the Holder and in such name or names
as the Holder may designate, a certificate for the Warrant Shares issuable upon
such exercise, free of restrictive legends except (i) either in the event that a
registration statement covering the resale of the Warrant Shares and naming the
Holder as a selling stockholder thereunder is not then effective or the Warrant
Shares are not freely transferable without volume restrictions pursuant to Rule
144(k) promulgated under the Securities Act of 1933, as amended (the "Securities
Act"), or (ii) if this Warrant shall have been issued pursuant to a written
agreement between the original Holder and the Company, as required by such
agreement. Any person so designated by the Holder to receive Warrant Shares
shall be deemed to have become holder of record of such Warrant Shares as of the
Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the Company shall
have received (i) this Warrant (or any New Warrant, as applicable), with the
Form of Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii)
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payment of the Exercise Price for the number of Warrant Shares so indicated by
the holder hereof to be purchased.
(c) This Warrant shall be exercisable, either in its entirety
or, from time to time, for a portion of the number of Warrant Shares. If less
than all of the Warrant Shares which may be purchased under this Warrant are
exercised at any time, the Company shall issue or cause to be issued, at its
expense, a New Warrant evidencing the right to purchase the remaining number of
Warrant Shares for which no exercise has been evidenced by this Warrant.
4. Piggyback Registration Rights. The Holder shall be entitled to
the piggyback registration rights afforded to a holder pursuant to Section 6(f)
of that certain Registration Rights Agreement dated as of the date hereof, among
the Company and the signatories thereto.
5. Certain Exercise Restrictions.
(a) A Holder may not exercise this Warrant to the extent such
exercise would result in the Holder, together with any affiliate thereof,
beneficially owning (as determined in accordance with Section 13(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and the rules
promulgated thereunder) in excess of 4.999% of the then issued and outstanding
shares of Common Stock, including shares of Common Stock issuable upon such
exercise and held by such Holder after application of this Section. Since the
Holder will not be obligated to report to the Company the number of shares of
Common Stock it may hold at the time of an exercise hereunder, unless the
exercise at issue would result in the issuance of shares of Common Stock in
excess of 4.999% of the then outstanding shares of Common Stock without regard
to any other shares of Common Stock which may be beneficially owned by the
Holder or an affiliate thereof, the Holder shall have the authority and
obligation to determine whether the restriction contained in this Section will
limit any particular exercise hereunder and to the extent that the Holder
determines that the limitation contained in this Section applies, the
determination of which portion of this Warrant is exercisable shall be the
responsibility and obligation of the Holder. If the Holder has delivered a Form
of Election to Purchase for a number of Warrant Shares that would result in the
issuance in excess of the permitted amount hereunder, the Company shall notify
the Holder of this fact and shall honor the exercise for the maximum portion of
this Warrant permitted to be exercised on such Date of Exercise in accordance
with the periods described herein and disregard the balance of such Form of
Election to Purchase, as if never delivered The provisions of this Section may
be waived by a Holder (but only as to itself and not to any other Holder) upon
not less than 61 days prior notice to the Company. Other Holders shall be
unaffected by any such waiver.
(b) A Holder may not exercise this Warrant to the extent such
exercise would result in the Holder, together with any affiliate thereof,
beneficially owning (as determined in accordance with Section 13(d) of the
Exchange Act and the rules promulgated thereunder) in excess of 9.999% of the
then issued and outstanding shares of Common Stock, including shares of Common
Stock issuable upon such exercise and held by such Holder after application of
this Section. Since the Holder will not be obligated to report to the Company
the number of shares of Common Stock
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it may hold at the time of an exercise hereunder, unless the exercise at issue
would result in the issuance of shares of Common Stock in excess of 9.999% of
the then outstanding shares of Common Stock without regard to any other shares
of Common Stock which may be beneficially owned by the Holder or an affiliate
thereof, the Holder shall have the authority and obligation to determine whether
the restriction contained in this Section will limit any particular exercise
hereunder and to the extent that the Holder determines that the limitation
contained in this Section applies, the determination of which portion of this
Warrant is exercisable shall be the responsibility and obligation of the Holder.
If the Holder has delivered a Form of Election to Purchase for a number of
Warrant Shares that would result in the issuance in excess of the permitted
amount hereunder, the Company shall notify the Holder of this fact and shall
honor the exercise for the maximum portion of this Warrant permitted to be
exercised on such Date of Exercise in accordance with the periods described
herein and disregard the balance of such Form of Election to Purchase, as if
never delivered The provisions of this Section may be waived by a Holder (but
only as to itself and not to any other Holder) upon not less than 61 days prior
notice to the Company. Other Holders shall be unaffected by any such waiver.
6. Payment of Taxes. The Company will pay all documentary stamp
taxes attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder and the Company shall not be required to issue or cause to be issued
or deliver or cause to be delivered the certificates for Warrant Shares unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
reasonable satisfaction of the Company that such tax has been paid. The Holder
shall be responsible for all other tax liability that may arise as a result of
holding or transferring this Warrant or receiving Warrant Shares upon exercise
hereof.
7. Replacement of Warrant. If this Warrant is mutilated, lost,
stolen or destroyed, the Company shall issue or cause to be issued in exchange
and substitution for and upon cancellation hereof, or in lieu of and
substitution for this Warrant, a New Warrant, but only upon receipt of evidence
reasonably satisfactory to the Company of such loss, theft or destruction and
indemnity, if requested, satisfactory to it. Applicants for a New Warrant under
such circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
8. Reservation of Warrant Shares. The Company covenants that it will
at all times reserve and keep available out of the aggregate of its authorized
but unissued Common Stock, solely for the purpose of enabling it to issue
Warrant Shares upon exercise of this Warrant as herein provided, the number of
Warrant Shares which are then issuable and deliverable upon the exercise of this
entire Warrant, free from preemptive rights or any other actual contingent
purchase rights of persons other than the Holder (taking into account the
adjustments and restrictions of Section 9). The Company covenants that all
Warrant Shares that shall be so issuable and deliverable shall, upon issuance
and the payment of the applicable Exercise Price in accordance with the terms
hereof, be duly and validly authorized, issued and fully paid and nonassessable.
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9. Certain Adjustments. The Exercise Price and number of Warrant
Shares issuable upon exercise of this Warrant are subject to adjustment from
time to time as set forth in this Section 9. Upon each such adjustment of the
Exercise Price pursuant to this Section 9, the Holder shall thereafter prior to
the Expiration Date be entitled to purchase, at the Exercise Price resulting
from such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is
outstanding, (i) shall pay a stock dividend (except scheduled dividends paid on
outstanding preferred stock as of the date hereof which contain a stated
dividend rate) or otherwise make a distribution or distributions on shares of
its Common Stock or on any other class of capital stock payable in shares of
Common Stock, (ii) subdivide outstanding shares of Common Stock into a larger
number of shares, or (iii) combine outstanding shares of Common Stock into a
smaller number of shares, the Exercise Price shall be multiplied by a fraction
of which the numerator shall be the number of shares of Common Stock (excluding
treasury shares, if any) outstanding before such event and of which the
denominator shall be the number of shares of Common Stock (excluding treasury
shares, if any) outstanding after such event. Any adjustment made pursuant to
this Section shall become effective immediately after the record date for the
determination of stockholders entitled to receive such dividend or distribution
and shall become effective immediately after the effective date in the case of a
subdivision or combination, and shall apply to successive subdivisions and
combinations.
(b) In case of any reclassification of the Common Stock, any
consolidation or merger of the Company with or into another person, the sale or
transfer of all or substantially all of the assets of the Company or any
compulsory share exchange pursuant to which the Common Stock is converted into
other securities, cash or property, then the Holder shall have the right
thereafter to exercise this Warrant only into the shares of stock and other
securities and property receivable upon or deemed to be held by holders of
Common Stock following such reclassification, consolidation, merger, sale,
transfer or share exchange, and the Holder shall be entitled upon such event to
receive such amount of securities or property equal to the amount of Warrant
Shares such Holder would have been entitled to had such Holder exercised this
Warrant immediately prior to such reclassification, consolidation, merger, sale,
transfer or share exchange. The terms of any such consolidation, merger, sale,
transfer or share exchange shall include such terms so as to continue to give to
the Holder the right to receive the securities or property set forth in this
Section 9(b) upon any exercise following any such reclassification,
consolidation, merger, sale, transfer or share exchange.
(c) If the Company, at any time while this Warrant is
outstanding, shall distribute to all holders of Common Stock (and not to holders
of this Warrant) evidences of its indebtedness or assets or rights or warrants
to subscribe for or purchase any security (excluding those referred to in
Sections 9(a), (b) and (d)) (collectively, "Assets"), then in each such case,
the Holder shall be entitled to receive, for each Warrant Share with respect to
which this Warrant is exercised
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after the record date fixed for determination of stockholders entitled to
receive such distribution, the Assets received by all holders of Common Stock
with respect to one share of Common Stock.
(d) If, at any time while this Warrant is outstanding, the
Company shall issue or cause to be issued rights or warrants to acquire or
otherwise sell or distribute shares of Common Stock for a consideration per
share less than the market price of the Common Stock then in effect, then,
forthwith upon such issue or sale, the Exercise Price shall be reduced to the
price (calculated to the nearest cent) determined by multiplying the Exercise
Price in effect immediately prior thereto by a fraction, the numerator of which
shall be the sum of (i) the number of shares of Common Stock outstanding
immediately prior to such issuance, and (ii) the number of shares of Common
Stock which the aggregate consideration received (or to be received, assuming
exercise or conversion in full of such rights, warrants and convertible
securities) for the issuance of such additional shares of Common Stock would
purchase at the Exercise Price, and the denominator of which shall be the sum of
the number of shares of Common Stock outstanding immediately after the issuance
of such additional shares. Such adjustment shall be made successively whenever
such an issuance is made.
(e) For the purposes of this Section 9, the following clauses
shall also be applicable:
(i) Record Date. In case the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them (A) to
receive a dividend or other distribution payable in Common Stock or in
securities convertible or exchangeable into shares of Common Stock, or (B) to
subscribe for or purchase Common Stock or securities convertible or exchangeable
into shares of Common Stock, then such record date shall be deemed to be the
date of the issue or sale of the shares of Common Stock deemed to have been
issued or sold upon the declaration of such dividend or the making of such other
distribution or the date of the granting of such right of subscription or
purchase, as the case may be.
(ii) Treasury Shares. The number of shares of Common
Stock outstanding at any given time shall not include shares owned or held by or
for the account of the Company, and the disposition of any such shares shall be
considered an issue or sale of Common Stock.
(f) All calculations under this Section 9 shall be made to the
nearest cent or the nearest 1/100th of a share, as the case may be.
(g) If:
(i) the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
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(ii) the Company shall declare a special nonrecurring
cash dividend on or a redemption of its Common
Stock; or
(iii) the Company shall authorize the granting to all
holders of the Common Stock rights or warrants to
subscribe for or purchase any shares of capital
stock of any class or of any rights; or
(iv) the approval of any stockholders of the Company
shall be required in connection with any
reclassification of the Common Stock of the
Company, any consolidation or merger to which the
Company is a party, any sale or transfer of all or
substantially all of the assets of the Company, or
any compulsory share exchange whereby the Common
Stock is converted into other securities, cash or
property; or
(v) the Company shall authorize the voluntary
dissolution, liquidation or winding up of the
affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
10. Payment of Exercise Price. The Holder shall pay the Exercise
Price in one of the following manners:
(a) Cash Exercise. The Holder may deliver immediately
available funds; or
(b) Cashless Exercise. At the option of the Company, the
Holder may surrender this Warrant to the Company together with a notice of
cashless exercise, in which event the Company shall issue to the Holder the
number of Warrant Shares determined as follows:
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X = Y (A-B)/A
where:
X = the number of Warrant Shares to be issued
to the Holder.
Y = the number of Warrant Shares with respect to which
this Warrant is being exercised.
A = the average of the closing sale prices of the Common
Stock on the principal market or exchange in which the
Common Stock is then listed or traded, as reported by
Bloomberg Information Systems, Inc. (or any successor to
its function of reporting stock prices), for the five
(5) trading days immediately prior to (but not
including) the Date of Exercise.
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
11. Right to Receive a Warrant of a Spun-Off Entity. In addition to
any other rights available hereunder to the Holder, the Holder shall have the
right, exercisable at any time prior to the Expiration Date, to convert all or a
portion of the Warrant Shares into a common stock purchase warrant to purchase a
pro-rata portion of the stock of a Spun-Off Entity at an exercise price equal to
85% of the price at which the stock of such Spun-Off Entity is first offered for
sale to the public (the "Spun-Off Entity Warrant"). Upon a conversion of all or
a portion of the Warrant Shares into a Spun-Off Entity Warrant pursuant to the
terms hereof, the Holder shall, upon written request by the Company, enter into
a lock-up agreement relating to the stock underlying the Spun-Off Entity Warrant
which lock-up agreement shall be acceptable to the Holder and any underwriter of
the initial public offering of the stock of the Spun-Off Entity. For purposes
hereof, "Spun-Off Entity" shall mean any operating subsidiary of the Company
which is spun-off by the Company prior to the Expiration Date.
12. Fractional Shares. The Company shall not be required to issue or
cause to be issued fractional Warrant Shares on the exercise of this Warrant.
The number of full Warrant Shares which shall be issuable upon the exercise of
this Warrant shall be computed on the basis of the aggregate number of Warrant
Shares purchasable on exercise of this Warrant so presented. If any fraction of
a Warrant Share would, except for the provisions of this Section 11, be issuable
on the exercise of this Warrant, the Company shall pay an amount in cash equal
to the Exercise Price multiplied by such fraction.
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13. Notices. Any and all notices or other communications or
deliveries hereunder shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or communication
is delivered via facsimile at the facsimile telephone number specified in this
Section prior to 6:30 p.m. (New York City time) on a business day, (ii) the
business day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 6:30 p.m. (New York City time) on any date and earlier than
11:59 p.m. (New York City time) on such date, (iii) the business day following
the date of mailing, if sent by nationally recognized overnight courier service,
or (iv) upon actual receipt by the party to whom such notice is required to be
given. The addresses for such communications shall be: (i) if to the Company, to
80-02 Kew Gardens Road, Suite 5000, Kew Gardens, New York 11415, Attention:
Chief Financial Officer, or to Facsimile No. (718) 793- 2455, or (ii) if to the
Holder, to the Holder at the address or facsimile number appearing on the
Warrant Register or such other address or facsimile number as the Holder may
provide to the Company in accordance with this Section 12.
14. Warrant Agent. The Company shall serve as warrant agent under
this Warrant. Upon thirty (30) days' notice to the Holder, the Company may
appoint a new warrant agent. Any corporation into which the Company or any new
warrant agent may be merged or any corporation resulting from any consolidation
to which the Company or any new warrant agent shall be a party or any
corporation to which the Company or any new warrant agent transfers
substantially all of its corporate trust or shareholders services business shall
be a successor warrant agent under this Warrant without any further act. Any
such successor warrant agent shall promptly cause notice of its succession as
warrant agent to be mailed (by first class mail, postage prepaid) to the Holder
at the Holder's last address as shown on the Warrant Register.
15. Miscellaneous.
(a) This Warrant shall be binding on and inure to the benefit
of the parties hereto and their respective successors and assigns. This Warrant
may be amended only in writing signed by the Company and the Holder and their
successors and assigns.
(b) Subject to Section 14(a), above, nothing in this Warrant
shall be construed to give to any person or corporation other than the Company
and the Holder any legal or equitable right, remedy or cause under this Warrant.
This Warrant shall inure to the sole and exclusive benefit of the Company and
the Holder.
(c) This Warrant shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York without
regard to the principles of conflicts of law thereof. The Company and the Holder
hereby irrevocably submit to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein, and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such
-9-
<PAGE>
court, or that such suit, action or proceeding is improper. Each of the Company
and the Holder hereby irrevocably waives personal service of process and
consents to process being served in any such suit, action or proceeding by
receiving a copy thereof sent to the Company at the address in effect for
notices to it under this instrument and agrees that such service shall
constitute good and sufficient service of process and notice thereof. Nothing
contained herein shall be deemed to limit in any way any right to serve process
in any manner permitted by law.
(d) The headings herein are for convenience only, do not
constitute a part of this Warrant and shall not be deemed to limit or affect any
of the provisions hereof.
(e) In case any one or more of the provisions of this Warrant
shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall not
in any way be affected or impaired thereby and the parties will attempt in good
faith to agree upon a valid and enforceable provision which shall be a
commercially reasonable substitute therefor, and upon so agreeing, shall
incorporate such substitute provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
FIDELITY HOLDINGS, INC.
By: /s/ Doron Cohen
---------------
Name: Doron Cohen
Title: President and CEO
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To Fidelity Holdings, Inc.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of common stock, $.01 par value per share, of Fidelity Holdings, Inc.
(the "Common Stock") and , if such Holder is not utilizing the cashless exercise
provisions set forth in this Warrant, encloses herewith $________ in cash,
certified or official bank check or checks, which sum represents the aggregate
Exercise Price (as defined in the Warrant) for the number of shares of Common
Stock to which this Form of Election to Purchase relates, together with any
applicable taxes payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
______________________________________
________________________________________________________________________________
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise shall
not be all of the shares of Common Stock which the undersigned is entitled to
purchase in accordance with the enclosed Warrant, the undersigned requests that
a New Warrant (as defined in the Warrant) evidencing the right to purchase the
shares of Common Stock not issuable pursuant to the exercise evidenced hereby be
issued in the name of and delivered to:
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
________________________________________________________________________________
Dated:______, _____ Name of Holder:
(Print)_______________________________
(By:)_________________________________
(Name:)
(Title:)
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant)
<PAGE>
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Fidelity Holdings,
Inc. to which the within Warrant relates and appoints ________________ attorney
to transfer said right on the books of Fidelity Holdings, Inc. with full power
of substitution in the premises.
Dated:
_______________, ____
__________________________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
__________________________________________________
Address of Transferee
__________________________________________________
__________________________________________________
In the presence of:
___________________________
NEITHER THESE SECURITIES NOR THE SECURITIES INTO WHICH THESE SECURITIES ARE
EXERCISABLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE COMMISSION OR
THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM
REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN
AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS THEREUNDER AND IN
COMPLIANCE WITH APPLICABLE STATE SECURITIES OR BLUE SKY LAWS.
FIDELITY HOLDINGS, INC.
ADJUSTABLE WARRANT
Warrant No. [ ] Dated: February 8, 2000
Fidelity Holdings, Inc., a Nevada corporation (the "Company"), hereby
certifies that, for value received, [ ], or its registered assigns ("Holder"),
is entitled, subject to the terms set forth below, to purchase from the Company
up to the total number of shares of Common Stock, $.01 par value per share (the
"Common Stock"), of the Company (each such share, a "Warrant Share" and all such
shares, the "Warrant Shares") calculated pursuant to Section 3 of this Warrant
at an exercise price equal to $.01 per share (as adjusted from time to time as
provided in Section 9, the "Exercise Price"), at the times set forth herein
through and including the Third Vesting Period Expiration Date (as defined in
Section 3(a)(iii) hereof) (the "Expiration Date"), and subject to the following
terms and conditions (certain terms used herein are defined in Exhibit A
attached hereto):
1. Registration of Warrant. The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose (the "Warrant
Register"), in the name of the record Holder hereof from time to time. The
Company may deem and treat the registered Holder of this Warrant as the absolute
owner hereof for the purpose of any exercise hereof or any distribution to the
Holder, and for all other purposes, and the Company shall not be affected by
notice to the contrary.
2. Registration of Transfers and Exchanges.
(a) The Company shall register the transfer of any portion of this
Warrant in the Warrant Register, upon surrender of this Warrant, with the
Form of Assignment attached hereto duly completed and signed, to the
Transfer Agent or to the Company
<PAGE>
at the address specified in Section 13. Upon any such registration or
transfer, a new warrant to purchase Common Stock, in substantially the
form of this Warrant (any such new warrant, a "New Warrant"), evidencing
the portion of this Warrant so transferred shall be issued to the
transferee and a New Warrant evidencing the remaining portion of this
Warrant not so transferred, if any, shall be issued to the transferring
Holder. The acceptance of the New Warrant by the transferee thereof shall
be deemed the acceptance of such transferee of all of the rights and
obligations of a holder of a Warrant.
(b) This Warrant is exchangeable, upon the surrender hereof by the
Holder to the office of the Company at the address specified in Section 13
for one or more New Warrants, evidencing in the aggregate the right to
purchase the number of Warrant Shares which may then be purchased
hereunder. Any such New Warrant will be dated the date of such exchange.
3. Duration, Vesting and Exercise of Warrant.
(a) The vesting of the Warrant Shares which the Holder is permitted
to acquire pursuant to this Warrant shall occur on the dates set forth
below in this Section 3(a). On each such date, this Warrant shall vest
with respect to a number of Warrant Shares calculated pursuant to Section
3(b) below. Warrant Shares that have vested on a Vesting Date (as defined
below) may be acquired by the Holder at any time and from time to time
only during the forty (40) Trading Days following such Vesting Date, upon
exercise of this Warrant, provided, that each such forty (40) Trading Day
period shall be extended by the number of days during such period which
the Holder is for any reason unable to use the Underlying Shares
Registration Statement or the prospectus thereunder in order to sell
securities thereunder.
(i) The first vesting date (the "First Vesting Date") shall be
the fortieth (40th) Trading Day following the Effectiveness Date,
provided, that if the Effectiveness Date shall not have occurred
prior to the Effectiveness Required Date, then at the option of the
Holder (exercisable by notice delivered to the Company no later than
three (3) Trading Days following the Effectiveness Required Date),
the First Vesting Date shall occur on the (30th) Trading Day
following the Effectiveness Required Date (the Warrant Shares with
respect to which this Warrant is exercisable on the First Vesting
Date are called the "First Reset Warrant Shares");
(ii) The second vesting date (the "Second Vesting Date") shall
be the fortieth (40th) Trading Day following the First Vesting Date
(the Warrant Shares with respect to which this Warrant is
exercisable on the Second Vesting Date are called the "Second Reset
Warrant Shares"); and
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<PAGE>
(iii) The third vesting date (the "Third Vesting Date," and
together with the First Vesting Date and the Second Vesting Date,
the "Vesting Dates") shall be the fortieth (40th) Trading Day (such
forty (40) Trading Period, as extended pursuant to the last sentence
of Section 3(a), the "Third Vesting Date Expiration Date") following
the Second Vesting Date (the Warrant Shares with respect to which
this Warrant is exercisable on the Third Vesting Date are called the
"Third Reset Warrant Shares").
(b) Except as otherwise set forth in this Warrant, this Warrant
shall vest and become exercisable on each Vesting Date with respect to the
number of Warrant Shares calculated in accordance with the following
formula:
(Applicable Share Number) x [(Purchase Price x 1.15) - Adjustment Price]
------------------------------------------------------------------------
Adjustment Price
If the number calculated in accordance with the foregoing formula is zero
or a negative number, the Holder shall not be obligated to transfer any shares
of Common Stock to the Company. On each Vesting Date, the Company shall send a
notice to the Holder setting forth in reasonable detail its calculation of the
number of Warrant Shares which shall vest and be exercisable on such Vesting
Date. Notwithstanding anything to the contrary set forth herein, if, on any
Trading Day occurring after the Effectiveness Date during which (1) for the
immediately preceding fifteen (15) Trading Days there was an effective
Underlying Shares Registration Statement pursuant to which the Holder was
permitted to resell Underlying Shares and (2) the average of the Per Share
Market Values for the fifteen (15) Trading Days immediately preceding such date
equaled or exceeded $22.50 (the "Threshold Price"), then this Warrant shall not
vest for any Warrant Shares with respect to any Vesting Date that would occur
after the expiration of such fifteen (15) Trading Day period, provided, that the
application of this sentence shall have no effect on the vesting of Warrant
Shares in respect of a Vesting Date unless all of the Trading Days used to
calculate such fifteen (15) Trading Day average occurred prior to the 15th
Trading Day immediately preceding such Vesting Date, but shall terminate vesting
rights with respect to subsequent Vesting Dates, if any.
(c) The vesting of the Warrant Shares in accordance with this
Section 3 shall not be affected by any failure by the Company to cause the
Underlying Shares Registration Statement declared effective by the
Commission or maintain the effectiveness of the Underlying Shares
Registration Statement after it has been declared effective by the
Commission.
(d) Notwithstanding anything herein to the contrary, if on any
Vesting Date the Adjustment Price shall be less than $10.00 (such an
Adjustment Price, the "Floor Price"), then on such Vesting Date: (i) this
Warrant shall vest with respect to the Warrant Shares pursuant to Section
3(a) and (b) hereof, provided, that the Adjustment Price pursuant to the
formula set forth in Section 3(b) shall, exclusively for purposes of this
Section 3(d)(i), equal the Floor Price (such number of Warrant
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<PAGE>
Shares, the "Initial Shares") and (ii) with respect to the Warrant Shares
whose vesting would result in a vesting of Warrant Shares in excess of the
Initial Shares, the Company will have the option to elect by written
notice (the "Notice") delivered to the Holder no later than twenty (20)
Trading Days prior to the applicable Vesting Date to either (x) pay to the
Holder, in cash (the "Cash Payment"), within three (3) Trading Days from
the Vesting Date at issue, an amount equal to the product obtained by
multiplying (A) the applicable Adjustment Price and (B) the difference
between the number of Warrant Shares which would have otherwise vested on
such Vesting Date pursuant to Section 3(a) and (b) hereof and the Initial
Shares (such number of Warrant Shares, the "Subsequent Shares") or (y)
allow this Warrant to vest with respect to the Subsequent Shares. A
failure by the Company to deliver the Notice to the Holder pursuant to the
terms of this Section shall constitute an election by the Company to allow
this Warrant to vest as to the Subsequent Shares pursuant to the terms
hereof. If the Company shall fail to pay the Cash Payment in full to the
Holder by the third (3rd) Trading Day from the Vesting Date at issue,
then, at the election of the Holder, the Company shall either (x) pay to
the Holder $5,000 per day until the Cash Payment and all additional
payments due hereunder are paid in full, or (y) allow this Warrant to vest
with respect to the Subsequent Shares.
(e) Notwithstanding the foregoing provisions of this Section 3, at
any time within ten (10) Trading Days following the occurrence of any of
the following events (each, an "Event"), the Holder shall have the option
to elect by notice ("Vesting Notice") to the Company to have this Warrant
vest with respect to those Warrant Shares that have not yet already
vested:
(i) The occurrence of a Change of Control Transaction;
(ii) Immediately prior to an assignment by the Company for the
benefit of creditors or commencement of a voluntary case under the
Federal Bankruptcy Code, or an entering into of an order for relief
in an involuntary case under the Federal Bankruptcy Code, or
adoption by the Company of a plan of liquidation or dissolution;
(iii) Five (5) Business Days prior to the proposed
consummation with respect to the Company of a "Rule 13e-3
transaction" as defined in Rule 13e-3 under the Exchange Act (or, if
necessary, such earlier date as the Company shall determine in good
faith to be required in order for the Holder to be able to
participate in such transaction), it being agreed that the Holder
will receive actual notice of the 13e-3 Statement filed with the
Commission on the date filed and actual notice of the date of
acceleration hereunder no later than such date, and that if such
transaction is not consummated, and this Warrant has been exercised,
then the Holder (and to the extent that this Warrant would not but
for this paragraph be exercisable, the Company) shall be entitled to
declare
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<PAGE>
the exercise null and void and the Holder shall, upon return of the
Warrant Shares to the Company, be entitled to receive a refund of
the Exercise Price and warrants identical to this Warrant, and such
acceleration shall become void ab initio, and the Warrants shall (as
to any remaining unexercised portion thereof) remain in full force
and effect in accordance with the terms hereof;
(iv) For any period of three (3) Trading Days (which need not
be consecutive Trading Days) commencing on or after the date of
issuance of this Warrant, there shall be no closing bid price on the
Common Stock on the Nasdaq or a Subsequent Market;
(v) The Common Stock fails to be listed or quoted for trading
on the Nasdaq or a Subsequent Market or for a period of three (3)
Trading Days (which need not be consecutive Trading Days);
(vi) A holder of Registrable Securities (as defined in the
Registration Rights Agreement) is not permitted to sell Registrable
Securities under an Underlying Shares Registration Statement for any
reason for five (5) or more days (whether or not consecutive); or
(vii) The Company shall fail or default in the timely
performance of any material obligation under the Transaction
Documents and such failure or default shall continue uncured for a
period of five (5) Business Days after the date on which notice of
such failure or default is first given to the Company (it being
understood that no prior notice need be provided in the case of
defaults which cannot reasonably be cured within a 5-day period);
provided that no such failure or default shall be considered to have
occurred for purposes of this clause (vii) for a failure of an
Underlying Shares Registration Statement to be declared effective
until the 150th day after the issuance of this Warrant.
In the event the Holder delivers a Vesting Notice, this Warrant
shall vest with respect to the number of Warrant Shares calculated in accordance
with the formula set forth on Section 3(b); provided, however that for purposes
of such calculation, (i) the "Applicable Share Number" shall be deemed to mean
(A) 100% of the number of shares of Common Stock purchased by the Holder
pursuant to the Purchase Agreement (such number, the "Holder Purchased Shares"),
if the Event occurred prior to the First Vesting Date, (B) 66% of the Holder
Purchased Shares, if the Event occurred on or after the First Vesting Date but
prior to the Second Vesting Date and (C) 33% of the Holder Purchased Shares if
the Event occurred on or after the Second Vesting Date but prior to the Third
Vesting Date; and (ii) the "Adjustment Price" shall be deemed to mean the
average of the ten (10) lowest Per Share Market Values (which need not occur on
consecutive Trading Days) during the forty (40) Trading Days immediately
preceding the date on which the Event occurred.
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<PAGE>
(f) Subject to Sections 3(a) and (b), this Warrant shall be
exercisable by the registered Holder on any Business Day before 6:30 P.M.,
New York City time, at any time and from time to time on or after the date
hereof to and including the Expiration Date. At 6:30 P.M., New York City
time on the Expiration Date, the portion of this Warrant not exercised
prior thereto shall be and become void and of no value.
(g) Subject to Sections 3(a) and (b), this Warrant shall be
exercisable, either in its entirety or, from time to time, for a
portion of the number of Warrant Shares. If less than all of the
Warrant Shares which may be purchased under this Warrant are
exercised at any time, the Company shall issue or cause to be
issued, at its expense, a New Warrant evidencing the right to
purchase the remaining number of Warrant Shares for which no
exercise has been evidenced by this Warrant.
4. Delivery of Warrant Shares.
(a) Subject to Sections 2(b), 7 and 11, upon surrender of this
Warrant, with the Form of Election to Purchase attached hereto duly
completed and signed, to the Company at its address for notice set forth
in Section 13 and upon payment of the Exercise Price multiplied by the
number of Warrant Shares that the Holder intends to purchase hereunder, in
the manner provided hereunder, all as specified by the Holder in the Form
of Election to Purchase, the Company shall promptly (but in no event later
than three (3) Trading Days after the Date of Exercise (as defined
herein)) issue or cause to be issued and cause to be delivered to or upon
the written order of the Holder and in such name or names as the Holder
may designate, a certificate for the Warrant Shares issuable upon such
exercise, free of restrictive legends, except in the event that both an
Underlying Shares Registration Statement is not then effective and the
Warrant Shares are not freely transferable without volume restrictions
pursuant to Rule 144(k) promulgated under the Securities Act of 1933, as
amended (the "Securities Act"). Any person so designated by the Holder to
receive Warrant Shares shall be deemed to have become holder of record of
such Warrant Shares as of the Date of Exercise of this Warrant.
A "Date of Exercise" means the date on which the Company shall
have received (i) this Warrant (or any New Warrant, as applicable), with the
Form of Election to Purchase attached hereto (or attached to such New Warrant)
appropriately completed and duly signed, and (ii) payment of the Exercise Price
for the number of Warrant Shares so indicated by the holder hereof to be
purchased.
(b) If the Company fails to deliver to the Holder certificate or
certificates representing the Warrant Shares pursuant to Section 4(a) by
the third (3rd) Trading Day after the Date of Exercise, the Company shall
pay to such Holder, in cash, as liquidated damages and not as a penalty,
$5,000 for each day after such third (3rd) Trading Day until such
certificates are delivered. Nothing herein shall limit the
-6-
<PAGE>
Holder's right to pursue actual damages for the Company's failure to
deliver certificates representing shares of Common Stock upon exercise
within the period specified herein and the Holder shall have the right to
pursue all remedies available to it at law or in equity including, without
limitation, a decree of specific performance and/or injunctive relief. The
exercise of any such rights shall not prohibit the Holder from seeking to
enforce damages pursuant to any other Section hereof or under applicable
law. The Company shall, upon request of the Holder, if available, use its
best efforts to deliver Warrant Shares hereunder electronically through
the Depository Trust Corporation or another established clearing
corporation performing similar functions.
(c) In addition to any other rights available to the Holder, if the
Company fails to deliver to the Holder certificate or certificates
representing the Warrant Shares pursuant to Section 4(a) by the third
(3rd) Trading Day after the Date of Exercise, and if after such third
(3rd) Trading Day the Holder purchases (in an open market transaction or
otherwise) shares of Common Stock to deliver in satisfaction of a sale by
the Holder of the Warrant Shares which the Holder was entitled to receive
upon such exercise (a "Buy-In"), then the Company shall pay (1) in cash to
the Holder (in addition to any remedies available to or elected by the
Holder) the amount by which (x) the Holder's total purchase price
(including brokerage commissions, if any) for the shares of Common Stock
so purchased exceeds (y) the product of (A) the number of Warrant Shares
that the Company was required to deliver pursuant to Section 4(b) to the
Holder in connection with the exercise at issue and (B) the Per Share
Market Value at the time of the sale giving rise to such purchase
obligation and (2) deliver to the Holder the number of shares of Common
Stock that would have been issued had the Company timely complied with its
exercise and delivery obligations under Section 4(b). For example, if the
Holder purchases Common Stock having a total purchase price of $11,000 to
cover a Buy-In with respect to an attempted exercise of shares of Common
Stock with a market price on the date of exercise in the amount of
$10,000, under clause (1) of the immediately preceding sentence the
Company shall be required to pay the Holder $1,000. The Holder shall
provide the Company written notice indicating the amounts payable to the
Holder in respect of the Buy-In. Notwithstanding anything contained herein
to the contrary, if the Holder requires the Company to make payment in
respect of a Buy-In for the failure to timely deliver certificates
hereunder and the Company timely pays in full such payment, the Company
shall not be required to pay such Holder liquidated damages under Section
4(b) in respect of the certificates resulting in such Buy-In.
(d) The Company's obligations to issue and deliver Warrant Shares in
accordance with the terms hereof are absolute and unconditional,
irrespective of any action or inaction by the Holder to enforce the same,
any waiver or consent with respect to any provision hereof, the recovery
of any judgment against any Person or any action to enforce the same, or
any setoff, counterclaim, recoupment, limitation or termination,
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<PAGE>
or any breach or alleged breach by the Holder or any other Person of any
obligation to the Company or any violation or alleged violation of law by
the Holder or any other Person, and irrespective of any other circumstance
which might otherwise limit such obligation of the Company to the Holder
in connection with the issuance of Warrant Shares. If the Company breaches
its obligations under this Warrant, then, in addition to any other
liabilities the Company may have hereunder and under applicable law, the
Company shall pay or reimburse the Holder on demand for all costs of
collection and enforcement (including reasonable attorneys fees and
expenses).
5. Piggyback Registration Rights. The Holder shall be entitled to the
piggyback registration rights afforded to a holder pursuant to Section 6(f) of
that certain Registration Rights Agreement dated as of the date hereof, among
the Company and the signatories thereto.
6. Payment of Taxes. The Company will pay all documentary stamp taxes
attributable to the issuance of Warrant Shares upon the exercise of this
Warrant; provided, however, that the Company shall not be required to pay any
tax which may be payable in respect of any transfer involved in the registration
of any certificates for Warrant Shares or Warrants in a name other than that of
the Holder and the Company shall not be required to issue or cause to be issued
or deliver or cause to be delivered the certificates for Warrant Shares unless
or until the person or persons requesting the issuance thereof shall have paid
to the Company the amount of such tax or shall have established to the
reasonable satisfaction of the Company that such tax has been paid. The Holder
shall be responsible for all other tax liability that may arise as a result of
holding or transferring this Warrant or receiving Warrant Shares upon exercise
hereof.
7. Replacement of Warrant. If this Warrant is mutilated, lost, stolen or
destroyed, the Company shall issue or cause to be issued in exchange and
substitution for and upon cancellation hereof, or in lieu of and substitution
for this Warrant, a New Warrant, but only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction and customary and
reasonable indemnity, if requested. Applicants for a New Warrant under such
circumstances shall also comply with such other reasonable regulations and
procedures and pay such other reasonable charges as the Company may prescribe.
8. Reservation of Warrant Shares. The Company covenants that it will at
all times reserve and keep available out of the aggregate of its authorized but
unissued Common Stock, solely for the purpose of enabling it to issue Warrant
Shares upon exercise of this Warrant as herein provided, the number of Warrant
Shares which are then issuable and deliverable upon the exercise of this entire
Warrant, free from preemptive rights or any other actual contingent purchase
rights of persons other than the Holder (taking into account the adjustments and
restrictions of Section 9). The Company covenants that all Warrant Shares that
shall be so issuable and deliverable shall, upon issuance and the payment of the
applicable Exercise Price
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<PAGE>
in accordance with the terms hereof, be duly and validly authorized, issued and
fully paid and nonassessable.
9. Certain Adjustments. The Exercise Price and number of Warrant Shares
issuable upon exercise of this Warrant are subject to adjustment from time to
time as set forth in this Section 9. Upon each such adjustment of the Exercise
Price pursuant to this Section 9, the Holder shall thereafter prior to the
Expiration Date be entitled to purchase, at the Exercise Price resulting from
such adjustment, the number of Warrant Shares obtained by multiplying the
Exercise Price in effect immediately prior to such adjustment by the number of
Warrant Shares issuable upon exercise of this Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
(a) If the Company, at any time while this Warrant is outstanding,
(i) shall pay a stock dividend or otherwise make a distribution or
distributions on shares of its Common Stock or on any other class of
capital stock payable in shares of Common Stock, (ii) subdivide
outstanding shares of Common Stock into a larger number of shares, or
(iii) combine outstanding shares of Common Stock into a smaller number of
shares, the Exercise Price shall be multiplied by a fraction of which the
numerator shall be the number of shares of Common Stock outstanding before
such event and of which the denominator shall be the number of shares of
Common Stock outstanding after such event. Any adjustment made pursuant to
this Section shall become effective immediately after the record date for
the determination of stockholders entitled to receive such dividend or
distribution and shall become effective immediately after the effective
date in the case of a subdivision or combination, and shall apply to
successive subdivisions and combinations.
(b) In case of any reclassification of the Common Stock, or any
compulsory share exchange pursuant to which the Common Stock is converted
into other securities, cash or property, the Holder shall have the right
thereafter to exercise this Warrant only for the shares of stock and other
securities, cash and property receivable upon or deemed to be held by
holders of Common Stock following such reclassification or share exchange,
and the Holder shall be entitled upon such event to receive such amount of
securities, cash or property as equals the number of Warrant Shares such
Holder would have been entitled to had the Holder exercised this Warrant
in full immediately prior to such reclassification or share exchange. This
provision shall similarly apply to successive reclassifications or share
exchanges.
(c) If the Company, at any time while this Warrant is outstanding,
shall distribute to all holders of Common Stock (and not to holders of
this Warrant) evidences of its indebtedness or assets or rights or
warrants to subscribe for or purchase any security (excluding those
referred to in Sections 9(a), (b) and (d)) (collectively, "Assets"), then
in each such case, the Holder shall be entitled to receive, for each
Warrant Share with respect to which this Warrant is exercised after the
record date fixed for determination of stockholders entitled to
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<PAGE>
receive such distribution, the Assets received by all holders of Common
Stock with respect to one share of Common Stock.
(d) If, within 90 Trading Days of any Vesting Date, the Company or
any subsidiary thereof shall issue or cause to be issued rights, warrants,
debt or other securities entitling the holder thereof to acquire, or shall
otherwise sell or distribute shares of Common Stock or other securities,
other than (i) issuances pursuant to any exercise or conversion of any
warrants, options, subscriptions, convertible notes, convertible
debentures, convertible preferred stock or other convertible securities
issued and outstanding on the Closing Date (as defined in the Purchase
Agreement) and set forth on Schedule 2.1(c) to the Purchase Agreement in
accordance with the terms of such securities as of such date; (ii)
issuances pursuant to any grant or exercise of any stock or options which
may hereafter be granted or exercised under any employee benefit plan of
the Company now existing or to be implemented in the future, or upon grant
or exercise of any stock or options to or by any officer, director or
employee, 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)
issuances pursuant to any Closing Warrants (as defined in the Purchase
Agreement) issued pursuant to the Purchase Agreement; (iv) securities
issued in connection with an underwritten public offering of the Company;
(v) securities issued 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 and that such transaction
is not primarily for the purpose of raising capital, or (vi) in connection
with the issuance of Common Stock, not in excess of 1% of the Common Stock
issued and outstanding on the original issue date of this Warrant, upon
the exercise of warrants or other rights granted to any bank other
commercial financing institution, for a consideration per share less than
both (x) the market price at the time of such issuance or distribution and
(y) an Adjustment Price previously used in calculating the vesting of
Warrant Shares on previous Vesting Date (such an issuance, a "Discounted
Issuance"), then the Adjustment Price previously used in calculating the
vesting of Warrant Shares on any previous Vesting Date (if greater than
such issuance price) shall equal the consideration per share at which such
Discounted Issuance was
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made and the Company shall, within ten (10) Trading Days of such
Discounted Issuance, issue to the Holder a number of shares of Common
Stock equal to the difference between the number of Warrant Shares vested
on any previous applicable Vesting Date based on the Adjusted Price then
in effect and the number of Warrant Shares which would have vested on such
previous Vesting Dates based on the imputed Adjustment Price pursuant to
the Discounted Issuance. Such adjustment shall be made successively
whenever such an issuance is made.
(e) In case of any (1) merger or consolidation of the Company with
or into another Person, or (2) sale by the Company of more than one-half
of the assets of the Company (on a book value basis) in one or a series of
related transactions, or (3) tender or other offer or exchange (whether by
the Company or another Person) pursuant to which holders of Common Stock
are permitted to tender or exchange their shares for other securities,
stock, cash or property of the Company or another Person; then the Holder
shall have the right thereafter to (A) exercise this Warrant for the
shares of stock and other securities, cash and property receivable upon or
deemed to be held by holders of Common Stock following such merger,
consolidation or sale, and the Holder shall be entitled upon such event or
series of related events to receive such amount of securities, cash and
property as the shares of Common Stock for which this Warrant could have
been exercised immediately prior to such merger, consolidation or sales
would have been entitled, (B) in the case of a merger or consolidation,
require the surviving entity to issue to the Holder a warrant entitling
the Holder to acquire shares of such entity's common stock, which warrant
shall have terms identical (including with respect to exercise) to the
terms of this Warrant and shall be entitled to all of the rights and
privileges set forth herein and the agreements pursuant to which this
Warrant was issued (including, without limitation, as such rights relate
to the acquisition, transferability, registration and listing of such
shares of stock other securities issuable upon exercise thereof), or (C)
in the event of an exchange or tender offer or other transaction
contemplated by clause (3) of this Section, tender or exchange this
Warrant for such securities, stock, cash and other property receivable
upon or deemed to be held by holders of Common Stock that have tendered or
exchanged their shares of Common Stock following such tender or exchange,
and the Holder shall be entitled upon such exchange or tender to receive
such amount of securities, cash and property as the shares of Common Stock
for which this Warrant could have been exercised immediately prior to such
tender or exchange would have been entitled as would have been issued. In
the case of clause (B), the exercise price applicable for the newly issued
warrant shall be based upon the amount of securities, cash and property
that each share of Common Stock would receive in such transaction and the
Exercise Price immediately prior to the effectiveness or closing date for
such transaction. The terms of any such merger, sale, consolidation,
tender or exchange shall include such terms so as continue to give the
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<PAGE>
Holder the right to receive the securities, cash and property set forth in
this Section upon any conversion or redemption following such event. This
provision shall similarly apply to successive such events.
(f) For the purposes of this Section 9, the following clauses shall
also be applicable:
(i) Record Date. In case the Company shall take a record of
the holders of its Common Stock for the purpose of entitling them
(A) to receive a dividend or other distribution payable in Common
Stock or in securities convertible or exchangeable into shares of
Common Stock, or (B) to subscribe for or purchase Common Stock or
securities convertible or exchangeable into shares of Common Stock,
then such record date shall be deemed to be the date of the issue or
sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such
other distribution or the date of the granting of such right of
subscription or purchase, as the case may be.
(ii) Treasury Shares. The number of shares of Common Stock
outstanding at any given time shall not include shares owned or held
by or for the account of the Company, and the disposition of any
such shares shall be considered an issue or sale of Common Stock.
(g) All calculations under this Section shall be made to the nearest
1/100th of a share.
(h) If:
(i) the Company shall declare a dividend (or any other
distribution) on its Common Stock; or
(ii) the Company shall declare a special nonrecurring cash
dividend on or a redemption of its Common Stock; or
(iii) the Company shall authorize the granting to all holders
of the Common Stock rights or warrants to subscribe for or purchase
any shares of capital stock of any class or of any rights; or
(iv) the approval of any stockholders of the Company shall be
required in connection with any reclassification of the Common Stock
of the Company, any consolidation or merger to which the Company is
a party, any sale or transfer of all or substantially all of the
assets of the Company, or any
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<PAGE>
compulsory share exchange whereby the Common Stock is converted into other
securities, cash or property; or
(v) the Company shall authorize the voluntary dissolution,
liquidation or winding up of the affairs of the Company,
then the Company shall cause to be mailed to each Holder at their last addresses
as they shall appear upon the Warrant Register, at least 30 calendar days prior
to the applicable record or effective date hereinafter specified, a notice
stating (x) the date on which a record is to be taken for the purpose of such
dividend, distribution, redemption, rights or warrants, or if a record is not to
be taken, the date as of which the holders of Common Stock of record to be
entitled to such dividend, distributions, redemption, rights or warrants are to
be determined or (y) the date on which such reclassification, consolidation,
merger, sale, transfer or share exchange is expected to become effective or
close, and the date as of which it is expected that holders of Common Stock of
record shall be entitled to exchange their shares of Common Stock for
securities, cash or other property deliverable upon such reclassification,
consolidation, merger, sale, transfer, share exchange, dissolution, liquidation
or winding up; provided, however, that the failure to mail such notice or any
defect therein or in the mailing thereof shall not affect the validity of the
corporate action required to be specified in such notice.
10. Payment of Exercise Price. The Holder shall pay the Exercise Price in
one of the following manners:
(a) Cash Exercise. The Holder shall deliver immediately available
funds; or
(b) Cashless Exercise. The Holder shall surrender this Warrant to
the Company together with a notice of cashless exercise, in which event
the Company shall issue to the Holder the number of Warrant Shares
determined as follows:
X = Y (A-B)/A
where:
X = the number of Warrant Shares to be issued to the
Holder.
Y = the number of Warrant Shares with respect to which
this Warrant is being exercised.
A = the average of the closing sale prices of the Common
Stock on the principal market or exchange in which the
Common Stock is then listed or traded, as reported by
Bloomberg Information Systems, Inc. (or any successor to
its function of reporting stock prices), for the five
(5) trading days immediately prior to (but not
including) the Date of Exercise.
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<PAGE>
B = the Exercise Price.
For purposes of Rule 144 promulgated under the Securities Act, it is intended,
understood and acknowledged that the Warrant Shares issued in a cashless
exercise transaction shall be deemed to have been acquired by the Holder, and
the holding period for the Warrant Shares shall be deemed to have been
commenced, on the issue date.
11. Certain Exercise Restrictions.
(a) A Holder may not exercise this Warrant to the extent such
exercise would result in the Holder, together with any affiliate thereof,
beneficially owning (as determined in accordance with Section 13(d) of the
Exchange Act of 1934 (the "Exchange Act") and the rules promulgated thereunder)
in excess of 4.999% of the then issued and outstanding shares of Common Stock,
including shares of Common Stock issuable upon such exercise and held by such
Holder after application of this Section. Since the Holder will not be obligated
to report to the Company the number of shares of Common Stock it may hold at the
time of an exercise hereunder, unless the exercise at issue would result in the
issuance of shares of Common Stock in excess of 4.999% of the then outstanding
shares of Common Stock without regard to any other shares of Common Stock which
may be beneficially owned by the Holder or an affiliate thereof, the Holder
shall have the authority and obligation to determine whether the restriction
contained in this Section will limit any particular exercise hereunder and to
the extent that the Holder determines that the limitation contained in this
Section applies, the determination of which portion of this Warrant is
exercisable shall be the responsibility and obligation of the Holder. If the
Holder has delivered a Form of Election to Purchase for a number of Warrant
Shares that would result in the issuance in excess of the permitted amount
hereunder, the Company shall notify the Holder of this fact and shall honor the
exercise for the maximum portion of this Warrant permitted to be exercised on
such Date of Exercise in accordance with the periods described herein and
disregard the balance of such Form of Election to Purchase, as if never
delivered The provisions of this Section may be waived by a Holder (but only as
to itself and not to any other Holder) upon not less than 61 days' prior notice
to the Company. Other Holders shall be unaffected by any such waiver.
(b) A Holder may not exercise this Warrant to the extent such
exercise would result in the Holder, together with any affiliate thereof,
beneficially owning (as determined in accordance with Section 13(d) of the
Exchange Act and the rules promulgated thereunder) in excess of 9.999% of the
then issued and outstanding shares of Common Stock, including shares of Common
Stock issuable upon such exercise and held by such Holder after application of
this Section. Since the Holder will not be obligated to report to the Company
the number of shares of Common Stock it may hold at the time of an exercise
hereunder, unless the exercise at issue would result in the issuance of shares
of Common Stock in excess of 9.999% of the then outstanding shares of Common
Stock without regard to any other shares of Common Stock which may be
beneficially owned by the Holder or an affiliate thereof, the Holder shall have
the authority and obligation to determine whether the restriction contained in
this Section will limit any particular exercise hereunder and to the extent that
the Holder determines that the limitation contained in this Section applies, the
determination of
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<PAGE>
which portion of this Warrant is exercisable shall be the responsibility and
obligation of the Holder. If the Holder has delivered a Form of Election to
Purchase for a number of Warrant Shares that would result in the issuance in
excess of the permitted amount hereunder, the Company shall notify the Holder of
this fact and shall honor the exercise for the maximum portion of this Warrant
permitted to be exercised on such Date of Exercise in accordance with the
periods described herein and disregard the balance of such Form of Election to
Purchase, as if never delivered The provisions of this Section may be waived by
a Holder (but only as to itself and not to any other Holder) upon not less than
61 days' prior notice to the Company. Other Holders shall be unaffected by any
such waiver.
(c) If the Company Stock is then listed for trading on the
Nasdaq or the Nasdaq SmallCap Market and the Company has not obtained the
Shareholder Approval (as defined below), then the Company may not issue, upon
exercise of this Warrant, in excess of a number of shares of Common Stock (the
"Issuable Maximum") equal to 879,683 shares of Common Stock less 1/3 of the
number of shares of Common Stock previously issued or issuable upon exercise of
any of the Company's adjustable warrants dated June 24, 1999 and numbered SR-1,
BH-1 and AS-1 (the "Prior Adjustable Warrants") and the Company's adjustable
warrants dated December 8, 1999 and numbered SR-2, A S-2 and M-2. The 879,683
shares of Common Stock equals 19.999% of the number of shares of Common Stock
outstanding immediately prior to the issuance of the Prior Adjustable Warrants
multiplied by the quotient obtained by dividing (x) the number of shares of
Common Stock issued and sold to the original Holder on the Closing Date by (y)
the number of shares of Common Stock issued and sold by the Company on the
Closing Date. If on any Date of Exercise (A) the Company Stock is listed for
trading on the Nasdaq or the Nasdaq SmallCap Market, (B) the Exercise Price then
in effect is such that the aggregate number of shares of Common Stock that would
then be issuable upon exercise in full of this Warrant, together with any shares
of Common Stock previously issued upon exercise of this Warrant, would equal or
exceed the Issuable Maximum, and (C) the Company shall not have previously
obtained the vote of shareholders, if any, as may be required by the applicable
rules and regulations of the Nasdaq Stock Market to approve the issuance of
shares of Common Stock in excess of the Issuable Maximum pursuant to the terms
hereof (the "Shareholder Approval"), then the Company shall issue to the Holder
a number of shares of Common Stock equal to the Issuable Maximum and, with
respect to the shares whose issuance would result in an issuance of shares of
Common Stock in excess of the Issuable Maximum (the "Excess Warrant Shares"),
the Holder shall have the option to require the Company to either (1) use its
best efforts to obtain the Shareholder Approval applicable to such issuance as
soon as possible, but, in any event, no later than 60 days after such request or
(2) pay to the Holder an amount in cash equal to the product of (x) the Excess
Warrant Shares multiplied by (y) the closing sales price of the Common Stock on
(a) the date such Shareholder Approval was required to have been obtained or (b)
the Date of Exercise giving rise to the obligation to seek Shareholder Approval
(whichever is greater) (such amount, the "Cash Payment"). If the Holder shall
require the Company to use its best efforts to obtain the Shareholder Approval
pursuant to the immediately preceding sentence and the Company shall have failed
to obtain such Shareholder Approval on or prior to the 60th day following such
request (such date, the "Target Date"), the Company shall pay to the Holder the
Cash Payment no later than the 5th day following the Target Date. If the Company
fails to pay the Cash Payment in full pursuant to this Section within seven (7)
days after the date payable, the Company will pay interest on such
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<PAGE>
amount at a rate of 18% per annum, or such lesser maximum amount that is
permitted to be paid by applicable law, to the Holder, accruing daily from the
date payable until such amount, plus all such interest thereon, is paid in full.
The Company and the Holder understand and agree that shares of Common Stock
issued upon exercise of the Warrant and then held by the Holder or an Affiliate
thereof may not cast votes or be deemed outstanding for purposes of any vote to
obtain the Shareholder Approval.
12. Fractional Shares. The Company shall not be required to issue or cause
to be issued fractional Warrant Shares on the exercise of this Warrant. The
number of full Warrant Shares which shall be issuable upon the exercise of this
Warrant shall be computed on the basis of the aggregate number of Warrant Shares
purchasable on exercise of this Warrant so presented. If any fraction of a
Warrant Share would, except for the provisions of this Section 12, be issuable
on the exercise of this Warrant, the Company shall pay an amount in cash equal
to the Exercise Price multiplied by such fraction.
13. Notices. Any and all notices or other communications or deliveries
hereunder shall be in writing and shall be deemed given and effective on the
earliest of (i) the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section prior to 6:30 p.m. (New York City time) on a Business Day, (ii) the
Business Day after the date of transmission, if such notice or communication is
delivered via facsimile at the facsimile telephone number specified in this
Section later than 6:30 p.m. (New York City time) on any date and earlier than
11:59 p.m. (New York City time) on such date, (iii) the Business Day following
the date of mailing, if sent by nationally recognized overnight courier service
with next day delivery specified thereon, or (iv) upon actual receipt by the
party to whom such notice is required to be given. The addresses for such
communications shall be: (i) if to the Company, to 80-02 Kew Gardens Road, Suite
5000, Kew Gardens, New York 11415, facsimile number (718) 793-2455, attention
Chief Financial Officer, or (ii) if to the Holder, to the Holder at the address
or facsimile number appearing on the Warrant Register or such other address or
facsimile number as the Holder may provide to the Company in accordance with
this Section 13.
14. Warrant Agent.
(a) The Company shall serve as warrant agent under this Warrant.
Upon thirty (30) days' notice to the Holder, the Company may appoint a new
warrant agent.
(b) Any corporation into which the Company or any new warrant agent
may be merged or any corporation resulting from any consolidation to which
the Company or any new warrant agent shall be a party or any corporation
to which the Company or any new warrant agent transfers substantially all
of its corporate trust or shareholders services business shall be a
successor warrant agent under this Warrant without any further act. Any
such successor warrant agent shall promptly cause
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<PAGE>
notice of its succession as warrant agent to be mailed (by first class
mail, postage prepaid) to the Holder at the Holder's last address as shown
on the Warrant Register.
15. Miscellaneous.
(a) This Warrant shall be binding on and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. This
Warrant may be amended only in writing signed by the Company and the
Holder and their successors and assigns.
(b) Subject to Section 15(a), above, nothing in this Warrant shall
be construed to give to any person or corporation other than the Company
and the Holder any legal or equitable right, remedy or cause under this
Warrant. This Warrant shall inure to the sole and exclusive benefit of the
Company and the Holder.
(c) This Warrant shall be governed by and construed and enforced in
accordance with the internal laws of the State of New York without regard
to the principles of conflicts of law thereof.
(d) The headings herein are for convenience only, do not constitute
a part of this Warrant and shall not be deemed to limit or affect any of
the provisions hereof.
(e) In case any one or more of the provisions of this Warrant shall
be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Warrant shall
not in any way be affected or impaired thereby and the parties will
attempt in good faith to agree upon a valid and enforceable provision
which shall be a commercially reasonable substitute therefor, and upon so
agreeing, shall incorporate such substitute provision in this Warrant.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK,
SIGNATURE PAGE FOLLOWS]
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed by its authorized officer as of the date first indicated above.
FIDELITY HOLDINGS, INC.
By: /s/ Doron Cohen
---------------
Name: Doron Cohen
Title: President and CEO
<PAGE>
FORM OF ELECTION TO PURCHASE
(To be executed by the Holder to exercise the right to purchase shares of Common
Stock under the foregoing Warrant)
To Fidelity Holdings, Inc.:
In accordance with the Warrant enclosed with this Form of Election to
Purchase, the undersigned hereby irrevocably elects to purchase _____________
shares of Common Stock ("Common Stock"), $.01 par value per share, of Fidelity
Holdings, Inc. and, if such Holder is not utilizing the cashless exercise
provisions set forth in this Warrant, encloses herewith $________ in cash,
certified or official bank check or checks, which sum represents the aggregate
Exercise Price (as defined in the Warrant) for the number of shares of Common
Stock to which this Form of Election to Purchase relates, together with any
applicable taxes payable by the undersigned pursuant to the Warrant.
The undersigned requests that certificates for the shares of Common Stock
issuable upon this exercise be issued in the name of
PLEASE INSERT SOCIAL SECURITY OR
TAX IDENTIFICATION NUMBER
______________________________________
________________________________________________________________________________
(Please print name and address)
If the number of shares of Common Stock issuable upon this exercise shall
not be all of the shares of Common Stock which the undersigned is entitled to
purchase in accordance with the enclosed Warrant, the undersigned requests that
a New Warrant (as defined in the Warrant) evidencing the right to purchase the
shares of Common Stock not issuable pursuant to the exercise evidenced hereby be
issued in the name of and delivered to:
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
________________________________________________________________________________
Dated:____________, ____ Name of Holder:
(Print)_______________________________
(By:)_________________________________
(Name:)
(Title:)
(Signature must conform in all
respects to name of holder as
specified on the face of the Warrant)
<PAGE>
FORM OF ASSIGNMENT
[To be completed and signed only upon transfer of Warrant]
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers
unto ________________________________ the right represented by the within
Warrant to purchase ____________ shares of Common Stock of Fidelity Holdings,
Inc. to which the within Warrant relates and appoints ________________ attorney
to transfer said right on the books of Fidelity Holdings, Inc. with full power
of substitution in the premises.
Dated:
____________, ____
__________________________________________________
(Signature must conform in all respects to name of
holder as specified on the face of the Warrant)
__________________________________________________
Address of Transferee
__________________________________________________
__________________________________________________
In the presence of:
__________________________
<PAGE>
Exhibit A
(i) "Adjustment Price" means the average of the ten (10) lowest Per
Share Market Values (which need not occur on consecutive Trading Days)
during the forty (40) Trading Days immediately preceding either a (i)
Vesting Date or (ii) Trading Day, as applicable.
(ii) "Applicable Share Number" means (i) with respect to the First
Vesting Date, 34% of the number of shares of Common Stock purchased by the
Holder pursuant to the Purchase Agreement and (ii) with respect to each of
the Second Vesting Date and the Third Vesting Date, 33% of the number of
shares of Common Stock purchased by the Holder pursuant to the Purchase
Agreement.
(iii) "Business Day" means any day except Saturday, Sunday and any
day which shall be a federal legal holiday or a day on which banking
institutions in the State of New York are authorized or required by law or
other governmental action to close.
(iv) "Change of Control Transaction" means the occurrence of any of
(1) an acquisition after the date hereof by an individual or legal entity
or "group" (as described in Rule 13d-5(b)(1) promulgated under the
Exchange Act) of effective control (whether through legal or beneficial
ownership of capital stock of the Company, by contract or otherwise) of in
excess of 33.33% of the voting securities of the Company, (2) a
replacement at one time or over time of more than one-half of the members
of the Board which is not approved by a majority of those individuals who
are members of the Board on the date of issuance of this Warrant (or by
those individuals who are serving as members of the Board on any date
whose nomination to the Board was approved by a majority of the members of
the Board who are members on the date of issuance of this Warrant), (3)
the merger of the Company with or into another entity where the directors
comprising the Board immediately prior to such transaction (or the first
to occur of any series of related transactions) do not comprise a majority
of the members of the board of directors of the surviving company
immediately following such transaction, (4) the merger of the Company with
or into another entity where the shareholders of the Company immediately
prior to such transaction (or the first to occur of any series of related
transactions) do not collectively own in excess of 66.66% of the
outstanding voting securities of the surviving company immediately
following such transaction, (5) the sale of all or substantially all of
the assets of the Company in one or a series of related transactions, (6)
the merger by the Company with or into another entity where the voting
securities of the surviving company are not listed or quoted for trading
on the Nasdaq or on a Subsequent Market, or (7) the execution by the
Company of an agreement providing for any of the events set forth above in
(1) - (6).
(v) "Commission" means the Securities and Exchange Commission.
(vi) "Effectiveness Date" means the date the Underlying Shares
Registration Statement is declared effective by the Commission.
<PAGE>
(vii) "Effectiveness Required Date" means the 120th day following
the date of issuance of this Warrant.
(viii) "Nasdaq" means the Nasdaq National Market.
(ix) "Per Share Market Value" means on any particular date (a) the
closing bid price per share of the Common Stock on such date on the Nasdaq
or on any Subsequent Market, or if there is no such price on such date,
then the closing bid price on the Nasdaq or on such Subsequent Market on
the date nearest preceding such date, or (b) if the Common Stock is not
then listed or quoted on the Nasdaq or a Subsequent Market, the closing
bid price for a share of Common Stock in the over- the-counter market, as
reported by the National Quotation Bureau Incorporated or similar
organization or agency succeeding to its functions of reporting prices) at
the close of business on such date, or (c) if the Common Stock is not then
reported by the National Quotation Bureau Incorporated (or similar
organization or agency succeeding to its functions of reporting prices),
then the average of the "Pink Sheet" quotes for the relevant conversion
period, as determined in good faith by the Holder, or (d) if the Common
Stock is not then publicly traded the fair market value of a share of
Common Stock as determined by an appraiser selected in good faith by the
Holders of a majority of the applicable Warrant Shares.
(x) "Purchase Agreement" means the Securities Purchase Agreement
dated as of the date hereof, between the Company and the original Holder
hereof.
(xi) "Purchase Price" means $15.00.
(xii) "Securities" shall have the meaning set forth in the Purchase
Agreement.
(xiii) "Subsequent Market" shall mean any of the New York Stock
Exchange, Inc., American Stock Exchange, Inc. or Nasdaq SmallCap Market.
(xiv) "Trading Day" means (a) a day on which the Common Stock is
traded on the Nasdaq or on the Subsequent Market on which the Common Stock
is then listed or quoted, as the case may be, or (b) if the Common Stock s
not listed on the Nasdaq or on a Subsequent Market, a day on which the
Common Stock is traded in the over-the-counter market, as reported by the
OTC Bulletin Board, or (c) if the Common Stock is not quoted on the OTC
Bulletin Board, a day on which the Common Stock is quoted in the
over-the-counter market as reported by the National Quotation Bureau
Incorporated (or any similar organization or agency succeeding its
functions of reporting prices); provided, however, that in the event that
the Common Stock is not listed or quoted as set forth in (a), (b) and (c)
hereof, then Trading Day shall mean a Business Day.
(xv) "Transaction Documents" shall have the meaning set forth in the
Purchase Agreement.
<PAGE>
(xvi) "Underlying Shares Registration Statement" means a
registration statement meeting the requirements set forth in the
Registration Rights Agreement dated as of the date hereof between the
Company and the original Holder hereof (the "Registration Rights
Agreement") and covering the resale of the Registrable Securities by the
selling stockholders thereunder.
================================================================================
SECURITIES PURCHASE AGREEMENT
Between
FIDELITY HOLDINGS, INC.
and
THE INVESTORS SIGNATORY HERETO
Dated as of February 8, 2000
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SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of February 8,
2000, between Fidelity Holdings, Inc., a Nevada corporation (the "Company"), and
the investors signatory hereto (each such investor is a "Purchaser" and all such
investors are, collectively, the "Purchasers").
WHEREAS, pursuant to that certain Letter Agreement, dated June 24, 1999
between the Company and the Purchasers (the "Letter Agreement"), the parties
thereto have agreed, subject to certain conditions set forth therein, that the
Purchasers shall, severally and not jointly, purchase from the Company, and the
Company shall sell to the Purchasers, the First Additional Securities (as
defined in the Letter Agreement) for an aggregate purchase price of $7,000,000;
WHEREAS, pursuant to that certain Securities Purchase Agreement, dated as
of December 8, 1999 between the Company and each of the Purchasers, each of the
Purchasers waived the conditions precedent specified in the Letter Agreement to
its respective obligation to purchase a portion of the First Additional
Securities equal to three-sevenths (3/7) of the First Additional Securities and
purchased its pro-rata portion of three-sevenths (3/7) of the First Additional
Securities for an aggregate purchase price of $3,000,000 and the Company sold to
the Purchasers three- sevenths (3/7) of the First Additional Securities for an
aggregate purchase price of $3,000,000; and
WHEREAS, subject to the terms and conditions set forth in this Agreement,
the Company desires to issue and sell to the Purchasers and each of the
Purchasers, severally and not jointly, desires to purchase from the Company
shares of the Company's common stock, $.01 par value per share (the "Common
Stock"), and certain other securities of the Company as more fully described in
this Agreement, the sum of which shall constitute the remaining four-sevenths
(4/7) of the First Additional Securities.
NOW, THEREFORE, IN CONSIDERATION of the mutual covenants contained in this
Agreement, and for other good and valuable consideration the receipt and
adequacy are hereby acknowledged, the Company and the Purchasers agree as
follows:
ARTICLE I
PURCHASE AND SALE
1.1 The Closing.
(a) The Closing. (i) Subject to the terms and conditions set forth
in this Agreement, the Company shall issue and sell to the Purchasers and the
Purchasers, severally and not jointly, shall purchase 266,667 shares of Common
Stock (the "Shares") for an aggregate purchase price of $4,000,000. The closing
of the purchase and sale of the Shares (the "Closing") shall take place at the
offices of Robinson Silverman Pearce Aronsohn & Berman LLP ("Robinson
Silverman"), 1290 Avenue of the Americas, New York, New York 10104, immediately
following the execution
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hereof or such later date as the parties shall agree. The date of the Closing is
hereinafter referred to as the "Closing Date."
(ii) At the Closing Date, the parties shall deliver or shall
cause to be delivered the following: (A) the Company shall deliver to each
Purchaser (1) a stock certificate representing the number of Shares indicated
below such Purchaser's name on the signature page to this Agreement, registered
in the name of such Purchaser, (2) a Common Stock purchase warrant, in the form
of Exhibit A, registered in the name of such Purchaser, pursuant to which such
Purchaser shall have the right to acquire shares of Common Stock upon the terms
set forth therein (collectively, the "Adjustable Warrants"), (3) a Common Stock
purchase warrant, in the form of Exhibit D, registered in the name of such
Purchaser, pursuant to which such Purchaser shall have the right at any time and
from time to time thereafter through the fifth anniversary of the Closing Date
to acquire the number of shares of Common Stock indicated below such Purchaser's
name on the signature page to this Agreement at an exercise price per share
(subject to adjustment as provided therein) of $16.00 (collectively, the
"Closing Warrants" and together with the Adjustable Warrants, the "Warrants"),
(4) the legal opinion of Littman Krooks Roth & Ball P.C., outside counsel to the
Company, substantially in the form of Exhibit C, and (5) all other documents,
instruments and writings required to have been delivered at or prior to the
Closing by the Company pursuant to this Agreement, including (i) an executed
Registration Rights Agreement, dated the date hereof, among the Company and the
Purchasers, in the form of Exhibit B (the "Registration Rights Agreement"), and
(ii) the Irrevocable Transfer Agent Instructions, in the form of Exhibit E,
delivered to and acknowledged by the Company's transfer agent (the "Transfer
Agent Instructions"); and (B) each Purchaser shall deliver (1) the purchase
price indicated below such Purchaser's name on the signature page to this
Agreement in United States dollars in immediately available funds by wire
transfer to an account designated prior to the Closing Date in writing by the
Company for such purpose, and (2) all documents, instruments and writings
required to have been delivered at or prior to the Closing Date by such
Purchaser pursuant to this Agreement, including an executed Registration Rights
Agreement.
1.2 Certain Defined Terms. For purposes of this Agreement,"Trading
Day" and "Per Share Market Value" shall have the meanings set forth in Exhibit A
and "Business Day" shall mean any day except Saturday, Sunday and any day which
shall be a federal legal holiday or a day on which banking institutions in the
State of New York generally are authorized or required by law or other
governmental action to close.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 Representations and Warranties of the Company. The Company hereby
makes the following representations and warranties to the Purchasers:
(a) Organization and Qualification. The Company is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Nevada, with the requisite corporate power and authority to own and use
its properties and assets and to carry on its business as currently conducted.
The Company has no subsidiaries other than as set forth in Schedule
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2.1(a) (collectively, the "Subsidiaries"). Each of the Subsidiaries is an
entity, duly organized, validly existing and in good standing under the laws of
the jurisdiction of its incorporation or organization (as applicable), with the
requisite power and authority to own and use its properties and assets and to
carry on its business as currently conducted. Each of the Company and the
Subsidiaries is duly qualified to do business and is in good standing as a
foreign corporation or other entity in each jurisdiction in which the nature of
the business conducted or property owned by it makes such qualification
necessary, except where the failure to be so qualified or in good standing, as
the case may be, could not, individually or in the aggregate, (x) adversely
affect the legality, validity or enforceability of the Securities (as defined
below) or any of this Agreement, the Registration Rights Agreement or the
Warrants (collectively, the "Transaction Documents"), (y) be reasonably expected
to have or result in a material adverse effect on the results of operations,
assets, prospects, or condition (financial or otherwise) of the Company and the
Subsidiaries, taken as a whole, or (z) adversely impair the Company's ability to
perform fully on a timely basis its obligations under any of the Transaction
Documents (any of (x), (y) or (z), a "Material Adverse Effect").
(b) Authorization; Enforcement. The Company has the requisite
corporate power and authority to enter into and to consummate the transactions
contemplated by each of the Transaction Documents and otherwise to carry out its
obligations thereunder. The execution and delivery of each of the Transaction
Documents by the Company and the consummation by it of the transactions
contemplated thereby have been duly authorized by all necessary corporate action
on the part of the Company and no further corporate action is required by the
Company other than the obtaining of the Required Approvals (as hereinafter
defined). Each of the Transaction Documents has been duly executed by the
Company and, when delivered in accordance with the terms hereof, will constitute
the valid and binding obligation of the Company enforceable against the Company
in accordance with its terms. Neither the Company nor any Subsidiary is in
violation of any of the provisions of its respective articles of incorporation,
by-laws or other charter or organizational documents.
(c) Capitalization. The number of authorized, issued and outstanding
capital stock of the Company is set forth in Schedule 2.1(c). Except as
disclosed in Schedule 2.1(c), no securities of the Company or any Subsidiary are
entitled to preemptive or similar rights, nor is any holder of securities of the
Company or any Subsidiary entitled to preemptive or similar rights arising out
of any agreement or understanding with the Company or any Subsidiary by virtue
of any of the Transaction Documents. Except as disclosed in Schedule 2.1(c),
there are no outstanding options, warrants, script rights to subscribe to, calls
or commitments of any character whatsoever relating to, or securities, except as
a result of the purchase and sale of the Securities, or rights or obligations
convertible into or exchangeable for, or giving any Person (as defined below)
any right to subscribe for or acquire, any shares of Common Stock, or contracts,
commitments, understandings, or arrangements by which the Company or any
Subsidiary is or may become bound to issue additional shares of Common Stock, or
securities or rights convertible or exchangeable into shares of Common Stock. To
the knowledge of the Company, except as specifically disclosed in the SEC
Reports (as defined below) or Schedule 2.1(c), no Person or group of related
Persons beneficially owns (as determined pursuant to Rule 13d-3 promulgated
under the Securities Exchange Act of 1934, as amended (the "Exchange Act")), or
has the right to acquire by agreement with or by obligation binding upon the
Company, beneficial ownership of in excess of 5% of the Common Stock. A
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"Person" means an individual or corporation, partnership, trust, incorporated or
unincorporated association, joint venture, limited liability company, joint
stock company, government (or an agency or subdivision thereof) or other entity
of any kind.
(d) Issuance of the Securities. The Securities are duly authorized
and, when issued and paid for in accordance with the terms hereof and the
Warrants, shall have been duly and validly issued, fully paid and nonassessable,
free and clear of all liens, encumbrances and rights of first refusal of any
kind (collectively, "Liens"). The Company has reserved a number of duly
authorized shares of Common Stock that is not less than the sum of (i) the
maximum number of Underlying Shares (as defined below) issuable upon exercise of
the Adjustable Warrants, assuming that the Per Share Market Value utilized to
determine the number of such Underlying Shares is 50% of the average Per Share
Market Value on the Trading Day immediately preceding the Closing Date and (ii)
the number of Underlying Shares issuable upon exercise in full of the Closing
Warrants (such number of shares of Common Stock as contemplated in clauses (i)
and (ii), the "Initial Minimum"). All such authorized shares of Common Stock
shall be duly reserved for issuance to the holders of the Shares and the
Warrants. The shares of Common Stock issuable upon exercise of the Warrants are
referred to herein as the "Underlying Shares." The Shares, the Warrants and the
Underlying Shares are collectively referred to herein as, the "Securities."
(e) No Conflicts. The execution, delivery and performance of the
Transaction Documents by the Company and the consummation by the Company of the
transactions contemplated thereby do not and will not (i) conflict with or
violate any provision of the Company's or any Subsidiary's articles of
incorporation, bylaws or other charter documents (each as amended through the
date hereof), or (ii) subject to obtaining the Required Approvals (as defined
below) and except as set forth in Schedule 2.1(e), 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 (with or without notice, lapse of time or both) of,
any agreement, credit facility, indenture or instrument (evidencing a Company or
Subsidiary debt or otherwise) to which the Company or any Subsidiary is a party
or by which any property or asset of the Company or any Subsidiary is bound or
affected, or (iii) result in a violation of any law, rule, regulation, order,
judgment, injunction, decree or other restriction of any court or governmental
authority to which the Company or a Subsidiary is subject (including federal and
state securities laws and regulations), or by which any property or asset of the
Company or a Subsidiary is bound or affected, except in the case of each of
clauses (ii) and (iii), as could not, individually or in the aggregate,
reasonably be expected to have or result in a Material Adverse Effect. The
business of the Company is not being conducted in violation of any law,
ordinance or regulation of any governmental authority, except for violations
which, individually or in the aggregate, could not reasonably be expected to
have or result in a Material Adverse Effect.
(f) Filings, Consents and Approvals. Neither the Company nor any
Subsidiary is required to obtain any consent, waiver, authorization or order of,
give any notice to, or make any filing or registration with, any court or other
federal, state, local or other governmental authority or other Person in
connection with the execution, delivery and performance by the Company of the
Transaction Documents, other than (i) the filings required pursuant to Section
3.11, (ii) the filing with the Securities and Exchange Commission (the
"Commission") of a registration statement meeting the
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requirements set forth in the Registration Rights Agreement and covering the
resale of the Shares and the Underlying Shares by the Purchasers (the
"Underlying Shares Registration Statement"), (iii) the application(s) to the
Nasdaq National Market ("NASDAQ") for the listing of the Shares and the
Underlying Shares with the NASDAQ (and with any other national securities
exchange of market on which the Common Stock is then listed), (vi) applicable
Blue Sky filings, and (v) in all other cases where the failure to obtain such
consent, waiver, authorization or order, or to give such notice or make such
filing or registration could not have or result in, individually or in the
aggregate, a Material Adverse Effect (collectively, the "Required Approvals").
The Company has either (i) filed with the NASDAQ an additional shares listing
application for the listing of the Underlying Shares for trading on the NASDAQ
for such number of shares of Common Stock as would be issuable upon exercise of
the Warrants assuming the Per Share Market Value on the date of exercise of the
Warrants equaled 50% of the Per Share Market Value on the date of the filing of
such application or (ii) received a telephonic waiver from the NASDAQ from the
obligation to file such application.
(g) Litigation; Proceedings. Except as set forth in the SEC Reports,
there is no action, suit, notice of violation, proceeding or investigation
pending or, to the knowledge of the Company, threatened against or affecting the
Company or any of its Subsidiaries or any of their respective properties before
or by any court, governmental or administrative agency or regulatory authority
(federal, state, county, local or foreign) which (i) adversely affects or
challenges the legality, validity or enforceability of any of the Transaction
Documents or the Securities or (ii) could, individually or in the aggregate, be
reasonably expected to have or result in a Material Adverse Effect.
(h) No Default or Violation. Neither the Company nor any Subsidiary
(i) except as set forth in Schedule 2.1(h), is in default under or in violation
of (and no event has occurred which has not been waived which, with notice or
lapse of time or both, would result in a default by the Company or any
Subsidiary under), nor has the Company or any Subsidiary received notice of a
claim that it is in default under or that it is in violation of, any indenture,
loan or credit agreement or any other agreement or instrument to which it is a
party or by which it or any of its properties is bound, (ii) is in violation of
any order of any court, arbitrator or governmental body, or (iii) is in
violation of any statute, rule or regulation of any governmental authority,
except as could not individually or in the aggregate, reasonably be expected to
have or result in a Material Adverse Effect.
(i) Private Offering. Assuming the accuracy of the representations
and warranties of the Purchasers set forth in Sections 2.2(b)-(g), the offer,
issuance and sale of the Securities to the Purchasers as contemplated hereby are
exempt from the registration requirements of the Securities Act of 1933, as
amended (the "Securities Act"). Neither the Company nor any Person acting on its
behalf has taken or, to the knowledge of the Company, is contemplating taking
any action which could subject the offering, issuance or sale of the Securities
to the registration requirements of the Securities Act including soliciting any
offer to buy or sell the Securities by means of any form of general solicitation
or advertising.
(j) SEC Reports; Financial Statements. The Company has filed all
reports required to be filed by it under the Exchange Act, including pursuant to
Section 13(a) or 15(d) thereof, for the two years preceding the date hereof (or
such shorter period as the Company was required by law to file such material)
(the foregoing materials being collectively referred to herein as
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the "SEC Reports" and, together with the Schedules to this Agreement the
"Disclosure Materials") on a timely basis or has received a valid extension of
such time of filing and has filed any such SEC Reports prior to the expiration
of any such extension. As of their respective dates, the SEC Reports complied in
all material respects with the requirements of the Securities Act and the
Exchange Act and the rules and regulations of the Commission promulgated
thereunder, and none of the SEC Reports, when filed, 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. All material
agreements to which the Company is a party or to which the property or assets of
the Company are subject have been filed as exhibits to the SEC Reports to the
extent required. The financial statements of the Company included in the SEC
Reports comply in all material respects with applicable accounting requirements
and the rules and regulations of the Commission with respect thereto as in
effect at the time of filing. Such financial statements have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved ("GAAP"), except as may be otherwise specified
in such financial statements or the notes thereto, and fairly present in all
material respects the financial position of the Company and its consolidated
subsidiaries as of and for the dates thereof and the results of operations and
cash flows for the periods then ended, subject, in the case of unaudited
statements, to normal, immaterial, year-end audit adjustments. Except as set
forth on Schedule 2.1(j) or except as specifically disclosed in the SEC Reports,
since April 16, 1999 (a) there has been no event, occurrence or development that
has had or that could reasonably be expected to have or result in a Material
Adverse Effect, (b) the Company has not incurred any liabilities (contingent or
otherwise) other than (x) liabilities incurred in the ordinary course of
business consistent with past practice and (y) liabilities not required to be
reflected in the Company's financial statements pursuant to GAAP or required to
be disclosed in filings made with the Commission, (c) the Company has not
altered its method of accounting or the identity of its auditors and (d) the
Company has not declared or made any payment or distribution of cash or other
property to its stockholders or officers or directors (other than in compliance
with existing Company stock or stock option plans) with respect to its capital
stock, or purchased, redeemed (or made any agreements to purchase or redeem) any
shares of its capital stock. The Company last filed audited financial statements
with the Commission on April 16, 1999, and has not received any comments from
the Commission in respect thereof.
(k) Investment Company. The Company is not, and is not an Affiliate
(as defined in Rule 405 under the Securities Act) of, an "investment company"
within the meaning of the Investment Company Act of 1940, as amended.
(l) Certain Fees. Except for certain fees payable by the Company to
International Securities Corporation, and its Affiliates, no fees or commissions
will be payable by the Company to any broker, financial advisor or consultant,
finder, placement agent, investment banker, or bank or other Person with respect
to the transactions contemplated by this Agreement. The Purchasers shall have no
obligation with respect to any such fees or with respect to any claims made by
or on behalf of other Persons (including, without limitation, the Persons
specified in Section 2.1(r)) for fees of a type contemplated in this Section
that may be due in connection with the transactions contemplated by this
Agreement. The Company shall indemnify and hold harmless the Purchasers, their
employees, officers, directors, agents, and partners, and its respective
Affiliates, from and against all claims,
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losses, damages, costs (including the costs of preparation and attorney's fees)
and expenses suffered in respect of any such claimed or existing fees, as such
fees and expenses are incurred; provided, that, if it shall be shown that a
Purchaser is responsible for Purchaser Fees (as hereinafter defined) in
accordance with Section 2.2(i), then the Company will have no indemnity
obligation to such Purchaser or its Affiliates, employees, directors or agents
under this Section with respect to claims made by such Person for such Purchaser
Fees and the provisions of Section 2.2(i) shall apply thereto.
(m) Form S-3 Eligibility. The Company is eligible to register
securities for resale with the Commission under Form S-3 promulgated under the
Securities Act.
(n) Listing and Maintenance Requirements Compliance. The Company has
not, in the two years preceding the date hereof, received notice (written or
oral) from the NASDAQ or any other stock exchange, market or trading facility on
which the Common Stock is or has been listed (or on which it has been quoted) to
the effect that the Company is not in compliance with the listing or maintenance
requirements of such exchange or market. The Company is currently in compliance
with all such maintenance requirements and no fact or circumstances currently
exist which could reasonably be expected to result in noncompliance with such
maintenance requirements in the foreseeable future.
(o) Patents and Trademarks. The Company and its Subsidiaries have,
or have rights to use, all patents, patent applications, trademarks, trademark
applications, service marks, trade names, copyrights, licenses and rights
(collectively, the "Intellectual Property Rights") which are necessary or
material for use in connection with their respective business, and which the
failure to so have would have a Material Adverse Effect. To the best knowledge
of the Company all such Intellectual Property Rights are enforceable and there
is no existing infringement by another Person of any of the Intellectual
Property Rights.
(p) Regulatory Permits. The Company and its Subsidiaries possess all
certificates, authorizations and permits issued by the appropriate federal,
state or foreign regulatory authorities necessary to conduct their respective
businesses as described in the SEC Reports, except where the failure to possess
such permits could not, individually or in the aggregate, have or result in a
Material Adverse Effect ("Material Permits"), and neither the Company nor any
such Subsidiary has received any notice of proceedings relating to the
revocation or modification of any Material Permit.
(q) Title. Except as set forth in Schedule 2.1(q), the Company and
the Subsidiaries have good and marketable title in fee simple to all real
property and 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,
except for Liens as do not materially affect the value of such property and do
not materially interfere with the use made and 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.
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(r) Disclosure. The Company confirms that, except for the
transactions contemplated by this Agreement, the termination of the Company's
arrangement with Zanett Securities Corporation and Coleman and Company
Securities, Inc. to provide the Company with investment banking services, it has
not provided the Purchasers or their agents or counsel with any information that
constitutes or might constitute material non-public information. The Company
understands and confirms that the Purchasers shall be relying on the foregoing
representations in effecting transactions in securities of the Company. All
disclosure provided to the Purchasers regarding the Company, its business and
the transactions contemplated hereby, including the Schedules to this Agreement,
furnished by or on behalf of the Company are true and correct in all material
respects and do not contain any untrue statement of a material fact or omit to
state any material fact necessary in order to make the statements made therein,
in light of the circumstances under which they were made, not misleading.
2.2 Representations and Warranties of the Purchasers. Each Purchaser
hereby, for itself and for no other Purchaser, represents and warrants to the
Company as follows:
(a) Organization; Authority. Such Purchaser is duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
organization with the requisite corporate or partnership power and authority to
enter into and to consummate the transactions contemplated by the Transaction
Documents and otherwise to carry out its obligations thereunder. The purchase by
such Purchaser of the Securities hereunder has been duly authorized by all
necessary action on the part of such Purchaser. Each of this Agreement and the
Registration Rights Agreement has been duly executed and when delivered by such
Purchaser in accordance with the terms hereof, will constitute the valid and
legally binding obligation of such Purchaser, enforceable against it in
accordance with its terms.
(b) Investment Intent. Such Purchaser is acquiring the Securities as
principal for its own account for investment purposes only and not with a view
to or for distributing or reselling such Securities or any part thereof, without
prejudice, however, to such Purchaser's right, subject to the provisions of this
Agreement and the Registration Rights Agreement, at all times to sell or
otherwise dispose of all or any part of such Securities pursuant to an effective
registration statement under the Securities Act and in compliance with
applicable federal and state securities laws or under an exemption from such
registration. Nothing contained herein shall be deemed a representation or
warranty by such Purchaser to hold Securities for any amount of time. By
executing this Agreement, such Purchaser further represents that such Purchaser
does not presently have any contract, undertaking, agreement or arrangement with
any Person to sell or transfer to such Person or to any third person, with
respect to any of the Securities.
(c) Purchaser Status. At the time such Purchaser was offered the
Securities, it was, and at the date hereof it is, and at each exercise date
under the Warrants, it will be, an "accredited investor" as defined in Rule
501(a) under the Securities Act.
(d) Experience of Purchaser. Such Purchaser, either alone or
together with its representatives, has such knowledge, sophistication and
experience in business and financial matters so as to be capable of evaluating
the merits and risks of the prospective investment in the Securities,
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and has so evaluated the merits and risks of such investment. Such 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. Such Purchaser is knowledgeable about investment considerations in
development-stage companies.
(e) Ability of Purchaser to Bear Risk of Investment. Such Purchaser
is able to bear the economic risk of an investment in the Securities and, at the
present time, is able to afford a complete loss of such investment. Such
Purchaser's overall commitment to investments which are not readily marketable
is not excessive in view of its net worth and financial circumstances and the
purchase of the Securities will not cause such commitment to become excessive.
(f) Access to Information. Such Purchaser acknowledges receipt of
the Disclosure Materials and further acknowledges that it has reviewed the
Disclosure Materials and has been afforded (i) the opportunity to ask such
questions as it has deemed necessary of, and to receive answers from,
representatives of the Company concerning the terms and conditions of the
offering of the Securities and the merits and risks of investing in the
Securities; (ii) access to information about the Company and the Company's
financial condition, results of operations, business, proper ties, management
and prospects sufficient to enable it to evaluate its investment; and (iii) the
opportunity to obtain such additional information which the Company possesses or
can acquire without unreasonable effort or expense that is necessary to make an
informed investment decision with respect to the investment and to verify the
accuracy and completeness of the information contained in the Disclosure
Materials. Neither such inquiries nor any other investigation conducted by or on
behalf of such Purchaser or its representatives or counsel shall modify, amend
or affect such Purchaser's right to rely on the truth, accuracy and completeness
of the Disclosure Materials and the Company's representations and warranties
contained in the Transaction Documents.
(g) General Solicitation. Such Purchaser is not purchasing the
Securities as a result of or subsequent to any advertisement, article, notice or
other communication regarding the Securities published in any newspaper,
magazine or similar media or broadcast over television or radio or presented at
any seminar or any other general solicitation or general advertisement.
(h) Reliance. Such Purchaser understands and acknowledges that (i)
the Securities are being offered and sold to it without registration under the
Securities Act in a private placement that is exempt from the registration
provisions of the Securities Act and (ii) the availability of such exemption,
depends in part on, and the Company will rely upon the accuracy and truthfulness
of, the foregoing representations and such Purchaser hereby consents to such
reliance. Such Purchaser understands that the Securities are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, such Purchaser must hold the Securities indefinitely
unless they are registered with the Commission and qualified by applicable state
authorities, or an exemption from such registration and qualification
requirements is available. Such 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. Such 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 holding period for the
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\Securities, and on requirements relating to the Company which are outside of
such Purchaser's control, and which the Company may be under no obligation and
may not be able to satisfy.
(i) Certain Fees. Such Purchaser has not entered into (a) any
written agreement or written understanding pursuant to which such Purchaser has
agreed, directly or indirectly, to pay fees or commissions to any placement
agent, finder, investment banker or bank or broker with respect to the
transactions contemplated by this Agreement or (b) any agreement or
understanding pursuant to which it agreed, directly or indirectly, to pay fees
or commissions to any placement agent, finder, investment banker or bank or
broker, in connection with the introduction of another Purchaser to the
transactions contemplated by this Agreement (collectively, "Purchaser Fees").
The Company shall not be responsible for the payment of any Purchaser Fees, and
such Purchaser shall indemnify and hold harmless the Company, its employees,
officers, directors, agents, and partners, and its respective Affiliates, from
and against all claims, losses, damages, costs (including the costs of
preparation and attorney's fees) and expenses suffered in respect of any such
Purchaser Fees.
The Company acknowledges and agrees that no Purchaser makes or has
made representations or warranties with respect to the transactions contemplated
hereby other than those specifically set forth in this Section 2.2.
ARTICLE III
OTHER AGREEMENTS OF THE PARTIES
3.1 Transfer Restrictions. (a) Securities may only be disposed of pursuant
to an effective registration statement under the Securities Act, to the Company
or pursuant to an available exemption from or in a transaction not subject to
the registration requirements of the Securities Act, and in compliance with any
applicable federal and state securities laws. In connection with any transfer of
Securities other than pursuant to an effective registration statement or to the
Company, except as otherwise set forth herein, the Company may require the
transferor thereof to provide to the Company an opinion of counsel selected by
the transferor, the form and substance of which opinion shall be reasonably
satisfactory to the Company, to the effect that such transfer does not require
registration of such transferred Securities under the Securities Act.
Notwithstanding the foregoing, the Company, without requiring a legal opinion as
described in the immediately preceding sentence, hereby consents to and agrees
to register on the books of the Company and with any transfer agent for the
securities of the Company any transfer of Securities by a Purchaser to an
Affiliate of such Purchaser or to one or more funds or managed accounts under
common management with such Purchaser, and any transfer among any such
Affiliates or one or more funds or managed accounts, provided that the
transferee certifies to the Company that it is an "accredited investor" within
the meaning of Rule 501(a) under the Securities Act and that it is acquiring the
Securities solely for investment purposes (subject to the qualifications
hereof). Any such transferee shall agree in writing to be bound by the terms of
this Agreement (including, without limitation, that the provisions of Section
2.2 hereof shall apply to such transferee) and shall have the rights of the
Purchaser under this Agreement and the Registration Rights Agreement.
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(b) The Purchasers agree to the imprinting, so long as is required
by this Section 3.1(b), of the following legend on the Securities:
[NEITHER] THESE SECURITIES [NOR THE SECURITIES INTO WHICH THESE
SECURITIES ARE EXERCISABLE] HAVE BEEN REGISTERED WITH THE SECURITIES AND
EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE
UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR
SOLD EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A
TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS.
Underlying Shares shall not contain the legend set forth above nor
any other legend if the exercise of Warrants or other issuances of Underlying
Shares as contemplated by the Warrants occurs at any time while an Underlying
Shares Registration Statement is effective under the Securities Act and provided
that the conditions set forth in the Transfer Agent Instructions have been
satisfied or in the event there is not an effective Registration Statement at
such time if such legend is not required under applicable requirements of the
Securities Act (including judicial interpretations and pronouncements issued by
the staff of the Commission). The Company shall cause its counsel to issue the
legal opinion included in the Transfer Agent Instructions to the Company's
transfer agent on the day that such Registration Statement is declared effective
by the Commission. The Company agrees that, in the event any Shares or
Underlying Shares are issued with a legend in accordance with this Section
3.1(b), it will, within three (3) Trading Days after request therefor by a
Purchaser and the surrender by such Purchaser of the certificate representing
the Shares or Underlying Shares, provide such Purchaser with a certificate or
certificates representing such Shares or Underlying Shares, free from such
legend at such time as such legend would not have been required under this
Section 3.1(b) had such issuance occurred on the date of such request and that
the conditions set forth in the Transfer Agent Instructions have been satisfied.
The Company may not make any notation on its records or give instructions to any
transfer agent of the Company which enlarge the restrictions of transfer set
forth in this Section.
3.2 Acknowledgment of Dilution. The Company acknowledges that the issuance
of Underlying Shares upon exercise of the Warrants pursuant to the terms
thereof, will result in dilution of the outstanding shares of Common Stock,
which dilution may be substantial under certain market conditions. The Company
further acknowledges that its obligation to issue Underlying Shares upon
exercise of the Warrants pursuant to the terms thereof, is, subject to the
limitations set forth in the Warrants, unconditional and absolute regardless of
the effect of any such dilution.
3.3 Furnishing of Information. As long as the Purchasers own Securities,
the Company covenants to timely file (or obtain extensions in respect thereof
and file within the applicable grace period) all reports required to be filed by
the Company after the date hereof pursuant to Section 13(a) or 15(d) of the
Exchange Act. So long as the Purchasers own Securities, if the Company is not
required to file reports pursuant to such laws, it will prepare and furnish to
the Purchasers and make
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publicly available in accordance with Rule 144(c) promulgated under the
Securities Act such information as is required for the Purchasers to sell the
Securities under Rule 144 promulgated under the Securities Act. The Company
further covenants that it will take such further action as any holder of
Securities may reasonably request, all to the extent required from time to time
to enable such Person to sell Underlying Shares without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144
promulgated under the Securities Act. Upon the request of any such Person, the
Company shall deliver to such Person a written certification of a duly
authorized officer as to whether it has complied with such requirements.
3.4 Integration. The Company shall not, and shall use its best efforts to
ensure that, no Affiliate shall, sell, offer for sale or solicit offers to buy
or otherwise negotiate in respect of any security (as defined in Section 2 of
the Securities Act) that would be integrated with the offer or sale of the
Securities in a manner that would require the registration under the Securities
Act of the sale of the Securities to the Purchasers or that would be integrated
with the offer or sale of the Securities for purposes of the rules and
regulations of the Nasdaq Stock Market.
3.5 Increase in Authorized Shares. If on any date the Company would be, if
a notice of exercise were to be delivered on such date, precluded from issuing
200% of the number of Underlying Shares as would then be issuable upon exercise
in full of the Warrants (the "Current Required Minimum") due to the
unavailability of a sufficient number of authorized but unissued or reserved
shares of Common Stock, then the Board of Directors of the Company shall
promptly (and in any case, within 45 Business Days from such date) prepare and
mail to the stockholders of the Company proxy materials requesting authorization
to amend the Company's articles of incorporation to increase the number of
shares of Common Stock which the Company is authorized to issue to at least such
number of shares as reasonably requested by the Purchasers in order to provide
for such number of authorized and unissued shares of Common Stock to enable the
Company to comply with its issuance, exercise and reservation of shares
obligations as set forth in this Agreement and the Warrants (the sum of (x) the
number of shares of Common Stock then outstanding plus all shares of Common
Stock issuable upon exercise of all outstanding options, warrants and
convertible instruments other than the Warrants, and (y) the Current Required
Minimum, shall be a reasonable number). In connection therewith, the Board of
Directors shall (a) adopt proper resolutions authorizing such increase, (b)
recommend to and otherwise use its best efforts to promptly and duly obtain
stockholder approval to carry out such resolutions (and hold a special meeting
of the stockholders no later than the earlier to occur of the 60th day after
delivery of the proxy materials relating to such meeting and the 105th day after
request by the holders of the Warrants to issue the number of Underlying Shares
in accordance with the terms hereof) and (c) within five (5) Business Days of
obtaining such stockholder authorization, file an appropriate amendment to the
Company's articles of incorporation to evidence such increase.
3.6 Reservation and Listing of Underlying Shares. (a) The Company shall
(i) in the time and manner required by the NASDAQ (subject to any waiver
received from NASDAQ) and such other national securities exchange or market or
trading or quotation facility on which the Common Stock is then listed for
trading but in any event no later than two (2) Trading Days following the
Closing Date, prepare and file with the NASDAQ (and such other national
securities exchange or market or trading or quotation facility on which the
Common Stock is then listed for trading) an
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additional shares listing application covering a number of shares of Common
Stock which is not less than the Initial Minimum, (ii) take all steps necessary
to cause such shares of Common Stock to be approved for listing in the NASDAQ or
on any other primary national securities exchange or market or trading or
quotation facility on which the Common Stock is then listed) as soon as possible
thereafter, and (iii) provide to the Purchasers evidence of such listing, and
the Company shall maintain the listing of its Common Stock thereon. If the
number of Underlying Shares issuable upon exercise of the then unexercised
portion of the Warrants exceeds 85% of the number of Underlying Shares
previously listed on account thereof with NASDAQ (and any such other required
exchanges), then the Company shall take the necessary actions to immediately
list a number of Underlying Shares as equals no less than the then Current
Required Minimum.
(b) The Company shall maintain a reserve of shares of Common Stock
for issuance upon exercise in full of the Warrants in accordance with the
Warrants, in such amount as may be required to fulfill its obligations in full
under the Warrants, which reserve shall equal no less than the then Current
Required Minimum.
3.7 Exercise Procedures. The Transfer Agent Instructions and Form of
Election to Purchase under the Warrants set forth the totality of the procedures
with respect to the exercise of the Warrants, including the form of legal
opinion, if necessary, that shall be rendered to the Company's transfer agent
and such other information and instructions as may be reasonably necessary to
enable the Purchasers to exercise the Warrants.
3.8 Notice of Breaches. Each of the Company and the Purchasers shall give
prompt written notice to the other of any breach by it of any representation,
warranty or other agreement contained in any Transaction Document, as well as
any events or occurrences arising after the date hereof which would reasonably
be likely to cause any representation or warranty or other agreement of such
party, as the case may be, contained therein to be incorrect or breached as of
the Closing Date. However, no disclosure by either party pursuant to this
Section shall be deemed to cure any breach of any representation, warranty or
other agreement contained in any Transaction Document.
3.9 Exercise Obligations of the Company. The Company shall honor exercises
of the Warrants and shall deliver Underlying Shares in accordance with the
respective terms, conditions and time periods set forth in the Warrants.
3.10 Right of First Refusal; Subsequent Registrations. (a) The Company
shall not, directly or indirectly (including through one or more Affiliates,
other than principal stockholders of the Company), without the prior written
consent of the Purchasers, issue or offer to issue shares of Common Stock or
rights, warrants, options or other securities or debt that are convertible into
or exchangeable for shares of Common Stock in a transaction intended to be
exempt or not subject to registration under the Securities Act ("Common Stock
Equivalents"), at a price per share less than the then market price of the
Common Stock at the time of the original issuance of such Common Stock or Common
Stock Equivalent (if the holder of the Common Stock or Common Stock Equivalent
so issued shall, at any time, whether by operation of purchase price
adjustments, reset provisions, floating conversion, exercise or exchange prices
or otherwise, or due to warrants, options or rights issued in connection with
such issuance, receive or be entitled to acquire shares of Common
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Stock at a price per share less than the market price of the Common Stock
measured at the date of the original issuance of such originally issued Common
Stock or Common Stock Equivalent, then such issuance shall be deemed to have
occurred for less than the then such market value and such issuance shall be
subject to the right of first refusal set forth in this Section) (any such
issuance, a "Subsequent Placement") for a period from the Closing Date to the
180th day following the first date that the Underlying Shares Registration
Statement is first declared effective by the Commission, except (i) the grant or
exercise of any stock or options which may hereafter be granted or exercised
under any employee benefit plan of the Company now existing or to be implemented
in the future, or upon grant or exercise of any stock or options to or by an
officer, director, employee, agent, consultant 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, (ii) shares of Common Stock issued upon exercise of any currently
outstanding warrants and upon conversion of any currently outstanding
convertible securities of the Company, in each case disclosed in Schedule 2.1(c)
but not with respect to any amendment or modification thereof, (iii) shares of
Common Stock issuable upon exercise of the Warrants in accordance with the terms
thereof, (iv) securities issued in connection with an underwritten public
offering of the Company, (v) securities issued 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 and that such
transaction is not primarily for the purpose of raising capital, and (vi) in
connection with the issuance of Common Stock, not in excess of 1% of the Common
Stock issued and outstanding on the Closing Date, upon the exercise of warrants
or other rights granted to any bank other commercial financing institution,
unless (A) the Company delivers to the Purchasers a written notice (the
"Subsequent Placement Notice") of its intention effect such Subsequent
Placement, which Subsequent Placement Notice shall describe in reasonable detail
the proposed terms of such Subsequent Placement, the amount of proceeds intended
to be raised thereunder, the Person with whom such Subsequent Placement shall be
effected (which, by its execution and delivery of this Agreement each Purchaser
hereby agrees to keep confidential), and attached to which shall be a term sheet
or similar document relating thereto and (B) the Purchasers shall not have
notified the Company by 5:30 p.m. (New York City time) on the tenth (10th)
Trading Day after its receipt of the Subsequent Placement Notice of its
willingness to cause the Purchasers to provide (or to cause their sole designee
to provide), subject to completion of mutually acceptable documentation (which
completion of documentation shall be expedited in good faith by the parties
thereto) , financing to the Company on the same terms set forth in the
Subsequent Placement Notice. If the Purchasers shall fail to notify the Company
of their intention to enter into such negotiations within such time period, the
Company may effect the Subsequent Placement substantially upon the terms and to
the Persons (or Affiliates of such Persons) set forth in the Subsequent
Placement Notice; provided, that the Company shall provide the Purchasers with a
second Subsequent Placement Notice, and the Purchasers shall again have the
right of first refusal set forth above in this paragraph (a), if the Subsequent
Placement subject to the initial Subsequent Placement Notice shall not have been
consummated for any reason on the terms set forth in such Subsequent Placement
Notice within thirty (30) Business Days after the date the Purchasers notify the
Company of their unwillingness to provide such financing. If the Purchasers
shall indicate a willingness to provide financing in excess of the amount set
forth in the Subsequent Placement Notice, then each Purchaser shall be entitled
to provide financing pursuant to such Subsequent Placement Notice up to an
amount equal to such Purchaser's pro rata portion of the aggregate
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amount of Securities purchased by the Purchasers under this Agreement, but the
Company shall not be required to accept financing from the Purchasers in an
amount in excess of the amount set forth in the Subsequent Placement Notice.
Notwithstanding anything herein to the contrary, the rights under this Section
3.10(a) shall cease to be available with respect to any Purchaser on the date,
if any, on which such Purchaser ceases to own a minimum of 20% of the sum of (i)
the Shares purchased by it, (ii) the shares of Common Stock then issuable upon
exercise of the Closing Warrant issued to it and (iii) the shares of Common
Stock which have then vested pursuant to the Adjustment Warrant issued to it.
(b) Except for (w) Shares, (x) Underlying Shares, (y) other
"Registrable Securities" (as such term is defined in the Registration Rights
Agreement) to be registered, and securities of the Company set forth in to
Schedule 6(b) of the Registration's Rights Agreement to be registered, in the
Underlying Shares Registration Statement in accordance with the Registration
Rights Agreement, and (z) Common Stock permitted to be issued pursuant to
paragraph (a)(i) - (vi) of Section 3.10(a), the Company shall not, for a period
of not less than 90 Trading Days after the date that the Underlying Shares
Registration Statement is declared effective by the Commission, without the
prior written consent of the Purchasers (i) issue or sell any of its or any of
its Affiliates' equity or equity-equivalent securities pursuant to Regulation S
promulgated under the Securities Act, or (ii) except in the case of a bona fide
underwritten public offering of the Company's securities, file a registration
statement for the issuance or resale of any securities of the Company, provided,
that any adjustment relating to the Warrants shall apply in the case of a bona
fide underwritten public offering of the Company's securities. Any Trading Days
that a Purchaser is unable to sell Underlying Shares under the Underlying Shares
Registration Statement shall be added to such 90 Trading Day period for the
purposes of (i) and (ii) above.
3.11 Certain Securities Laws Disclosures; Publicity. The Company shall:
(i) file with the Commission a Current Report on Form 8-K disclosing the
transactions contemplated hereby within ten (10) Business Days after the Closing
Date, and (ii) timely file with the Commission a Form D promulgated under the
Securities Act as required under Regulation D promulgated under the Securities
Act and provide a copy thereof to the Purchasers promptly after the filing
thereof. The Company shall, no less than two (2) Business Days prior to the
filing of any disclosure required by clauses (i) and (ii) above, provide a copy
thereof to the Purchasers. No such filing or disclosure may be made that
mentions the Purchasers by name without the prior consent of the Purchasers.
Such filings shall be subject to Section 4.11 hereof.
3.12 Transfer of Intellectual Property Rights. Except as set forth in
Schedule 3.12 and in connection with the sale of all or substantially all of the
assets of the Company, the Company shall not transfer, sell or otherwise dispose
of any Intellectual Property Rights, or allow any of the Intellectual Property
Rights to become subject to any Liens, or fail to renew such Intellectual
Property Rights (if renewable and it would otherwise lapse if not renewed),
without the prior written consent of the Purchasers.
3.13 Use of Proceeds. The Company shall use the net proceeds from the sale
of Securities hereunder for working capital purposes and not for the
satisfaction of any portion of the Company's debt, to redeem any Company equity
or equity-equivalent securities or to settle any outstanding
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litigation, except as set forth in Schedule 3.13. Pending application of the
proceeds of this placement in the manner permitted hereby, the Company will
invest such proceeds in interest bearing accounts and/or short-term, investment
grade interest bearing securities.
3.14 Limitations on Short Sales. Each Purchaser agrees that it will not
enter into any Short Sales (as hereinafter defined) from the period commencing
on the Closing Date and ending on the Third Vesting Date (as defined in the
Adjustable Warrants). For purposes of this Section 3.14, a "Short Sale" by a
Purchaser shall mean a sale of Common Stock by such Purchaser that is marked as
a short sale and that is made at a time when there is no equivalent offsetting
long position in Common Stock held by the Purchaser. For purposes of determining
whether there is an equivalent offsetting long position in Common Stock held by
a Purchaser, Warrant Shares that have not yet been issued on exercise of the
Warrants or vested pursuant to such Warrants shall be deemed to be held long by
such Purchaser and the number of Warrant Shares then held by such Purchaser on
any particular date of computation shall be equal to the sum of (i) the number
of Warrant Shares then issuable upon exercise of the Closing Warrant held by
such Purchaser and (ii) the number of Warrant Shares issuable pursuant to the
Adjustable Warrant held by such Purchaser on the next Vesting Date (as defined
in the Adjustable Warrants) calculated as if such Vesting Date occurred on the
date of computation (whether or not then a Vesting Date) (e.g. using the lowest
ten (10) Per Share Market Values during the forty (40) Trading Days immediately
preceding such computation date), provided, that on and after the Third Vesting
Date, such number shall equal the number of Warrant Shares that have vested on
such Third Vesting Date. Each Purchaser agrees that it will not, directly or
indirectly, individually or through any Affiliate, engage in any transaction
which would be in violation of Regulation M promulgated under the Exchange Act
with respect to transactions in the Underlying Shares.
3.15 Reimbursement. If any Purchaser, other than by reason of its gross
negligence or willful misconduct, becomes involved in any capacity in any
action, proceeding or investigation brought by or against any Person, including
stockholders of the Company, in connection with or as a result of the
consummation of the transactions contemplated by Transaction Documents, the
Company will reimburse such Purchaser for its reasonable legal and other
expenses (including the cost of any investigation and preparation) incurred in
connection therewith, as such expenses are incurred. In addition, other than
with respect to any matter in which a Purchaser is a named party, the Company
will pay such Purchaser the charges, as reasonably determined by such Purchaser,
for the time of any officers or employees of such Purchaser devoted to appearing
and preparing to appear as witnesses, assisting in preparation for hearings,
trials or pretrial matters, or otherwise with respect to inquiries, hearings,
trials, and other proceedings relating to the subject matter of this Agreement.
The reimbursement obligations of the Company under this paragraph shall be in
addition to any liability which the Company may otherwise have, shall extend
upon the same terms and conditions to any Affiliates of the Purchasers who are
actually named in such action, proceeding or investigation, and partners,
directors, agents, employees and controlling persons (if any), as the case may
be, of the Purchasers and any such Affiliate, and shall be binding upon and
inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company, the Purchasers and any such Affiliate and any
such Person. The Company also agrees that neither the Purchasers nor any such
Affiliates, partners, directors, agents, employees or controlling persons shall
have any liability to the Company or any Person asserting claims on behalf of or
in right of the Company in connection with
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or as a result of the consummation of the Transaction Documents except to the
extent that any losses, claims, damages, liabilities or expenses incurred by the
Company result from the gross negligence or willful misconduct of the applicable
Purchaser or entity in connection with the transactions contemplated by this
Agreement.
3.16 First Additional Securities. The Company and each Purchaser agree
that, as of the Closing Date, the Company and each of the Purchasers shall have
discharged their respective obligations with respect to the acquisition or sale
(as the case may be) of the entire First Additional Securities.
ARTICLE IV
MISCELLANEOUS
4.1 Fees and Expenses. At the Closing the Company shall reimburse
the Purchasers for their legal fees and expenses incurred in connection with the
preparation and negotiation of the Transaction Documents by paying to Robinson
Silverman $20,000 for the preparation and negotiation of the Transaction
Documents. Other than the amounts contemplated in the immediately preceding
sentence, and except as otherwise set forth in the Registration Rights
Agreement, each party shall pay the fees and expenses of its advisers, counsel,
accountants and other experts, if any, and all other expenses incurred by such
party incident to the negotiation, preparation, execution, delivery and
performance of this Agreement. The Company shall pay all stamp and other taxes
and duties levied in connection with the issuance of the Securities.
4.2 Entire Agreement; Amendments. The Transaction Documents,
together with the Exhibits and Schedules thereto, and the Transfer Agent
Instructions contain the entire understanding of the parties with respect to the
subject matter hereof and supersede all prior agreements and understandings,
oral or written, with respect to such matters, which the parties acknowledge
have been merged into such documents, exhibits and schedules.
4.3 Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 8:00 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Agreement later than 8:00 p.m. (New
York City time) on any date and earlier than 11:59 p.m. (New York City time) on
such date, (iii) the Business Day following the date of mailing, if sent by
nationally recognized overnight courier service, or (iv) upon actual receipt by
the party to whom such notice is required to be given. The address for such
notices and communications shall be as follows:
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If to the Company: Fidelity Holdings, Inc.
80-02 Kew Gardens Road, Suite 5000
Kew Gardens, New York 11415
Facsimile No.: (718) 793-2455
Attn: Doron Cohen, President
With copies to: Littman Krooks Roth & Ball P.C.
655 Third Avenue
New York, New York 10017-5617
Attn: Mitchell C. Littman, Esq. and
James J. Quinlan, Esq.
Facsimile No.: (212) 490-2990
If to a Purchaser: To the address set forth under such Purchaser's name
on the signature pages hereto.
4.4 Amendments; Waivers. No provision of this Agreement may be
waived or amended except in a written instrument signed, in the case of an
amendment, by both the Company and the Purchasers or, in the case of a waiver,
by the party against whom enforcement of any such waiver is sought. No waiver of
any default with respect to any provision, condition or requirement of this
Agreement shall be deemed to be a continuing waiver in the future or a waiver of
any other provision, condition or requirement hereof, nor shall any delay or
omission of either party to exercise any right hereunder in any manner impair
the exercise of any such right accruing to it thereafter.
4.5 Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit or affect
any of the provisions hereof.
4.6 Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their successors and permitted assigns.
The Company may not assign this Agreement or any rights or obligations hereunder
without the prior written consent of the Purchasers. Except as set forth in
Section 3.1(a), the Purchasers may not assign this Agreement or any of the
rights or obligations hereunder without the consent of the Company.
4.7 No Third-Party Beneficiaries. This Agreement is intended for the
benefit of the parties hereto and their respective successors and permitted
assigns and is not for the benefit of, nor may any provision hereof be enforced
by, any other Person.
4.8 Governing Law. The corporate laws of the State of Nevada shall
govern all issues concerning the relative rights of the Company and its
stockholders. All other questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law thereof. Each party
hereby irrevocably submits to the exclusive jurisdiction of the state and
federal courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein (including with respect to
the
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enforcement of the any of the Transaction Documents), and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this Agreement and agrees that such
service shall constitute good and sufficient service of process and notice
thereof. Nothing contained herein shall be deemed to limit in any way any right
to serve process in any manner permitted by law.
4.9 Survival. The representations, warranties, agreements and
covenants contained herein shall survive the Closing and the delivery and
exercise of the Warrants.
4.10 Execution. This Agreement may be executed in two or more
counterparts, all of which when taken together 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, it being understood that both
parties need not sign the same counterpart. In the event that any signature is
delivered by facsimile transmission, such signature shall create a valid and
binding obligation of the party executing (or on whose behalf such signature is
executed) the same with the same force and effect as if such facsimile signature
page were an original thereof.
4.11 Publicity. The Company and the Purchasers shall consult with
each other in issuing any press releases or otherwise making public statements
or filings and other communications with the Commission or any regulatory agency
or stock market or trading facility with respect to the transactions
contemplated hereby and neither party shall issue any such press release or
otherwise make any such public statement, filings or other communications
without the prior written consent of the other, which consent shall not be
unreasonably withheld or delayed, except that no prior consent shall be required
if such disclosure is required by law, in which such case the disclosing party
shall provide the other party with prior notice of such public statement, filing
or other communication. Notwithstanding the foregoing, the Company shall not
publicly disclose the name of a Purchaser, or include the name of a Purchaser in
any filing with the Commission, or any regulatory agency, trading facility or
stock market without the prior written consent of such Purchaser, except to the
extent such disclosure (but not any disclosure as to the controlling Persons
thereof) is required by law, in which case the Company shall provide such
Purchaser with prior notice of such disclosure.
4.12 Severability. In case any one or more of the provisions of this
Agreement shall be invalid or unenforceable in any respect, the validity and
enforceability of the remaining terms and provisions of this Agreement shall not
in any way be affecting or impaired thereby and the parties will attempt to
agree upon a valid and enforceable provision which shall be a reasonable
substitute therefor, and upon so agreeing, shall incorporate such substitute
provision in this Agreement.
4.13 Remedies. In addition to being entitled to exercise all rights
provided herein or granted by law, including recovery of damages, the Purchasers
will be entitled to specific performance of the obligations of the Company under
the Transaction Documents. Each of the Company and the Purchasers agree that
monetary damages may not be adequate compensation for any loss incurred by
reason of any breach of its obligations described in the foregoing sentence and
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<PAGE>
hereby agrees to waive in any action for specific performance of any such
obligation the defense that a remedy at law would be adequate.
4.14 Independent Nature of Purchasers' Obligations and Rights. The
obligations of each Purchaser hereunder is several and not joint with the
obligations of any other Purchaser hereunder, and neither Purchaser shall be
responsible in any way for the performance of the obligations of any other
Purchaser hereunder. Nothing contained herein or in any other agreement or
document delivered at any closing, and no action taken by any Purchaser pursuant
hereto or thereto, shall be deemed to constitute the Purchasers as a
partnership, an association, a joint venture or any other kind of entity, or
create a presumption that the Purchasers are in any way acting in concert with
respect to such obligations or the transactions contemplated by this Agreement.
Each Purchaser shall be entitled to protect and enforce its rights, including
without limitation the rights arising out of this Agreement or out of the
Transaction Documents, and it shall not be necessary for any other Purchaser to
be joined as an additional party in any proceeding for such purpose.
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SIGNATURE PAGE FOLLOWS]
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IN WITNESS WHEREOF, the parties hereto have caused this Securities
Purchase Agreement to be duly executed by their respective authorized
signatories as of the date first indicated above.
FIDELITY HOLDINGS, INC.
By: /s/ Doron Cohen
---------------
Name: Doron Cohen
Title: President and CEO
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SIGNATURE PAGES FOR INVESTORS FOLLOW]
<PAGE>
STRONG RIVER INVESTMENTS, INC.
By: /s/ Kenneth L. Henderson
------------------------
Name: Kenneth L. Henderson
Title: Attorney-in-fact
Purchase Price for Shares
to be acquired at Closing: $1,333,333
Shares to be acquired
at Closing: 88,889
Warrant Shares to be acquired
at Closing: 88,889
Address for Notice:
Strong River Investments, Inc.
c/o Gonzalez-Ruiz & Aleman (BVI) Limited
Wickhams Cay I, Vanterpool Plaza
P.O. Box 873
Road Town, Tortolla. BVI
With copies to:
Robinson Silverman Pearce Aronsohn & Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Kenneth L. Henderson, Esq. and
Eric L. Cohen. Esq.
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SIGNATURE PAGES FOR INVESTORS FOLLOW]
<PAGE>
MONTROSE INVESTMENTS LTD.
By: /s/ Kevin O'Neal
----------------
Name: Kevin O'Neal
Title: Authorized Signatory
Purchase Price for Shares
to be acquired at Closing: $1,333,333
Shares to be acquired
at Closing: 88,889
Warrant Shares to be acquired
at Closing: 88,889
Address for Notice:
Montrose Investments Ltd.
300 Crescent Court, Suite 700
Dallas, TX 75201
Facsimile: (214) 758-1221
Attn: Will Rose and Kim Rozman
With copies to:
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Kenneth L. Henderson, Esq. and
Eric L. Cohen. Esq.
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<PAGE>
AUGUSTA STREET LLC
By: Navigator Management Ltd.
Director
By: /s/ David Sims
--------------
Name: David Sims
Title: President
Purchase Price for Shares
to be acquired at Closing: $1,333,334
Shares to be acquired
at Closing: 88,889
Warrant Shares to be acquired
at Closing: 88,889
Address for Notice:
Augusta Street LLC
c/o Citco Trustees (Cayman) Limited
Commercial Centre
P.O. Box 31106 SMB
Grand Cayman
Cayman Islands
British West Indies
Facsimile No.: (345) 945-7566
<PAGE>
With copies to:
Krieger & Prager, Esqs.
39 Broadway
New York, NY 10006
Facsimile No.: (212) 363-2999
Attn: Samuel L. Krieger, Esq
-and-
Southridge Capital Management LLC
Executive Pavillon
90 Grove Street
Ridgefield, CT 06877
Facsimile No.: (203) 431-8301
Attn: Henry Sargent, Esq.
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (this "Agreement") is made and
entered into as of February 8, 2000 among Fidelity Holdings, Inc., a Nevada
corporation (the "Company"), and the investors signatory hereto (each such
investor is a "Purchaser" and all such investors are, collectively, the
"Purchasers").
This Agreement is made pursuant to the Securities Purchase
Agreement, dated as of the date hereof, among the Company and the Purchasers
(the "Purchase Agreement").
The Company and the Purchasers hereby agree as follows:
1. Definitions
Capitalized terms used and not otherwise defined herein that are
defined in the Purchase Agreement shall have the meanings given such terms in
the Purchase Agreement. As used in this Agreement, the following terms shall
have the following meanings:
"Adjustable Warrants" shall have the meaning set forth in the
Purchase Agreement.
"Advice" shall have meaning set forth in Section 6(e).
"Affiliate" means, with respect to any Person, any other Person that
directly or indirectly controls or is controlled by or under common control with
such Person. For the purposes of this definition, "control," when used with
respect to any Person, means the possession, direct or indirect, of the power to
direct or cause the direction of the management and policies of such Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms of "affiliated," "controlling" and "controlled" have meanings
correlative to the foregoing.
"Business Day" means any day except Saturday, Sunday and any day
which shall be a federal legal holiday or a day on which banking institutions in
the state of New York generally are authorized or required by law or other
governmental action to close.
"Closing Date" shall have the meaning set forth in the Purchase
Agreement.
"Closing Warrants" shall have the meaning set forth in the Purchase
Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Company's common stock, $.01 par value per
share.
<PAGE>
"Effectiveness Date" means the 90th day following the Closing Date,
except that with respect to any Registration Statement to be filed pursuant to
Section 2(f) hereof, means the ninetieth (90) day following a Vesting Date,
provided, that if (i) the Commission fails to respond with either comments
(whether or not such comments request the filing of additional material), a
request for additional information, a notice of no-review, or a notice of no
further review (whether, in any case, orally or in writing) to the filing by the
Company with the Commission of a Registration Statement or an amendment thereto
within 20 days of the date that such Registration Statement or amendment thereto
was filed (the "Response Period"), and (ii) the Company shall have during such
entire period used its best efforts to obtain such comments, requests or
notifications, then, for each day after the Response Period during which such
failure by the Commission continues and during which the Company shall have
continued to have used its best efforts to obtain such comments, requests or
notifications, one day will be added to the definition of "Effectiveness Date"
for all purposes of this Agreement, provided, however, that for purposes of
measuring the period of initial response to the Company's filing of the initial
Registration Statement pursuant to the terms hereof, the Response Period shall
be 30 days.
"Effectiveness Period" shall have the meaning set forth in Section
2(a).
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"Filing Date" means the 40th day following the Closing Date, except
that with respect to any Registration Statement to be filed pursuant to Section
2(f) hereof, means the fifteenth (15) day following a Vesting Date.
"Holder" or "Holders" means the holder or holders, as the case may
be, from time to time of Registrable Securities.
"Indemnified Party" shall have the meaning set forth in Section
5(c).
"Indemnifying Party" shall have the meaning set forth in Section
5(c).
"Losses" shall have the meaning set forth in Section 5(a).
"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, limited liability
company, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind.
"Proceeding" means an action, claim, suit, investigation or
proceeding (including, without limitation, an investigation or partial
proceeding, such as a deposition), whether commenced or threatened.
"Prospectus" means the prospectus included a Registration Statement
(including, without limitation, a prospectus that includes any information
previously omitted from a prospectus filed as part of an effective registration
statement in reliance upon Rule 430A promulgated under the Securities Act), as
amended or supplemented by any prospectus supplement, with respect to the terms
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<PAGE>
of the offering of any portion of the Registrable Securities covered by such
Registration Statement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
"Registration Delay Payments" shall have the meaning set forth in
Section 2(e).
"Registrable Securities" means (i) the Shares and (ii) the shares of
Common Stock issuable upon exercise of the Warrants.
"Registration Statements" means the registration statements and any
additional registration statements contemplated by Sections 2(a) and 2(f),
including (in each case) the Prospectus, amendments and supplements to such
registration statements or Prospectus, including pre- and post-effective
amendments, all exhibits thereto, and all material incorporated by reference or
deemed to be incorporated by reference in such registration statements.
"Rule 144" means Rule 144 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any rule
or regulation hereafter adopted by the Commission to replace such Rule.
"Rule 158" means Rule 158 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any rule
or regulation hereafter adopted by the Commission to replace such Rule.
"Rule 415" means Rule 415 promulgated by the Commission pursuant to
the Securities Act, as such Rule may be amended from time to time, or any rule
or regulation hereafter adopted by the Commission to replace such Rule.
"Securities Act" means the Securities Act of 1933, as amended.
"Shares" means the shares of Common Stock issued to the Purchasers
on the Closing Date pursuant to the Purchase Agreement.
"Special Counsel" means one special counsel to the Holders for which
the Holders will be reimbursed by the Company pursuant to Section 4.
"Transaction Documents" shall have the meaning set forth in the
Purchase Agreement.
"Underwritten Registration or Underwritten Offering" means a
registration in connection with which securities of the Company are sold to an
underwriter for reoffering to the public pursuant to an effective registration
statement.
"Vesting Date" shall have the meaning set forth in the Adjustable
Warrants.
"Warrants" means the Closing Warrants and the Adjustable Warrants.
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<PAGE>
2. Shelf Registration
(a) On or prior to the Filing Date, the Company shall prepare and
file with the Commission a "Shelf" Registration Statement covering all
Registrable Securities for an offering to be made on a continuous basis pursuant
to Rule 415. The Registration Statement shall be on Form S-3 (except if the
Company is not then eligible to register for resale the Registrable Securities
on Form S-3, in which case such registration shall be on another appropriate
form in accordance herewith as the Holders may consent). The Company shall use
its best efforts to cause the Registration Statement to be declared effective
under the Securities Act as promptly as possible after the filing thereof, but
in any event prior to the Effectiveness Date, and shall use its best efforts to
keep such Registration Statement continuously effective under the Securities Act
until the date which is two (2) years after the date that such Registration
Statement is declared effective by the Commission or such earlier date when all
Registrable Securities covered by such Registration Statement have been sold or
may be sold without volume restrictions pursuant to Rule 144(k) as determined by
the counsel to the Company pursuant to a written opinion letter to such effect,
addressed and acceptable to the Company's transfer agent (the "Effectiveness
Period"), provided, however, that the Company shall not be deemed to have used
its best efforts to keep the Registration Statement effective during the
Effectiveness Period if it voluntarily takes any action that would result in the
Holder not being able to sell the Registrable Securities covered by such
Registration Statement during the Effectiveness Period, unless such action is
required under applicable law or the Company has filed a post-effective
amendment to the Registration Statement and the Commission has not declared it
effective.
(b) In order to account for the fact that the number of shares of
Common Stock that are issuable upon exercise of the Adjustable Warrants is
determined in part upon the Per Share Market Value (as defined in the Adjustable
Warrants) on a Vesting Date (as defined in the Adjustable Warrant), the initial
Registration Statement to be filed hereunder shall include (but not be limited
to) a number of shares of Common Stock equal to no less than the sum of (i) the
number of shares issuable upon exercise of the Adjustable Warrants, assuming,
for the purposes of this subsection (i), that the Adjustment Price (as defined
in the Adjustable Warrants) on each Vesting Date is 50% of the Per Share Market
Value for the Trading Day (as defined in the Adjustable Warrants) immediately
preceding the Closing Date, (ii) the number of shares issuable upon exercise in
full of the Closing Warrant and (iii) the Shares (the sum of (i), (ii) and
(iii), the "Initial Minimum").
(c) If the Holders of a majority of the Registrable Securities then
outstanding so elect, an offering of Registrable Securities pursuant to a
Registration Statement may be effected in the form of an Underwritten Offering.
In such event, and, if the managing underwriters advise the Company and such
Holders in writing that in their opinion the amount of Registrable Securities
proposed to be sold in such Underwritten Offering exceeds the amount of
Registrable Securities which can be sold in such Underwritten Offering, there
shall be included in such Underwritten Offering the amount of such Registrable
Securities which in the opinion of such managing underwriters can be sold, and
such amount shall be allocated pro rata among the Holders proposing to sell
Registrable Securities in such Underwritten Offering.
(d) If any of the Registrable Securities are to be sold in an
Underwritten Offering, the investment banker in interest that will administer
the offering will be selected by the Company
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<PAGE>
upon consultation with the Holders of a majority of the Registrable Securities.
No Holder may participate in any Underwritten Offering hereunder unless such
Holder (i) agrees to sell its Registrable Securities on the basis provided in
any underwriting agreements approved by the Persons entitled hereunder to
approve such arrangements and (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such arrangements.
(e) If (i) the initial Registration Statement covering the
Registrable Securities to be covered thereby as set forth herein is not filed on
or before the Filing Date (if the Company files such Registration Statement
without affording the Holder the opportunity to review and comment on the same
as required by Section 3(a) hereof, the Company shall not be deemed to have
satisfied this clause (i)), or (ii) the Company fails to file with the
Commission a request for acceleration in accordance with Rule 12d1-2 promulgated
under the Exchange Act within five (5) Business Days of the date that the
Company is notified (orally or in writing, whichever is earlier) by the
Commission that a Registration Statement will not be "reviewed" or is not
subject to further review, or (iii) the initial Registration Statement filed
hereunder is not declared effective by the Commission on or before the thirtieth
(30) day following the Effectiveness Date, or (iv) after a Registration
Statement has been declared effective by the Commission, such Registration
Statement is either not effective as to all Registrable Securities required to
be covered thereby throughout the Effectiveness Period for a period of more than
three (3) aggregate days or the Holders are not permitted for any reason to make
sales thereunder during such period, (v) an amendment to the Registration
Statement is not filed by the Company with the Commission within ten (10) days
of the Commission's notifying the Company that such amendment is required in
order for a Registration Statement to be declared effective, (vi) the Company
shall become ineligible to register securities for resale with the Commission
under Form S-3, or (vii) trading in the Common Stock shall be suspended from the
NASDAQ (as defined herein) or a Subsequent Market (as defined herein) for more
than three (3) Business Days (which need not be consecutive days) (any such
failure or breach being referred to as an "Event," and for purposes of clauses
(i), (iii) and (vi) the date on which such Event occurs, or for purposes of
clause (ii) the date on which such five (5) Business Day period is exceeded, or
for purposes of clause (v) the date on which such ten (10) day period is
exceeded, or for purposes of clause (iv) the date on which such three (3) day
period is exceeded, or for purposes of clause (vii) the date on which such three
(3) Business Day period is exceeded being referred to as "Event Date"), then, in
any such case, as partial relief for the damages suffered therefrom by the
Holder (which remedy shall not be exclusive of any other remedies available at
law or in equity), the Company shall on the Event Date and on each monthly
anniversary thereof until the triggering Event is cured, pay to the Holder an
amount in cash, as liquidated damages for the estimated cost to the Holders of
not having liquid securities in the time contemplated by the Transaction
Documents and not as a penalty, equal to 1% (the "Percentage") of the purchase
price paid by such Holder pursuant to the Purchase Agreement and the pro-rata
portion for partial months until the applicable Event is cured, provided, that
(i) after the Event Date, the Percentage shall equal 3% and (ii) in the case of
an Event under clause 2(e)(iii), on and after the ninetieth (90th) day following
the Effectiveness Date, the Percentage shall equal 5%. The payments to which the
Holders shall be entitled pursuant to this Section are referred to herein as
"Registration Delay Payments." Registration Delay Payments shall be calculated
on a cumulative basis and paid within five (5) Business Days of the Event Date
and each monthly anniversary thereof. If the Company fails to make Registration
Delay Payments in a timely manner, such Registration Delay
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Payments shall bear interest at the rate of 2.0% per month (or the maximum rate
permitted by law), pro-rated for partial months, until paid in full.
Notwithstanding anything to the contrary, the Company shall not be required to
make any Registration Delay Payments if an Event described above arises solely
as a result of (i) comments by the Commission relating to or directed at any of
the Holders in connection with a Registration Statement and no other comments
relating to the Registration Statement remain outstanding or (ii) the fact that
the Commission refuses to accept or review a Registration Statement because
shares of Common Stock issuable upon exercise of the Adjustment Warrants are
being included in such Registration Statement unless the Company refuses to
permit all other Registrable Securities to immediately go effective in such
initial Registration Statement.
(f) Notwithstanding anything to the contrary, if the Commission
refuses to accept or review a Registration Statement because shares of Common
Stock issuable upon exercise of the Adjustment Warrants are being included in
such Registration Statement, then, with respect to each Vesting Date, the
Company shall, within fifteen (15) days of a Vesting Date, file an additional
Registration Statement covering the Registrable Securities then issuable upon
exercise of the Adjustable Warrants and use its best efforts to cause such
Registration Statement to be declared effective under the Securities Act as
promptly as possible after the filing thereof, but in any event prior to the
ninetieth (90th) day following the applicable Vesting Date.
3. Registration Procedures
In connection with the Company's registration obligations hereunder,
the Company shall:
(a) Prepare and file with the Commission on or prior to the Filing
Date, a Registration Statement on Form S-3 (or if the Company is not then
eligible to register for resale the Registrable Securities on Form S-3 such
registration shall be on another appropriate form in accordance herewith, or, in
connection with an Underwritten Offering hereunder, such other form agreed to by
the Company and the Holders) which shall contain the "Plan of Distribution"
attached hereto as Annex A (except if otherwise directed by the Holders), and
cause the Registration Statement to become effective and remain effective as
provided herein; provided, however, that not less than five (5) Business Days
prior to the filing of a Registration Statement or any related Prospectus or any
amendment or supplement thereto, the Company shall, (i) furnish to the Holders,
their Special Counsel and any managing underwriters, copies of all such
documents proposed to be filed, which documents will be subject to the review of
such Holders, their Special Counsel and such managing underwriters, and (ii)
cause its officers and directors, counsel and independent certified public
accountants to respond to such inquiries as shall be necessary, in the
reasonable opinion of respective counsel to such Holders and such underwriters,
to conduct a reasonable investigation within the meaning of the Securities Act.
The Company shall not file the Registration Statement or any such Prospectus or
any amendments or supplements thereto to which the Holders of a majority of the
Registrable Securities, their Special Counsel, or any managing underwriters,
shall reasonably object on a timely basis.
(b) (i) Prepare and file with the Commission such amendments,
including post-effective amendments, to the Registration Statement and the
Prospectus used in connection
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<PAGE>
therewith as may be necessary to keep the Registration Statement continuously
effective as to the applicable Registrable Securities for the Effectiveness
Period and prepare and file with the Commission such additional Registration
Statements in order to register for resale under the Securities Act all of the
Registrable Securities; (ii) cause the related Prospectus to be amended or
supplemented by any required Prospectus supplement, and as so supplemented or
amended to be filed pursuant to Rule 424 (or any similar provisions then in
force) promulgated under the Securities Act; (iii) use its best effort to
respond as quickly as possible, and, in case the obtainment of information
requested by the Commission which is within the control of the Company, no later
than ten (10) Business Days of receipt thereof, to all comments received from
the Commission with respect to the Registration Statement or any amendment
thereto and as promptly as possible provide the Holders true and complete copies
of all correspondence from and to the Commission relating to the Registration
Statement; and (iv) comply in all material respects with the provisions of the
Securi ties Act and the Exchange Act with respect to the disposition of all
Registrable Securities covered by the Registration Statement during the
applicable period in accordance with the intended methods of disposition by the
Holders thereof set forth in the Registration Statement as so amended or in such
Prospectus as so supplemented.
(c) (i) File additional Registration Statements if the number of
Registrable Securities at any time exceeds 85% of the number of shares of Common
Stock then registered in a Registration Statement. The Company shall have 30
days to file such additional Registration Statements after its receipt of notice
of the requirement thereof which the Holders may give at any time when the
Registrable Securities exceeds 85% of the number of shares of Common Stock then
registered in a Registration Statement hereunder. In such event, the
Registration Statement required to be filed by the Company shall include a
number of shares of Common Stock equal to no less than the Initial Minimum and
any other Registrable Securities not then registered in a Registration
Statement.
(ii) File such supplements or attach "stickers" to the
Registration Statement or Prospectus as and when required by the Commission to
evidence a material amount of resales by a Holder pursuant to a Prospectus. In
connection therewith, if such supplements or "stickers" are periodically
required by the Commission, the Company shall, within four (4) Business Days,
file such supplements or attach such "stickers" whenever a Holder has sold 50%
of the Registrable Securities covered by the then outstanding Prospectus (as
last supplemented or "stickered") in order to cover 100% of the number of the
outstanding Registrable Securities.
(d) Notify the Holders of Registrable Securities to be sold, their
Special Counsel and any managing underwriters as promptly as reasonably possible
(and, in the case of (i)(A) below, not less than three (3) Business Days (or, in
the case of a supplement or "sticker" required to be filed or attached pursuant
to Section 3(c)(ii), within one (1) Business Day) prior to such filing) and (if
requested by any such Person) confirm such notice in writing no later than one
(1) Business Day following the day (i)(A) when a Prospectus or any Prospectus
supplement or post-effective amendment to the Registration Statement is proposed
to be filed; (B) when the Commission notifies the Company whether there will be
a "review" of such Registration Statement and whenever the Commission comments
in writing on such Registration Statement (the Company shall provide true and
complete copies thereof and all written responses thereto to each of the
Holders, which the
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Holders shall keep confidential); and (C) with respect to the Registration
Statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the Commission or any other Federal or state governmental
authority for amendments or supplements to the Registration Statement or
Prospectus or for additional information; (iii) of the issuance by the
Commission of any stop order suspending the effectiveness of the Registration
Statement covering any or all of the Registrable Securities or the initiation of
any Proceedings for that purpose; (iv) if at any time any of the representations
and warranties of the Company contained in any agreement (including any
underwriting agreement) contemplated hereby ceases to be true and correct in all
material respects; (v) of the receipt by the Company of any notification with
respect to the suspen sion of the qualification or exemption from qualification
of any of the Registrable Securities for sale in any jurisdiction, or the
initiation or threatening of any Proceeding for such purpose; and (vi) of the
occurrence of any event or passage of time that makes the financial statements
included in the Registration Statement ineligible for inclusion therein or any
statement made in the Registration Statement or Prospectus or any document
incorporated or deemed to be incorporated therein by reference untrue in any
material respect or that requires any revisions to the Registration Statement,
Prospectus or other documents so that, in the case of the Registration Statement
or the Prospectus, as the case may be, it will not contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading.
(e) Use its best efforts to avoid the issuance of, or, if issued,
obtain the withdrawal of (i) any order suspending the effectiveness of the
Registration Statement, or (ii) any suspension of the qualification (or
exemption from qualification) of any of the Registrable Securities for sale in
any jurisdiction, at the earliest practicable moment.
(f) If requested by any managing underwriter or the Holders of a
majority in interest of the Registrable Securities to be sold in connection with
an Underwritten Offering, (i) promptly incorporate in a Prospectus supplement or
post-effective amendment to the Registration Statement such information as such
managing underwriters and such Holders reasonably request should be included
therein, and (ii) make all required filings of such Prospectus supplement or
such post-effective amendment as soon as practicable after the Company has
received notification of the matters to be incorporated in such Prospectus
supplement or post-effective amendment; provided, however, that the Company
shall not be required to take any action pursuant to this Section 3(f) that
would, in the opinion of counsel for the Company or the Board of Directors of
the Company, violate applicable law or be materially detrimental to the business
prospects of the Company.
(g) Furnish to each Holder, their Special Counsel and any managing
underwriters, without charge, at least one conformed copy of each Registration
Statement and each amendment thereto, including financial statements and
schedules, all documents incorporated or deemed to be incorporated therein by
reference, and all exhibits to the extent requested by such Person (including
those previously furnished or incorporated by reference) promptly after the
filing of such documents with the Commission.
(h) Promptly deliver to each Holder, their Special Counsel, and any
underwriters, without charge, as many copies of the Prospectus or Prospectuses
(including each form of
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<PAGE>
prospectus) and each amendment or supplement thereto as such Persons may
reasonably request; and the Company hereby consents to the use of such
Prospectus and each amendment or supplement thereto by each of the selling
Holders and any underwriters in connection with the offering and sale of the
Registrable Securities covered by such Prospectus and any amendment or
supplement thereto.
(i) Prior to any public offering of Registrable Securities, use its
commercially reasonable efforts to register or qualify or cooperate with the
selling Holders, any underwriters and their Special Counsel in connection with
the registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or Blue Sky laws of such jurisdictions within the United States as
any Holder or underwriter requests in writing, to keep each such registration or
qualification (or exemption therefrom) effective during the Effectiveness Period
and to do any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by a
Registration Statement; provided, however, that the Company shall not be
required to qualify generally to do business in any jurisdiction where it is not
then so qualified or to take any action that would subject it to general service
of process in any such jurisdiction where it is not then so subject or subject
the Company to any material tax in any such jurisdiction where it is not then so
subject or make any change in its charter or by-laws, 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.
(j) Cooperate with the Holders and any managing underwriters to
facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be delivered to a transferee pursuant to a
Registration Statement, which certificates shall be free, to the extent
permitted by applicable law, of all restrictive legends, and to enable such
Registrable Securities to be in such denominations and registered in such names
as any such managing underwriters or Holders may request.
(k) Upon the occurrence of any event contemplated by Section
3(d)(vi), as promptly as reasonably possible, prepare a supplement or amendment,
including a post-effective amendment, to the Registration Statement or a
supplement to the related Prospectus or any document incorporated or deemed to
be incorporated therein by reference, and file any other required document so
that, as thereafter delivered, neither the Registration Statement nor such
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(l) Use its best efforts to cause all Registrable Securities
relating to such Registration Statement to be listed on the Nasdaq National
Market ("NASDAQ") or on any other stock market or trading facility on which the
shares of Common Stock are traded, listed or quoted (each a "Subsequent Market")
as and when required pursuant to the Purchase Agreement.
(m) In the event of an Underwritten Offering, enter into such
agreements (including an underwriting agreement in form, scope and substance as
is customary in Underwritten Offerings) and take all such other actions in
connection therewith (including those reasonably requested by any managing
underwriters and the Holders of a majority of the Registrable Securities being
sold) in order
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<PAGE>
to expedite or facilitate the disposition of such Registrable Securities, and
whether or not an underwriting agreement is entered into, (i) make such
representations and warranties to such Holders and such underwriters as are
customarily made by issuers to underwriters in underwritten public offerings,
and confirm the same if and when requested; (ii) obtain and deliver copies
thereof to each Holder and the managing underwriters, if any, of opinions of
counsel to the Company and updates thereof addressed to each Holder and each
such underwriter, in form, scope and substance reasonably satisfactory to any
such managing underwriters and Special Counsel to the selling Holders covering
the matters customarily covered in opinions requested in Underwritten Offerings
and such other matters as may be reasonably requested by such Special Counsel
and underwriters; (iii) immediately prior to the effectiveness of the
Registration Statement, and, in the case of an Underwritten Offering, at the
time of delivery of any Registrable Securities sold pursuant thereto, use its
reasonable best efforts to obtain and deliver copies to the Holders and the
managing underwriters, if any, of "cold comfort" letters and updates thereof
from the independent certified public accountants of the Company (and, if
necessary, any other independent certified public accountants of any subsidiary
of the Company or of any business acquired by the Company for which financial
statements and financial data is, or is required to be, included in the
Registration Statement), addressed to the Company in form and substance as are
customary in connection with Underwritten Offerings; (iv) if an underwriting
agreement is entered into, the same shall contain indemnification provisions and
procedures no less favorable to the selling Holders and the under writers, if
any, than those set forth in Section 5 (or such other provisions and procedures
acceptable to the managing underwriters, if any, and holders of a majority of
Registrable Securities participating in such Underwritten Offering); and (v)
deliver such documents and certificates as may be reason ably requested by the
Holders of a majority of the Registrable Securities being sold, their Special
Counsel and any managing underwriters to evidence the continued validity of the
representations and warranties made pursuant to Section 3(m)(i) above and to
evidence compliance with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company.
(n) In the event of an Underwritten Offering, make available for
inspection by any underwriter participating in any disposition of Registrable
Securities, and any Special Counsel at the offices where normally kept, during
reasonable business hours, all financial and other records, pertinent corporate
documents and properties of the Company and its subsidiaries, and cause the
officers, directors, agents and employees of the Company and its subsidiaries to
supply all information in each case reasonably requested by any such person;
provided, however, that any information that is determined in good faith by the
Company in writing to be of a confidential nature at the time of delivery of
such information shall be kept confidential by such Persons, unless (i)
disclosure of such information is required by court or administrative order or
is necessary to respond to inquiries of regulatory authorities; (ii) disclosure
of such information, in the opinion of counsel to such Person, is required by
law; (iii) such information becomes generally available to the public other than
as a result of a disclosure or failure to safeguard by such Person; or (iv) such
information becomes available to such Person from a source other than the
Company and such source is not known by such Person to be bound by a
confidentiality agreement with the Company.
(o) Comply with all applicable rules and regulations of the
Commission.
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<PAGE>
(p) The Company may require each selling Holder to furnish to the
Company such information regarding the distribution of such Registrable
Securities and the beneficial ownership of Common Stock held by such Holder as
is required by law to be disclosed in the Registration Statement, and the
Company may exclude from such registration the Registrable Securities of any
such Holder who unreasonably fails to furnish such information within a
reasonable time after receiving such request. If the Registration Statement
refers to any Holder by name or otherwise as the holder of any securities of the
Company, then such Holder shall have the right to require (if such reference to
such Holder by name or otherwise is not required by the Securities Act or any
similar Federal statute then in force) the deletion of the reference to such
Holder in any amendment or supplement to the Registration Statement filed or
prepared subsequent to the time that such reference ceases to be required.
4. Registration Expenses
(a) All fees and expenses incident to the performance of or
compliance with this Agreement by the Company, except as and to the extent
specified in Section 4(b), shall be borne by the Company whether or not pursuant
to an Underwritten Offering and whether or not the Registration Statement is
filed or becomes effective and whether or not any Registrable Securities are
sold pursuant to the Registration Statement. The fees and expenses referred to
in the foregoing sentence shall include, without limitation, (i) all
registration and filing fees (including, without limitation, fees and expenses
(A) with respect to filings required to be made with the NASDAQ and any
Subsequent Market on which the Common Stock is then listed for trading, and (B)
reasonably incurred in compliance with state securities or Blue Sky laws
(including, without limitation, fees and disbursements of counsel for the
Holders in connection with Blue Sky qualifications or exemptions of the
Registrable Securities and determination of the eligibility of the Registrable
Securities for investment under the laws of such jurisdictions as the managing
underwriters, if any, or the Holders of a majority of Registrable Securities may
reasonably designate)), (ii) printing expenses (including, without limitation,
expenses of printing certificates for Registrable Securities and of printing
prospectuses if the printing of prospectuses is requested by the managing
underwriters, if any, or by the holders of a majority of the Registrable
Securities included in the Registration Statement), (iii) messenger, telephone
and delivery expenses of the Company, (iv) fees and disbursements of counsel for
the Company and Special Counsel for the Holders, up to an aggregate of $7,500
(v) Securities Act liability insurance, if the Company so desires such
insurance, and (vi) fees and expenses of all other Persons retained by the
Company in connection with the consummation of the transactions contemplated by
this Agreement. In addition, the Company shall be responsible for all of its
internal expenses incurred in connection with the consummation of the
transactions contemplated by this Agreement (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit, the fees and expenses
incurred in connection with the listing of the Registrable Securities on any
securities exchange as required hereunder.
(b) If the Holders require an Underwritten Offering pursuant to the
terms hereof, the Company shall be responsible for all costs, fees and expenses
in connection therewith, except for the fees and disbursements of the
Underwriters (including any underwriting commissions and discounts) and their
legal counsel and accountants. By way of illustration which is not intended to
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<PAGE>
diminish from the provisions of Section 4(a), the Holders shall not be
responsible for, and the Company shall be required to pay the fees or
disbursements incurred by the Company (including by its legal counsel and
accountants) in connection with, the preparation and filing of a Registration
Statement and related Prospectus for such offering, the maintenance of such
Registration Statement in accordance with the terms hereof, the listing of the
Registrable Securities in accordance with the requirements hereof, and printing
expenses incurred to comply with the requirements hereof. Notwithstanding the
foregoing, except in connection with a block trade by a broker who as a result
of the trade may be deemed an underwriter, if at any time the Company has (i)
timely filed the Registration Statement on or prior to the applicable Filing
Date, (ii) caused the Registration Statement to be declared effective as
promptly as possible after the filing thereof but in any event prior to the
applicable Effectiveness Date and (iii) kept the Registration Statement
continuously effective under the Securities Act, all in accordance with the
terms of this Agreement, and if at any such time the Holders require an
Underwritten Offering pursuant to the terms hereof, then Holders shall be
responsible for all costs, fees and expenses in connection with such
Underwritten Offering.
5. Indemnification
(a) Indemnification by the Company. The Company shall,
notwithstanding any termination of this Agreement, indemnify and hold harmless
each Holder, the officers, directors, agents (including any underwriters
retained by such Holder in connection with the offer and sale of Registrable
Securities), brokers (including brokers who offer and sell Registrable
Securities as principal as a result of a pledge or any failure to perform under
a margin call of Common Stock), investment advisors and employees of each of
them, each Person who controls any such Holder (within the meaning of Section 15
of the Securities Act or Section 20 of the Exchange Act) and the officers,
directors, agents and employees of each such controlling Person, to the fullest
extent permitted by applicable law, from and against any and all losses, claims,
damages, liabilities, costs (including, without limitation, costs of preparation
and attorneys' fees) and expenses (collectively, "Losses"), as incurred, arising
out of or relating to any untrue or alleged untrue statement of a material fact
contained in the Registration Statement, any Prospectus or any form of
prospectus or in any amendment or supplement thereto or in any preliminary
prospectus, or arising out of or relating to any omission or alleged omission of
a material fact required to be stated therein or necessary to make the
statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading, except to the extent, but only to the extent, that (1) such
untrue statements or omissions are based solely upon information regarding such
Holder furnished in writing to the Company by such Holder expressly for use
therein, or to the extent that such information relates to such Holder or such
Holder's proposed method of distribution of Registrable Securities and was
reviewed and expressly approved in writing by such Holder expressly for use in
the Registration Statement, such Prospectus or such form of Prospectus or in any
amendment or supplement thereto or (2) in the case of an occurrence of an event
of the type specified in Section 3(d)(ii)-(vi), the use by such Holder of an
outdated or defective Prospectus after the Company has notified such Holder in
writing that the Prospectus is outdated or defective and prior to the receipt by
such Holder of the Advice contemplated in Section 6(e). The Company shall notify
the Holders promptly of the institution, threat or assertion of any Proceeding
of which the Company is aware in connection with the transactions contemplated
by this Agreement.
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<PAGE>
(b) Indemnification by Holders. Each Holder shall, severally and not
jointly, indemnify and hold harmless the Company, its directors, officers,
agents and employees, each Person who controls the Company (within the meaning
of Section 15 of the Securities Act and Section 20 of the Exchange Act), and the
directors, officers, agents or employees of such controlling Persons, to the
fullest extent permitted by applicable law, from and against all Losses (as
determined by a court of competent jurisdiction in a final judgment not subject
to appeal or review) arising solely out of or based solely upon any untrue
statement of a material fact contained in the Registration Statement, any
Prospectus, or any form of prospectus, or in any amendment or supplement
thereto, or arising solely out of or based solely upon any omission of a
material fact required to be stated therein or necessary to make the statements
therein not misleading to the extent, but only to the extent, that such untrue
statement or omission is contained in any information so furnished in writing by
such Holder to the Company specifically for inclusion in the Registration
Statement or such Prospectus or to the extent that such information relates to
such Holder or such Holder's proposed method of distribution of Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in the Registration Statement, such Prospectus or such form of
Prospectus, or in any amendment or supplement thereto. In no event shall the
liability of any selling Holder hereunder be greater in amount than the dollar
amount of the net proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification obligation.
(c) Conduct of Indemnification Proceedings. If any Proceeding shall
be brought or asserted against any Person entitled to indemnity hereunder (an
"Indemnified Party"), such Indemnified Party shall promptly notify the Person
from whom indemnity is sought (the "Indemnifying Party") in writing, and the
Indemnifying Party shall assume the defense thereof, including the employment of
counsel reasonably satisfactory to the Indemnified Party and the payment of all
fees and expenses incurred in connection with defense thereof; provided, that
the failure of any Indemnified Party to give such notice shall not relieve the
Indemnifying Party of its obligations or liabilities pursuant to this Agreement,
except (and only) to the extent that it shall be finally determined by a court
of competent jurisdiction (which determination is not subject to appeal or
further review) that such failure shall have proximately and materially
adversely prejudiced the Indemnifying Party.
An Indemnified Party shall have the right to employ separate counsel
in any such Proceeding and to participate in the defense thereof, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Party
or Parties unless: (1) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (2) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (3) the named
parties to any such Proceeding (including any impleaded parties) include both
such Indemnified Party and the Indemnifying Party, and such Indemnified Party
shall have been advised by counsel that a conflict of interest is likely to
exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying Party in writing that it elects to employ separate counsel at the
expense of the Indemnifying Party, the Indemnifying Party shall not have the
right to assume the defense thereof and such counsel shall be at the expense of
the Indemnifying Party). The Indemnifying Party shall not be liable for any
settlement of any such Proceeding effected without its written consent, which
consent shall not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending
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<PAGE>
Proceeding in respect of which any Indemnified Party is a party, unless such
settlement includes an unconditional release of such Indemnified Party from all
liability on claims that are the subject matter of such Proceeding.
All fees and expenses of the Indemnified Party (including reasonable
fees and expenses to the extent incurred in connection with investigating or
preparing to defend such Proceeding in a manner not inconsistent with this
Section) shall be paid to the Indemnified Party, as incurred, within ten (10)
Business Days of written notice thereof to the Indemnifying Party (regardless of
whether it is ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnifying Party may require
such Indemnified Party to undertake to reimburse all such fees and expenses to
the extent it is finally judicially determined that such Indemnified Party is
not entitled to indemnification hereunder).
(d) Contribution. If a claim for indemnification under Section 5(a)
or 5(b) is unavailable to an Indemnified Party (by reason of public policy or
otherwise), then each Indemnifying Party, in lieu of indemnifying such
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such Losses, in such proportion as is
appropriate to reflect the relative fault of the Indemnifying Party and
Indemnified Party in connection with the actions, statements or omissions that
resulted in such Losses as well as any other relevant equitable considerations.
The relative fault of such Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission of a material fact, has been taken or made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such action, statement or omission. The amount paid or
payable by a party as a result of any Losses shall be deemed to include, subject
to the limitations set forth in Section 5(c), any reasonable attorneys' or other
reasonable fees or expenses incurred by such party in connection with any
Proceeding to the extent such party would have been indemnified for such fees or
expenses if the indemnification provided for in this Section was available to
such party in accordance with its terms.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5(d) were determined by pro rata
allocation or by any other method of allo cation that does not take into account
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 5(d), no Holder shall be required
to contribute, in the aggregate, any amount in excess of the amount by which the
proceeds actually received by such Holder from the sale of the Registrable
Securities subject to the Proceeding exceeds the amount of any damages that such
Holder has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No Person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any Person who was not guilty of such
fraudulent misrepresentation.
The indemnity and contribution agreements contained in this Section
are in addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
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<PAGE>
6. Miscellaneous
(a) Remedies. In the event of a breach by the Company or by a
Holder, of any of their obligations under this Agreement, each Holder or the
Company, as the case may be, in addition to being entitled to exercise all
rights granted by law and under this Agreement, including recovery of damages,
will be entitled to specific performance of its rights under this Agreement. The
Company and each Holder agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
(b) No Inconsistent Agreements. Neither the Company nor any of its
subsidiaries has entered, as of the date hereof, nor, during the Effectiveness
Period, shall the Company or any of its subsidiaries, on or after the date of
this Agreement, enter into any agreement with respect to the registration of the
Common Stock that is inconsistent with the rights granted to the Holders in this
Agreement or otherwise conflicts with the provisions hereof. Except as and to
the extent specified in Schedule 6(b) hereto, neither the Company nor any of its
subsidiaries has previously entered into any agreement granting any registration
rights with respect to the registration of the Common Stock to any Person that
have not been satisfied. Without limiting the generality of the foregoing,
without the written consent of the Holders of a majority of the then outstanding
Registrable Securities, the Company shall not grant to any Person the right to
request the Company to register shares of the Common Stock under the Securities
Act unless the rights so granted are subject in all respects to the prior rights
in full of the Holders set forth herein, and are not otherwise in conflict or
inconsistent with the provisions of this Agreement.
(c) No Piggyback on Registrations. Except as and to the extent
specified in Schedule 6(b) hereto, neither the Company nor any of its security
holders (other than the Holders in such capacity pursuant hereto) may include
securities of the Company in the Registration Statement other than the
Registrable Securities, and the Company shall not after the date hereof enter
into any agreement providing any such right to any of its security holders.
(d) Compliance. Each Holder covenants and agrees that (i) it will
not sell any Registrable Securities under the Registration Statement until it
has received copies of the Prospectus as then amended or supplemented as
contemplated in Section 3(h) and notice from the Company that such Registration
Statement and any post-effective amendments thereto have become effective as
contemplated by Section 3(d) and (ii) it and its officers, directors or
Affiliates, if any, will comply with the prospectus delivery requirements of the
Securities Act as applicable to any of them in connection with sales of
Registrable Securities pursuant to the Registration Statement.
(e) Discontinued Disposition. Each Holder agrees by its acquisition
of such Registrable Securities that, upon receipt of a notice from the Company
of the occurrence of any event of the kind described in Sections 3(d)(ii),
3(d)(iii), 3(d)(iv), 3(d)(v) or 3(d)(vi), such Holder will forthwith discontinue
disposition of such Registrable Securities under the Registration Statement
until such Holder's receipt of the copies of the supplemented Prospectus and/or
amended Registration Statement contemplated by Section 3(k), or until it is
advised in writing (the "Advice") by the
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<PAGE>
Company that the use of the applicable Prospectus may be resumed, and, in either
case, has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement. The Company may provide appropriate stop orders to
enforce the provisions of this paragraph.
(f) Piggy-Back Registrations. (i) If at any time, during the period
from the date hereof until two (2) years from the date hereof, when there is not
an effective Registration Statement covering all of the Registrable Securities,
the Company shall determine to prepare and file with the Commission a
registration statement 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 (each as promulgated under the Securities
Act) 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, then the Company shall send to each Holder of Registrable Securities
written notice of such determination and, if within fifteen (15) days after
receipt of such notice, any such holder shall so request in writing, the Company
shall include in such registration statement all or any part of such Registrable
Securities such holder requests to be registered, subject, in the event of an
underwritten offering, to customary cutbacks and lock-ups requested by the
managing underwriter of all selling stockholders thereunder, on a pro-rata basis
with such other selling stockholders.
(ii) It shall be a condition precedent to the obligations of
the Company to take any action pursuant to this Section 6(f) with respect to the
Registrable Securities of any selling Holder, that such Holder shall furnish to
the Company such information regarding it, the Registrable Securities held by
it, and the intended method of disposition of such securities as shall be
required under the Securities Act to effect the registration of such Holder's
Registrable Securities and to execute such documents (including, without
limitation, any underwriting agreement) in connection with such registration as
the Company may reasonably request.
(g) Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the same shall be in writing and signed by the Company
and the Holders of at least 80% of the then outstanding Registrable Securities.
Notwithstanding the foregoing, a waiver or consent to depart from the provisions
hereof with respect to a matter that relates exclusively to the rights of
Holders and that does not directly or indirectly affect the rights of other
Holders may be given by Holders of at least a majority of the Registrable
Securities to which such waiver or consent relates; provided, however, that the
provisions of this sentence may not be amended, modified, or supplemented except
in accordance with the provisions of the immediately preceding sentence.
(h) Notices. Any and all notices or other communications or
deliveries required or permitted to be provided hereunder shall be in writing
and shall be deemed given and effective on the earliest of (i) the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section prior to 6:30 p.m. (New
York City time) on a Business Day, (ii) the Business Day after the date of
transmission, if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in the Purchase
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<PAGE>
Agreement later than 6:30 p.m. (New York City time) on any date and earlier than
11:59 p.m. (New York City time) on such date, (iii) the Business Day following
the date of mailing, if sent by nationally recognized overnight courier service,
or (iv) upon actual receipt by the party to whom such notice is required to be
given. The address for such notices and communications shall be as follows:
If to the Company: Fidelity Holdings, Inc.
80-02 Kew Gardens Road, Suite 5000
Kew Gardens, New York 11415
Facsimile No.: (718) 793-2455
Attn: Doron Cohen, President
With copies to: Littman Krooks Roth & Ball P.C.
655 Third Avenue
New York, New York 10017-5617
Attn: Mitchell C. Littman, Esq. and
James J. Quinlan, Esq.
Facsimile No.: (212) 490-2990
If to a Purchaser: To the address set forth under such Purchaser's name
on the signature pages hereto.
(i) Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and permitted assigns of each of
the parties and shall inure to the benefit of each Holder. The Company may not
assign its rights or obligations hereunder without the prior written consent of
Holders of a majority of Registrable Securities then outstanding. Each Holder
may assign their respective rights hereunder in the manner and to the Persons as
permitted under this Agreement and the Purchase Agreement.
(j) Counterparts. This Agreement may be executed in any number of
counterparts, each of which when so executed shall be deemed to be an original
and, all of which taken together shall constitute one and the same Agreement. In
the event that any signature is delivered by facsimile transmission, such
signature shall create a valid binding obligation of the party executing (or on
whose behalf such signature is executed) the same with the same force and effect
as if such facsimile signature were the original thereof.
(k) Governing Law. This Agreement shall be governed by and construed
and enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof. Each party hereby
irrevocably submits to the exclusive jurisdiction of the state and federal
courts sitting in the City of New York, borough of Manhattan, for the
adjudication of any dispute hereunder or in connection herewith or with any
transaction contemplated hereby or discussed herein and hereby irrevocably
waives, and agrees not to assert in any suit, action or proceeding, any claim
that it is not personally subject to the jurisdiction of any such court, that
such suit, action or proceeding is improper. Each party hereby irrevocably
waives personal service of process and consents to process being served in any
such suit, action or proceeding by mailing a copy thereof to such party at the
address in effect for notices to it under this
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<PAGE>
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall be deemed
to limit in any way any right to serve process in any manner permitted by law.
(l) Cumulative Remedies. The remedies provided herein are cumulative
and not exclusive of any remedies provided by law.
(m) Severability. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their reasonable efforts to find and employ an alternative
means to achieve the same or substantially the same result as that contemplated
by such term, provision, covenant or restriction. It is hereby stipulated and
declared to be the intention of the parties that they would have executed the
remaining terms, provisions, covenants and restrictions without including any of
such that may be hereafter declared invalid, illegal, void or unenforceable.
(n) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(o) Shares Held by The Company and its Affiliates. Whenever the
consent or approval of Holders of a specified percentage of Registrable
Securities is required hereunder, Registrable Securities held by the Company or
its Affiliates (other than any Holder or transferees or successors or assigns
thereof if such Holder is deemed to be an Affiliate solely by reason of its
holdings of such Registrable Securities) shall not be counted in determining
whether such consent or approval was given by the Holders of such required
percentage.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK
SIGNATURE PAGE TO FOLLOW]
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IN WITNESS WHEREOF, the parties have executed this Registration Rights
Agreement as of the date first written above.
FIDELITY HOLDINGS, INC.
By: /s/ Doron Cohen
---------------
Name: Doron Cohen
Title: President and CEO
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STRONG RIVER INVESTMENTS, INC.
By: /s/ Kenneth L. Henderson
------------------------
Name: Kenneth L. Henderson
Title: Attorney-in-fact
Address for Notice:
Strong River Investments, Inc.
c/o Gonzalez-Ruiz & Aleman (BVI) Limited
Wickhams Cay I, Vanterpool Plaza
P.O. Box 873
Road Town, Tortolla. BVI
With copies to:
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Kenneth L. Henderson, Esq. and
Eric L. Cohen, Esq.
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<PAGE>
MONTROSE INVESTMENTS LTD.
By: /s/ Kevin O'Neal
----------------
Name: Kevin O'Neal
Title: Authorized Signatory
Address for Notice:
Montrose Investments Ltd.
300 Crescent Court, Suite 700
Dallas, TX 75201
Facsimile: (214) 758-1221
Attn: Will Rose and Kim Rozman
With copies to:
Robinson Silverman Pearce Aronsohn &
Berman LLP
1290 Avenue of the Americas
New York, NY 10104
Facsimile No.: (212) 541-4630
Attn: Kenneth L. Henderson, Esq. and
Eric L. Cohen. Esq.
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AUGUSTA STREET LLC
By: Navigator Management Ltd.
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Director
By: /s/ David Sims
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Name: David Sims
Title: President
Address for Notice:
Augusta Street LLC
c/o Citco Trustees (Cayman) Limited
Commercial Centre
P.O. Box 31106 SMB
Grand Cayman
Cayman Islands
British West Indies
Facsimile No.: (345) 945-7566
With copies to
Krieger & Prager, Esqs.
39 Broadway
New York, NY 10006
Facsimile No.: (212) 363-2999
Attn: Samuel L. Krieger, Esq
-and-
Southridge Capital Management LLC
Executive Pavillon
90 Grove Street
Ridgefield, CT 06877
Facsimile No.: (203) 431-8301
Attn: Henry Sargent, Esq.
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Annex A
Plan of Distribution
The Selling Stockholders and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their shares
of Common Stock on any stock exchange, market or trading facility on which the
shares are traded or in private transactions. These sales may be at fixed or
negotiated prices. The Selling Stockholders may use any one or more of the
following methods when selling shares:
o ordinary brokerage transactions and transactions in which the
broker-dealer solicits purchasers;
o block trades in which the broker-dealer will attempt to sell the shares as
agent but may position and resell a portion of the block as principal to
facilitate the transaction;
o purchases by a broker-dealer as principal and resale by the broker-dealer
for its account;
o an exchange distribution in accordance with the rules of the applicable
exchange;
o privately negotiated transactions;
o short sales;
o broker-dealers may agree with the Selling Stockholders to sell a specified
number of such shares at a stipulated price per share;
o a combination of any such methods of sale; and
o any other method permitted pursuant to applicable law.
The Selling Stockholders may also sell shares under Rule 144 under the
Securities Act, if available, rather than under this prospectus.
The Selling Stockholders may also engage in short sales against the box,
puts and calls and other transactions in securities of the Company or
derivatives of Company securities and may sell or deliver shares in connection
with these trades. The Selling Stockholders may pledge their shares to their
brokers under the margin provisions of customer agreements. If a Selling
Stockholder defaults on a margin loan, the broker may, from time to time, offer
and sell the pledged shares.
Broker-dealers engaged by the Selling Stockholders may arrange for other
brokers-dealers to participate in sales. Broker-dealers may receive commissions
or discounts from the Selling Stockholders (or, if any broker-dealer acts as
agent for the purchaser of shares, from the purchaser) in amounts to be
negotiated. The Selling Stockholders do not expect these commissions and
discounts to exceed what is customary in the types of transactions involved.
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The Selling Stockholders and any broker-dealers or agents that are
involved in selling the shares may be deemed to be "underwriters" within the
meaning of the Securities Act in connection with such sales. In such event, any
commissions received by such broker-dealers or agents and any profit on the
resale of the shares purchased by them may be deemed to be underwriting
commissions or discounts under the Securities Act.
The Company is required to pay all fees and expenses incident to the
registration of the shares, including fees and disbursements of counsel to the
Selling Stockholders. The Company has agreed to indemnify the Selling
Stockholders against certain losses, claims, damages and liabilities, including
liabilities under the Securities Act.
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