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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_____________
FORM 8-K
CURRENT REPORT
Pursuant to Section l3 or l5(d) of the
Securities Exchange Act of l934
Date of Report (Date of earliest event reported) June 13, 1997
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VISUAL EDGE SYSTEMS INC.
------------------------
(Exact name of registrant as specified in its charter)
Delaware 0-20995 13-377-8895
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(State of other juris- Commission (I.R.S. Employer
diction of incorporation) File Number) Identification No.)
2424 North Federal Highway, Suite 100, Boca Raton, FL 33431
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(Address of principal executive offices) (Zip Code)
(561) 750-7559
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(Registrant's telephone number, including area code)
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Item 5. Other Events.
On June 13, 1997, Visual Edge Systems Inc. (the "Company") arranged a three
year $7.5 million debt and convertible equity facility with a group of
investment funds advised by an affiliate of Hunt Sports Group, a sports and
entertainment management company controlled by the Lamar Hunt family of Dallas,
Texas. The Company issued and sold to Infinity Investors Limited, Infinity
Emerging Opportunities Limited, Sandera Partners, L.P. and Lion Capital
Partners, L.P. (collectively, the "Funds") the following securities pursuant to
the Bridge Securities Purchase Agreement, dated as of June 13, 1997 (the "Bridge
Agreement"), among the Company and the Funds: (i) 8.25% unsecured convertible
bridge notes in the aggregate principal amount of $7,500,000 with a maturity
date of three years from the date of issuance (the "Bridge Notes"), which Bridge
Notes are convertible into shares of Common Stock (the "Note Conversion
Shares") at any time and from time to time commencing January 1, 1998 at the
option of the holder thereof; (ii) 93,677 shares of Common Stock, par value $.01
per share (the "Grant Shares"); and (iii) five-year warrants (the "Warrants")
to purchase 100,000 shares of Common Stock (the "Warrant Shares") with an
exercise price equal to $10.675. Such Warrants are redeemable commencing
October 1, 1998, based on a 20-day minimum closing bid price, at a redemption
price equal to $.10 per share. The Funds payed an aggregate of $ 7,474,438 to
the Company for the Bridge Notes, Grant Shares and Warrants.
Pursuant to the Bridge Agreement, the Company will issue additional Grant
Shares (the "Additional Grant Shares") to the Funds in the event that the
closing bid price of the Common Stock for each trading day during any
consecutive 10 trading days from June 13, 1997 (the "Closing Date") through
December 31, 1997 does not equal at least $10.00 per share. In the event that
any Additional Grant Shares are issued, the exercise price of the Warrants will
be adjusted so that the value of the Warrants (using a Black -Scholes or similar
model) equals the value of the Warrants as of the Closing Date.
Interest payments on the Bridge Notes will, at the option of the Company,
be payable in cash or in shares of Common Stock. Effective January 1, 1998, the
aggregate outstanding principal amount of Bridge Notes exceeding $2,500,000 will
be automatically exchanged for an number of shares of Convertible Preferred
Stock with an aggregate liquidation preference equal to the principal amount of
Bridge Notes so exchanged and with terms substantially identical to the Notes,
which Preferred Stock is convertible into shares of Common Stock (the "Stock
Conversion Shares"). In addition, if the Company elects to redeem its
redeemable warrants issued on July 24, 1997 in connection with the Company's
initial public offering of Common Stock, the Company must redeem at least
$5,000,000 principal amount of the Bridge Notes with the net proceeds of such
redemption.
In connection with the sale of the Note Conversion Shares, Stock Conversion
Shares, Grant Shares, Warrant Shares and Additional Grant Shares (collectively,
the "Securities") to the Funds, the Company granted to the Funds registration
rights covering the Securities. As soon as
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practicable after July 24, 1997, the Company is obligated to file a registration
statement covering the sale of the Grant Shares. In addition, on or before
November 15, 1997, the Company is obligated to file a registration statement
covering the sale of the Note Conversion Shares, Stock Conversion Shares,
Warrant Shares and Additional Grant Shares.
The Company also agreed, pursuant to the Bridge Agreement, that the
proceeds from the issuance and sale of the Securities by the Company must be
used, in part, to repay the remaining outstanding balance due and owing on the
Company's $3,500,000 line of credit with Barnett Bank. Further, the Company
agreed to certain covenants, including limitations on the amount of capital
expenditures and minimum limits of net worth.
The Company will also begin to explore potential business opportunities
with Hunt Sports Group.
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Item 7. Financial Statements and Exhibits.
(c) Exhibits
99.1 Bridge Securities Purchase Agreement, dated as of June 13, 1997, among
the Company and Infinity Investors Limited, Infinity Emerging Opportunities
Limited, Sandera Partners, L.P. and Lion Capital Partners, L.P. (collectively,
the "Funds")
99.2 Registration Rights Agreement, dated as of June 13, 1997, among the
Company and the Funds
99.3 Transfer Agent Agreement, dated as of June 13, 1997, among the
Company, the Funds and American Stock Transfer & Trust Company
99.4 Form of Common Stock Purchase Warrant
99.5 Form of Convertible Note
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SIGNATURES
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Pursuant to the requirements of the Securities Exchange Act of l934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
VISUAL EDGE SYSTEMS INC.
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(Registrant)
By:
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Earl T. Takefman
Chief Executive Officer
Date: June 23, 1997
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EXHIBIT INDEX
No.
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99.1 Bridge Securities Purchase Agreement, dated as of June 13, 1997, among
the Company and Infinity Investors Limited, Infinity Emerging
Opportunities Limited, Sandera Partners, L.P. and Lion Capital
Partners, L.P. (collectively, the "Funds")
99.2 Registration Rights Agreement, dated as of June 13, 1997, among the
Company and the Funds
99.3 Transfer Agent Agreement, dated as of June 13, 1997, among the
Company, the Funds and American Stock Transfer & Trust Company
99.4 Form of Common Stock Purchase Warrant
99.5 Form of Convertible Note
<PAGE>
BRIDGE SECURITIES PURCHASE AGREEMENT
DATED AS OF
JUNE 13, 1997
AMONG
VISUAL EDGE SYSTEMS INC.,
AS THE ISSUER,
AND
INFINITY INVESTORS LIMITED,
INFINITY EMERGING OPPORTUNITIES LIMITED,
SANDERA PARTNERS, L.P.,
AND
LION CAPITAL PARTNERS, L.P.
AS THE PURCHASERS
<PAGE>
BRIDGE SECURITIES PURCHASE AGREEMENT
AGREEMENT, dated as of June 13, 1997, among Visual Edge Systems Inc. (the
"Company"), and INFINITY INVESTORS LIMITED, INFINITY EMERGING OPPORTUNITIES
LIMITED, SANDERA PARTNERS, L.P. and LION CAPITAL PARTNERS, L.P. (collectively,
the "Purchasers").
The parties hereto agree as follows:
ARTICLE I
DEFINITIONS
SECTION 1.1. DEFINITIONS. The following terms, as used herein, have the
following meanings:
"Additional Grant Shares" shall mean a number of shares of Common Stock
equal to the quotient obtained by dividing $1,000,000 by the average Closing Bid
Prices of the Common Stock for the fifteen (15) Trading Days prior to December
31, 1997, and subtracting therefrom the number of Grant Shares issued on the
Closing Date.
"Affiliate" means, with respect to any Person (the "Subject Person"), (i)
any other Person (a "Controlling Person") that directly, or indirectly through
one or more intermediaries, Controls the Subject Person or (ii) any other Person
(other than the Subject Person or a Consolidated Subsidiary of the Subject
Person) which is Controlled by or is under common Control with a Controlling
Person.
"Agreement" means this Agreement, as amended, supplemented or otherwise
modified from time to time in accordance with its terms.
"Applicable Percentage" shall mean the following percentages for any
conversion into shares of Common Stock of all or any portion of the Convertible
Instruments effected, by reference to the Conversion Date, between the following
dates:
CONVERSION DATE APPLICABLE PERCENTAGE
--------------- ---------------------
January 1, 1998 - February 28, 1998 85.0%
March 1, 1998 - April 30, 1998 82.5%
May 1, 1998 - June 30, 1998 80.0%
July 1, 1998 and thereafter 77.5%
BRIDGE SECURITIES PURCHASE AGREEMENT - Page 1
(Visual Edge Systems Inc.)
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"Asset Sale" has the meaning set forth in Section 8.20.
"Balance Sheet" has the meaning set forth in Section 5.5
"Balance Sheet Date" has the meaning set forth in Section 5.5.
"Barnett Bank Facility " means that certain Credit Agreement dated March
26, 1997 between the Company and Barnett Bank, N.A..
"Benefit Arrangement" means at any time an employee benefit plan within the
meaning of Section 3(3) of ERISA which is not a Plan or a Multiemployer Plan and
which is maintained or otherwise contributed to by any Financing Entity.
"Bridge Period" means the time period commencing on the Closing Date and
ending on December 31, 1997.
"Benefit Plans" has the meaning set forth in Section 5.7(b).
"Business Day" means any day except a Saturday, Sunday or other day on
which commercial banks in the City of New York are authorized or required by law
to close.
"Capital Expenditures" means any expenditure by the Company or any
Subsidiary for an asset which will be used in a year or years subsequent to the
year in which the expenditure is made and which asset is properly classifiable
in relevant financial statements as property, equipment, improvements or fixed
assets, or a similar type of capitalized asset in accordance with GAAP. The
acquisition of vans in accordance with Schedule VI attached hereto constitutes
Capital Expenditures.
"Capital Reorganization" has the meaning set forth in Section 11.5.
"Cash Equivalents" means (i) securities issued or directly and fully
guaranteed or insured as to principal and interest by the United States of
America or any agency or instrumentality thereof (provided that the full faith
and credit of the United States of America is pledged in support thereof),
maturing within one year of the date of acquisition, (ii) time deposits and
certificates of deposit of any domestic commercial bank having combined capital,
surplus and undivided profits of not less than $100,000,000 (including a
domestic branch of a foreign bank) whose outstanding senior long-term debt
securities are rated, or that is a wholly owned Subsidiary of a bank holding
company whose outstanding senior long-term debt securities are rated, either A-
or higher by Standard & Poor's Ratings Service or A3 or higher by Moody's
Investors Service, Inc., maturing within one year of the date of acquisition,
(iii) repurchase obligations with a term of not more than 7 days for underlying
securities of the types described in clause (i) above entered into with any bank
meeting the qualifications specified in clause (ii) above, (iv) commercial paper
rated at least A-1 or the equivalent thereof by Standard & Poor's Ratings
Service or at least P-1 or the equivalent thereof by Moody's Investors Service,
Inc.,
BRIDGE SECURITIES PURCHASE AGREEMENT - Page 2
(Visual Edge Systems Inc.)
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maturing within one year after the date of acquisition and (v) investments in
money market funds substantially all of whose assets are comprised of securities
of the types described in clauses (i) through (iv) above.
"Certificate of Designation" means a Certificate of Designation in a form
reasonably acceptable to the Purchasers containing substantially identical terms
to the terms of the Convertible Notes set forth herein and in the Convertible
Notes excepting differences caused by the inherent character of indebtedness and
preferred stock setting forth the rights, privileges and limitations of the
Preferred Stock to be issued by the Company in connection with a
Recapitalization Event.
"Change of Control" means (i) any person or group of persons (within the
meaning of Sections 13 and 14 of the Exchange Act and the rules and regulations
of the Commission relating to such Sections) shall have acquired beneficial
ownership (within the meaning of Rules 13d-3 and 13d-5 promulgated by the
Commission pursuant to the Exchange Act) of 33a% or more of the outstanding
shares of Common Stock of the Company, (ii) any sale or other disposition (other
than by reason of death or disability) of any Common Stock of the Company held
by Earl Takefman and Alan Lubell resulting in such Persons owning, in the
aggregate less than 33-1/3% of the outstanding shares of such Common Stock; or
(iii) individuals constituting the board of directors of the Company (together
with any new directors whose election by such board of directors or whose
nomination for election by the stockholders of the Company was approved by a
vote of at least 50.1% of the directors then still in office who were either
directors as of the date hereof or whose election or nomination for election was
previously so approved) cease for any reason to constitute a majority of the
board of directors of the Company then in office.
"Closing Bid Price" shall mean the closing bid price of the Company's
Common Stock as reported by Bloomberg L.P. on the NASDAQ Stock Market's Small
Cap Market (the "NASDAQ Market") or, if not reported by Bloomberg, L.P. on the
NASDAQ Market, as reported by such other exchange or market where the Common
Stock is then traded.
"Closing Date" means the date on which all of the conditions set forth in
Sections 7.1 and 7.2 shall have been satisfied and the Securities have been
issued by the Company and the Purchase Price paid by the Purchasers.
"Code" means the Internal Revenue Code of 1986, as amended.
"Commission" means the Securities and Exchange Commission or any entity
succeeding to all of its material functions.
"Common Stock" means the common stock, par value $.01 per share, of the
Company.
"Company" means Visual Edge Systems Inc., a corporation incorporated under
the laws of Delaware, and its successors.
BRIDGE SECURITIES PURCHASE AGREEMENT - Page 3
(Visual Edge Systems Inc.)
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"Company Corporate Documents" means the certificate of incorporation and
by-laws of the Company.
"Consolidated Net Earnings" means at any date the consolidated net income
(or loss) of the Company determined on a consolidated basis, provided there
shall be excluded therefrom (a) the net income (but not net loss) of any
Subsidiary of the Company which is subject to restrictions which prevent or
limit the payment of dividends or the making of distributions to the Company to
the extent of such restrictions, (b) the net income of any Person that is not a
Subsidiary of the Company except to the extent of the amount of dividends or
other distributions actually paid in cash to the Company by such other Person
during such period, (c) gains or losses on asset dispositions by the Company or
its Subsidiaries, (d) all extraordinary gains and extraordinary losses and (e)
the net income of any Person accrued prior to the date it becomes a Consolidated
Subsidiary of the Company or is merged into or consolidated with the Company.
"Consolidated Net Worth" means at any date the total shareholder's equity
which would appear on a consolidated balance sheet of the Company prepared as of
such date.
"Consolidated Subsidiary" means at any date with respect to any Person any
Subsidiary or other entity, the accounts of which would be consolidated with
those of such Person in its consolidated financial statements if such statements
were prepared as of such date.
"Control" (including, with correlative meanings, the terms "Controlling,"
"Controlled by" and under "common Control with"), as used with respect to any
Person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that Person, whether
through the ownership of voting securities, by contract or otherwise .
"Conversion Date" shall mean the date of delivery (including delivery via
telecopy) of a Notice of Conversion for all or a portion of a Convertible
Instrument by the holder thereof to the Company and the Transfer Agent.
"Conversion Price" shall mean the formula F/P where F = the face amount of
the Convertible Instrument being converted, together with accrued and unpaid
interest and/or dividends thereon through the Conversion Date, as applicable,
and P = the lesser of (x) the Maximum Conversion Price and (y) and the product
of the Applicable Percentage multiplied by the Market Price as of the Conversion
Date.
"Convertible Instrument(s)" means, individually and collectively, as the
context requires, the Convertible Notes and the Preferred Shares following their
issuance upon a Recapitalization Event.
"Convertible Notes" means the Company's promissory notes substantially in
the form set forth as Exhibit A hereto.
BRIDGE SECURITIES PURCHASE AGREEMENT - Page4
(Visual Edge Systems Inc.)
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"Deadline" has the meaning set forth in Section 10.3.
"Debt" of any Person means at any date, without duplication, (i) all
obligations of such Person for borrowed money, (ii) all obligations of such
Person evidenced by bonds, debentures, notes, or other similar instruments
issued by such Person, (iii) all obligations of such Person as lessee which (x)
are capitalized in accordance with GAAP or (y) arise pursuant to sale-leaseback
transactions, (iv) all reimbursement obligations of such Person in respect of
letters of credit or other similar instruments, (v) all Debt of others secured
by a Lien on any asset of such Person, whether or not such Debt is otherwise an
obligation of such Person and (vi) all Debt of others Guaranteed by such Person.
"Default" means any event or condition which constitutes an Event of
Default or which with the giving of notice or lapse of time or both would,
unless cured or waived, become an Event of Default.
"Discounted Equity Offerings" has the meaning set forth in Section 10.2.
"Directors" means the individuals then serving on the board of directors of
the Company.
"Environmental Laws" means any and all federal, state, local and foreign
statutes, laws, regulations, ordinances, rules, judgments, orders, decrees,
permits, concessions, grants, franchises, licenses, agreements or other
governmental restrictions relating to the environment or to emissions,
discharges or releases of pollutants, contaminants, petroleum or petroleum
products, chemicals or industrial, toxic or hazardous substances or wastes into
the environment, including, without limitation, ambient air, surface water,
ground water, or land, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
pollutants, contaminants, petroleum or petroleum products, chemicals or
industrial, toxic or hazardous substances or wastes or the cleanup or other
remediation thereof.
"Equity Financing" means a financing consummated through the issuance of
equity securities (or securities convertible into or exchangeable for equity
securities) of the Company, other than Permitted Financings.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute.
"ERISA Group" means the Company and each Subsidiary and all members of a
controlled group of corporations and all trades or businesses (whether or not
incorporated) under common control which, together with the Company or any
Subsidiary, are treated as a single employer under Section 414 of the Code.
"Event of Default" has the meaning set forth in Article XII hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
BRIDGE SECURITIES PURCHASE AGREEMENT - Page 5
(Visual Edge Systems Inc.)
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"Financing Documents" means this Agreement, the Warrants, the Certificate
of Designation, the Transfer Agent Agreement, the Registration Rights Agreement
and the Convertible Notes.
"Fixed Price" has the meaning set forth in Section 11.1.
"Formula Price" has the meaning set forth in Section 3.4(b).
"GAAP" has the meaning set forth in Section 1.2.
"Grant Shares" means a number of shares of Common Stock to be issued to the
Purchasers on the Closing Date equal to the quotient obtained by dividing
$1,000,000 by the Market Price of the Common Stock as of the date immediately
prior to the Closing Date.
"Grant Share Registration Statement" has the meaning set forth in Section
10.1(b) hereof.
"Guarantee" by any Person means any obligation, contingent or otherwise, of
such Person directly or indirectly guaranteeing (whether by virtue of
partnership arrangements, by agreement to keep well, to purchase assets, goods,
securities or services, to take-or-pay, or to maintain a minimum net worth,
financial ratio or similar requirements, or otherwise) any Debt of any other
Person and, without limiting the generality of the foregoing, any obligation,
direct or indirect, contingent or otherwise, of such Person (i) to purchase or
pay (or advance or supply funds for the purchase or payment of) such Debt or
(ii) entered into for the purpose of assuring in any other manner the holder of
such Debt of the payment thereof or to protect such holder against loss in
respect thereof (in whole or in part); PROVIDED that the term Guarantee shall
not include endorsements for collection or deposit in the ordinary course of
business. The term Guarantee used as a verb has a corresponding meaning.
"Hazardous Materials" means any hazardous materials, hazardous wastes,
hazardous constituents, hazardous or toxic substances or petroleum products
(including crude oil or any fraction thereof), defined or regulated as such in
or under any Environmental Laws.
"Intellectual Property" has the meaning set forth in Section 5.19.
"Investment" means any investment in any Person, whether by means of share
purchase, partnership interest, capital contribution, loan, time deposit or
otherwise.
"IPO Warrants" means warrants to acquire up to 1,495,000 shares of Common
Stock issued by the Company in connection with the Company's initial public
offering of Common Stock.
"Lien" means, any lien, mechanic's lien, materialmen's lien, lease,
easement, charge, encumbrance, mortgage, conditional sale agreement, title
retention agreement, agreement to sell
BRIDGE SECURITIES PURCHASE AGREEMENT - Page 6
(Visual Edge Systems Inc.)
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or convey, option, claim, title imperfection, encroachment or other survey
defect, pledge, restriction, security interest or other adverse claim, whether
arising by contract or under law or otherwise (including, without limitation,
any financing lease having substantially the same economic effect as any of the
foregoing, and the filing of any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction in respect of any of the
foregoing).
"Limitation on Conversion" has the meaning set forth in Section 10.5.
"Listing Applications" shall have the meaning set forth in Section 5.3(a).
"Majority Holders" means (i) as of the Closing Date, the Purchasers and
(ii) at any time thereafter, the holders of more than 50% in aggregate principal
amount of the Convertible Instruments outstanding at such time.
"Market Price" shall mean the average of the Closing Bid Prices of the
Common Stock for the five (5) Trading Days preceding but excluding the date of
determination.
"Material Plan" means at any time a Plan or Plans having aggregate Unfunded
Liabilities in excess of $500,000.
"Maturity Date" shall mean June 13, 2000.
"Maximum Conversion Price" shall mean the following prices for any
conversion of the Convertible Instruments effected, by reference to the
Conversion Date, between the following dates:
CONVERSION DATE APPLICABLE PRICE
--------------- ----------------
January 1, 1998 - February 28, 1998 $10.00
March 1, 1998 - April 30, 1998 $12.50
May 1, 1998 - June 30, 1998 $15.00
July 1, 1998 and thereafter $17.50
"Multiemployer Plan" means at any time an employee pension benefit plan
within the meaning of Section 4001(a)(3) of ERISA to which any member of the
ERISA Group is then making or accruing an obligation to make contributions or
has within the preceding five plan years made contributions, including for these
purposes any Person which ceased to be a member of the ERISA Group during such
five year period.
"Net Cash Proceeds" means, with respect to any transaction, the total
amount of cash proceeds received by the Company or any Subsidiary less (i)
reasonable underwriters' fees, brokerage commissions, reasonable professional
fees and other customary out-of-pocket expenses payable in connection with such
transaction, (ii) in the case of dispositions of assets,
BRIDGE SECURITIES PURCHASE AGREEMENT - Page 7
(Visual Edge Systems Inc.)
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(A) actual transfer taxes (but not income taxes) payable with respect to such
dispositions, and (B) the amount of Debt. if any, secured by a Lien on the asset
or assets disposed of and required to be, and actually repaid by the Company or
any Subsidiary in connection therewith, and any trade payables specifically
relating to such asset or assets sold by the Company or any Subsidiary that are
not assumed by the purchaser of such asset or assets.
"Notice of Conversion" means the form to be delivered by a holder of a
Convertible Instrument upon conversion of all or a portion thereof to the
Transfer Agent and the Company substantially in the forms of Exhibit B
(Convertible Notes) and Exhibit C (Preferred Shares) attached hereto.
"Notice of Exercise" means the form to be delivered by a holder of Warrants
upon exercise of all or a portion thereof to the Company substantially in the
form of Exhibit D attached hereto.
"Other Taxes" has the meaning set forth in Section 3.9.
"Par Value Redemption Price" has the meaning set forth in Section 3.4(b).
"PBGC" means the Pension Benefit Guaranty Corporation or any entity
succeeding to any or all of its functions under ERISA.
"Permits" means all domestic and foreign licenses, permits and approvals
required for the full operation of the Company and the Subsidiaries, including
state, federal, city and county permits and approvals.
"Permitted Financings" means (i) Revolving Credit Debt and (ii) the
issuance of shares of Common Stock pursuant to or in connection with (a) any
merger or acquisition entered into by the Company, (b) options and warrants
disclosed on Schedule II to this Agreement or in connection with employee and
director stock option plans of the Company and (c) payments to Great White Shark
Enterprises, Inc. under that License Agreement between Greg Norman, Great White
Shark Enterprises, Inc. and the Company dated as of March 1, 1996 (the "Norman
License Agreement").
"Permitted Transferee" means any Person that acquires Additional Grant
Shares, Grant Shares, the Convertible Instruments or Warrants, or the shares of
Common Stock issuable upon conversion of the Convertible Instruments or exercise
of the Warrants, in compliance with Article IX other than any Person who
acquires such Additional Grant Shares, Grant Shares, Convertible Instruments,
Warrants or shares of Common Stock issuable upon conversion or exercise thereof
(i) in a public offering or (ii) in the open market, pursuant to sales under
Rule 144 of the Securities Act or otherwise.
BRIDGE SECURITIES PURCHASE AGREEMENT - Page 8
(Visual Edge Systems Inc.)
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"Person" means an individual or a corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
government (or any agency or political subdivision thereof) or other entity of
any kind.
"Plan" means at any time an employee pension benefit plan (other than a
Multiemployer Plan) which is covered by Title IV of ERISA or subject to the
minimum funding standards under Section 412 of the Internal Revenue Code and
either (i) is maintained, or contributed to, by any member of the ERISA Group
for employees of any member of the ERISA Group or (ii) has at any time within
the preceding five years been maintained, or contributed to, by any Person which
was at such time a member of the ERISA Group for employees of any Person which
was at such time a member of the ERISA Group.
"Preferred Shares" means shares of the Company's Preferred Stock.
"Preferred Stock" means the Company's Series A Convertible Preferred Stock
which shall be issued in accordance with the terms of the Certificate of
Designation upon the occurrence of a Recapitalization Event.
"Principal Transactions" means (i) the payment of fees and expenses
relating to the issuance and sale of the Securities and (ii) the repayment of
the Barnett Bank Facility and cancellation of all letters of credit, cash
collateral arrangements or guarantees of the payment thereof.
"Purchase Price" means the purchase price for the Convertible Notes,
Warrants and Grant Shares set forth in Section 2.1 hereof.
"Purchasers" means, collectively, Infinity Investors Limited, Infinity
Emerging Opportunities, Limited and Lion Capital Partners, L.P. and their
successors and assigns, including holders from time to time of the Convertible
Instruments.
"Recapitalization Event" has the meaning set forth in Section 3.8.
"Registrable Securities" has the meaning set forth in the Registration
Rights Agreement.
"Registration Rights Agreement" means the agreement between the Company and
the Purchasers dated the date hereof substantially in the form set forth in
Exhibit E.
"Restricted Payment" means, with respect to any Person, (i) any dividend or
other distribution on any shares of capital stock of such Person (except
dividends payable solely in shares of capital stock of the same or junior class
of such Person and dividends payable by the Company on the Preferred Stock),
(ii) any payment on account of the purchase, redemption, retirement or
acquisition of (a) any shares of such Person's capital stock or (b) any option,
warrant or other right to acquire shares of such Person's capital stock or (iii)
any loan, or advance or capital contribution to any Person (a "Stockholder")
owning any capital stock of such Person
BRIDGE SECURITIES PURCHASE AGREEMENT - Page 9
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other than relocation, travel or like advances to officers and employees in the
ordinary course of business.
"Revaluation Trigger Date" shall mean the earliest to occur of (x) the date
on which the Grant Share Registration Statement is declared effective by the
Commission, (y) the date on which the Company publicly announces that it is
redeeming the IPO Warrants or (z) October 1, 1997.
"Revolving Credit Debt" means any borrowing by the Company under a
revolving credit facility, provided the amount of Debt owed thereunder is
required to be or is reduced to zero for at least thirty (30) consecutive days
during the fiscal year in which such facility is established.
"Rights Offering" has the meaning set forth in Section 11.3.
"SEC Reports" shall have the meaning set forth in Section 5.5.
"Second Registration Maintenance Period" means the period (i) with respect
to the Registrable Securities other than the shares of Common Stock issuable
upon exercise of the Warrants, the date commencing on the Closing Date and
ending on the second anniversary thereof and (ii) with respect to the shares of
Common Stock issuable upon exercise of the Warrants, the date commencing on the
Closing Date and ending on the 5th anniversary thereof, in each case subject to
the right of the Company to suspend the effectiveness of the Second Registration
Statement for not more than 30 consecutive days or an aggregate of 90 days
during such applicable period, provided the reference to 30 consecutive days
shall be 60 consecutive days in the event the Company has publicly announced a
transaction and, in connection therewith, the Company's independent certified
public accountants have delivered a certificate to the Purchasers stating that
it is not reasonably practicable to prepare and file with the Commission all
necessary accounting information associated with such transaction to cause the
Second Registration Statement to be reinstated during such 30 day period.
"Second Registration Statement" has the meaning set forth in Section
10.1(b).
"Securities" means the Convertible Notes, the Preferred Shares, the
Warrants, the Grant Shares, the Additional Grant Shares and the shares of Common
Stock issuable upon conversion of the Convertible Notes and Preferred Shares and
the exercise of the Warrants.
"Securities Act" means the Securities Act of 1933, as amended.
"Share Reorganization" has the meaning set forth Section 11.2.
"Special Distribution" has the meaning set forth in Section 11.4.
"Status Certificate" has the meaning set forth in Section 7.1(g).
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"Subsidiary" means, with respect to any Person, any corporation or other
entity of which a majority of the capital stock or other ownership interests
having ordinary voting power to elect a majority of the board of directors or
other persons performing similar functions are at the time directly or
indirectly owned by such Person. Unless specified to the contrary, "Subsidiary"
means a Subsidiary of the Company.
"Subsidiary Corporate Documents" means the certificates of incorporation
and bylaws of each Subsidiary.
"Taxes" has the meaning set forth in Section 3.9.
"Test Period" shall mean the period from the Revaluation Trigger Date
through and including December 31, 1997.
"Trading Day" shall mean any Business Day in which the NASDAQ Market or
other automated quotation system or exchange on which the Common Stock is then
traded is open for trading for at least four (4) hours.
"Transfer" means any disposition of Securities that would constitute a sale
thereof under the Securities Act.
"Transfer Agent" means the Company's stock transfer agent.
"Transfer Agent Agreement" means the agreement dated the date hereof among
the Company, the Transfer Agent and the Purchasers, dated the date hereof
substantially in the form set forth in Exhibit F.
"Unfunded Liabilities" means, with respect to any Plan at any time, the
amount (if any) by which (i) the present value of all benefits under such Plan
exceeds (ii) the fair market value of all Plan assets allocable to such benefits
(excluding any accrued but unpaid contributions), all determined as of the then
most recent valuation date for such Plan, but only to the extent that such
excess represents a potential liability of a member of the ERISA Group to the
PBGC or any other Person under Title IV of ERISA.
"Warrants" means the Warrants issued to the Purchasers on the Closing Date
in the form of Exhibit G hereto to purchase 100,000 shares of Common Stock in
the aggregate (subject to adjustment as set forth herein).
SECTION 1.2. ACCOUNTING TERMS AND DETERMINATIONS. Unless otherwise
specified herein, all accounting terms used herein shall be interpreted, all
accounting determinations hereunder shall be made, and all financial statements
required to be delivered hereunder shall be prepared, in accordance with
generally accepted accounting principles as in effect from time to time, applied
on a consistent basis (except for changes concurred in by the Company's
independent public accountants) ("GAAP"); PROVIDED that if the Company notifies
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each of the Purchasers that it wishes to amend any covenant in Article VIII to
eliminate the effect of any change in GAAP on the operation of such covenant (or
if either of the Purchasers notifies the Company that the Majority Holders wish
to amend Article VIII for such purpose), then the Company's compliance with such
covenant shall be determined on the basis of GAAP in effect immediately before
the relevant change in GAAP became effective, until either such notice is
withdrawn or such covenant is amended in a manner satisfactory to the Company
and the Majority Holders. All references to "dollars," "Dollars" or "$" are to
United States dollars unless otherwise indicated. All references to the
principal amount or balance of a Convertible Instrument shall, with respect to
the Preferred Shares, mean and constitute the liquidation preference thereof as
set forth in the Certificate of Designation. All references to interest payable
with respect to a Convertible Instrument shall, with respect to the Preferred
Shares, mean and constitute a reference to dividends.
ARTICLE II
PURCHASE AND SALE OF SECURITIES
SECTION 2.1. COMMITMENT TO PURCHASE.
(a) Subject to the terms and conditions set forth herein, the Company
agrees to issue and sell and, subject to the terms and conditions set forth
herein and in reliance on the representations and warranties of the Company
contained herein, the Purchasers agree to purchase, the Securities as set forth
below.
(b) Each Purchaser shall acquire a portion of the Convertible Notes
on the Closing Date in an aggregate principal amount of $7,500,000 at an
aggregate purchase price of $7,500,000.
(c) Each Purchaser shall acquire a portion of the Grant Shares on the
Closing Date at a purchase price equal to the product of $.01 multiplied by the
number of Grant Shares acquired.
(d) Each Purchaser shall acquire on the Closing Date a portion of the
Warrants to purchase 100,000 shares of Common Stock at a purchase price of
$1.00.
(e) The portion of the Convertible Notes, Grant Shares and Warrants
to be acquired by each Purchaser is set forth on SCHEDULE I attached hereto.
(f) The aggregate consideration payable pursuant to Section 2.1(b),
(c) and (d) above is collectively referred to as the "Purchase Price."
SECTION 2.2. PURCHASE OF SECURITIES. (a) On the Closing Date, subject to
the satisfaction of all terms and conditions set forth herein, each of the
Purchasers shall deliver by wire transfer to the Transfer Agent immediately
available funds in an amount equal to the portion
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of the aggregate Purchase Price of the Convertible Notes, Warrants and Grant
Shares to be purchased by it on the Closing Date, in the proportions as set
forth on SCHEDULE I attached hereto.
(b) On the Closing Date, against payment as set forth in subsection 2.2
(a) above, the Company shall deliver to the Transfer Agent (i) a single
Convertible Note for each Purchaser representing the principal amount of such
Convertible Note issued to such Purchaser as of the Closing Date, (ii) a single
share of Common Stock for each Purchaser representing the aggregate Grant Shares
issued to such Purchaser as of the Closing Date and (iii) a single Warrant for
each Purchaser representing the aggregate Warrants issued to such Purchaser as
of the Closing Date.
(c) As contemplated by the Transfer Agent Agreement, immediately upon
receipt of the items specified in subsections 2.2 (a) and (b) above, the
Transfer Agent shall (i) disburse the Purchase Price in accordance with Section
1 of the Transfer Agent Agreement, (ii) deliver the Grant Shares and Warrants to
the Purchasers and (iii) retain the Convertible Notes for the benefit of the
Purchasers, as described therein.
(d) As further contemplated by Section 1(d) of the Transfer Agent
Agreement, in lieu of effecting the closing of the purchase and sale of the
Securities through the Transfer Agent, the Company and the Purchasers may
consummate the deliveries described above in the manner described in Section
1(d) of the Transfer Agent Agreement.
ARTICLE III
PAYMENT TERMS OF CONVERTIBLE INSTRUMENTS
SECTION 3.1. PAYMENT OF INTEREST. Interest shall accrue on the principal
amount of the Convertible Notes and shall be payable as provided therein.
SECTION 3.2. PAYMENT OF PRINCIPAL AT MATURITY. The Company shall repay
the unpaid principal balance of the Convertible Notes on the Maturity Date.
SECTION 3.3. PAYMENT OF DIVIDENDS. Dividends shall accrue on the
Preferred Shares as provided in the Certificate of Designation and shall be
payable as provided therein.
SECTION 3.4. VOLUNTARY PREPAYMENTS OF CONVERTIBLE INSTRUMENTS.
(a) Following the expiration of the Bridge Period, the Company may, at its
option, following twenty (20) days prior written notice to the Purchasers (the
expiration of such 20 day period being referred to as the "prepayment date")
prepay all or any portion of the Convertible Instruments remaining unconverted
on the prepayment date at the Formula Price, without any premium or penalty,
specifying the amount of the prepayment. Partial prepayments shall be in an
aggregate principal amount of $250,000 or a multiple thereof.
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(b) The Par Value Redemption Price shall mean the aggregate principal
amount of the applicable Convertible Notes or liquidation preference of the
Preferred Shares, as applicable, being redeemed, plus any accrued and unpaid
interest on the Convertible Notes and dividends on the Preferred Shares, as
applicable, through the applicable date of consummation of the redemption as
specified in Section 3.6 below. The Formula Price shall mean the sum of (A) the
product of (i) the number of shares of Common Stock into which the Convertible
Instruments being redeemed are then convertible at the Conversion Price and (ii)
the Closing Bid Price for the five (5) Trading Days ending two (2) Business Days
immediately preceding the applicable date of consummation of the redemption as
specified in Section 3.6 below, and (B) accrued and unpaid interest on the
Convertible Notes and dividends on the Preferred Shares, as applicable.
SECTION 3.5. MANDATORY PREPAYMENTS.
(a) Upon (i) the occurrence of a Change of Control of the Company, (ii) a
transfer of all or substantially all of the assets of the Company to any Person
in a single transaction or series of related transactions or (iii) a
consolidation, merger or amalgamation of the Company with or into another Person
(other than a merger (x) which does not result in any reclassification,
conversion, exchange or cancellation of outstanding shares of Common Stock or
(y) which is effected solely to change the jurisdiction of incorporation of the
Company and results in a reclassification, conversion or exchange of outstanding
shares of Common Stock solely into shares of Common Stock), the Company shall
redeem all of the Convertible Instruments in cash for (I) the Par Value
Redemption Price, if such redemption occurs prior to the expiration of the
Bridge Period, and (II) the Formula Price, if such redemption occurs after the
expiration of the Bridge Period.
(b) Upon the consummation of one or more Equity Financings, the Company
shall use 100% of the Net Cash Proceeds therefrom to redeem the Convertible
Instruments. The redemption price payable upon any such redemption shall be (x)
the Par Value Redemption Price, if such redemption occurs prior to the
expiration of the Bridge Period, and (y) the Formula Price, if such redemption
occurs after the expiration of the Bridge Period.
(c) If Taxes are imposed upon the Company, the Company shall have the
right following twenty (20) days prior written notice to the Purchasers (the
expiration of such 20-day period being referred to as the "redemption date") to
prepay all or any portion of Convertible Instruments remaining unconverted on
the redemption date and held by a party subject to Taxes for (x) the Par Value
Redemption Price, if such redemption occurs prior to the expiration of the
Bridge Period, and (y) the Formula Price, if such redemption occurs after the
expiration of the Bridge Period.
(d) Immediately after the voluntary redemption by the Company of the IPO
Warrants pursuant to their terms, the Company shall redeem at least $5,000,000
of the remaining principal balance of the Convertible Instruments for (x) the
Par Value Redemption Price, if such redemption occurs prior to the expiration of
the Bridge Period, and (y) the Formula Price, if such redemption occurs after
the expiration of the Bridge Period.
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(e) Upon any exercise by the holders thereof of the IPO Warrants, the
Company shall use 100% of the Net Cash Proceeds received in connection therewith
to redeem the remaining principal balance of the Convertible Instruments for (x)
the Par Value Redemption Price, if such redemption occurs prior to the
expiration of the Bridge Period, and (y) the Formula Price, if such redemption
occurs after the expiration of the Bridge Period.
(f) Upon the receipt of any proceeds from key-man life insurance policies
on the lives of key executive officers of the Company (including, without
limitation, Earl Takefman), the Company shall use such proceeds to redeem the
remaining principal balance of the Convertible Instuments for (x) the Par Value
Redemption Price, if such redemption occurs prior to Rthe expiration of the
Bridge Period, and (y) the Formula Price, if such redemption occurs after the
expiration of the Bridge Period.
SECTION 3.6. PREPAYMENT PROCEDURES.
(a) Any prepayment or redemption pursuant to Section 3.4 or 3.5 above of
the Convertible Instruments shall be deemed to be consummated (for purposes of
determining the Par Value Redemption Price or Formula Price, as applicable, and
the time at which the Purchasers shall thereafter not be entitled to deliver a
Notice of Conversion for the Convertible Instruments) as follows:
(I) A redemption pursuant to Section 3.4(a), the "prepayment
date" specified therein;
(II) A redemption pursuant to Section 3.5(a), the date of
consummation of the applicable merger or asset sale;
(III) A redemption pursuant to Section 3.5(b), the date of
consummation of the applicable Equity Financing;
(IV) A redemption pursuant to Section 3.5(c), the "redemption
date" specified therein;
(V) A redemption pursuant to Section 3.5(d), the date of the
announcement of the redemption specified therein;
(VI) A redemption pursuant to Section 3.5(e), five (5) Business
Days following the receipt by the Company of all of the Net Cash Proceeds
specified therein; and
(VII) A redemption pursuant to Section 3.5(f), five (5) Business
Days following receipt of the insurance proceeds specified therein.
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(b) Within one (1) Business Day after (x) the Maturity Date or (y) the
effective date of a repayment or redemption of the Convertible Instruments as
specified in Section 3.7(a) above, the Company shall deposit the applicable
redemption price with the Transfer Agent for immediate delivery to each
Purchaser of the Convertible Instruments subject to redemption as contemplated
by the Transfer Agent Agreement. Should any Purchaser not receive payment of
any amounts due on redemption of its Convertible Instruments by reason of the
Company's failure to make payment at the times prescribed above for any reason
(other than as a result of an action taken by Purchaser in breach of this
Agreement), the Company shall pay to the applicable holder on demand (x)
interest on the sums not paid when due at an annual rate equal to the lesser of
(I) the maximum lawful rate and (II) the then applicable interest or dividend
rate on the Convertible Instruments being redeemed plus four percent (4%)
compounded at the end of each thirty (30) days, until the applicable holder is
paid in full and (y) all costs of collection, including, but not limited to,
reasonable attorneys' fees and costs, whether or not suit or other formal
proceedings are instituted.
(c) The Company shall redeem all of the Preferred Shares issued and
outstanding prior to redemption of any of the Convertible Notes. In addition,
the Company shall select the Convertible Instruments to be redeemed in any
redemption in which not all of the Convertible Instruments are to be redeemed so
that the ratio of the Convertible Instruments of each holder selected for
redemption to the total Convertible Instruments owned by that holder shall be
the same as the ratio of all such Convertible Instruments selected for
redemption bears to the total of all then outstanding Convertible Instruments.
Should any Convertible Instruments be required to be redeemed under the terms
hereof not be redeemed solely by reason of limitations imposed by law, the
applicable Convertible Instruments shall be redeemed on the earliest possible
dates thereafter that the applicable Convertible Instruments may be redeemed to
the maximum extent permitted by law.
(d) Any Notice of Conversion delivered by the Purchasers (including
delivery via telecopy) to the Company and the Transfer Agent prior to the (x)
Maturity Date or (y) effective date of a redemption specified in Section 3.6(a)
above, shall be honored by the Company and the conversion of the Convertible
Instruments shall be deemed effected on the Conversion Date.
SECTION 3.7. RANKING. The Convertible Notes will rank as senior,
unsecured obligations of the Company.
SECTION 3.8. PREFERRED SHARES EXCHANGE. Effective January 1, 1998, the
aggregate outstanding principal amount of Convertible Notes exceeding $2,500,000
shall be automatically exchanged for an equal amount of Preferred Shares (based
upon the liquidation preference per share as provided in the Certificate of
Designation) (the "Recapitalization Event"). In connection therewith:
(a) The Company shall file with the Secretary of State of
Delaware the Certificate of Designation, providing the Purchasers with evidence
thereof.
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(b) The Company shall issue the appropriate number of Preferred
Shares in the name of each Purchaser (based upon the portion of the Convertible
Notes exchanged therefor) and shall deliver the same to the Transfer Agent to be
held pursuant to the terms of the Transfer Agent Agreement, providing the
Purchasers with evidence thereof.
(c) The Company shall direct the Transfer Agent to record in the
Accounting Ledger (as defined in the Transfer Agent Agreement) the reduction in
the principal balance of the Convertible Notes converted into the Preferred
Shares, providing the applicable Purchaser with evidence thereof.
(d) The Recapitalization Event shall be effective without further action
of the Company or the Purchasers on the earlier of (x) January 1, 1998, if the
Company complies with the delivery requirements specified herein on or before
January 5, 1998, or (y) the date all of such delivery requirements as so
completed.
SECTION 3.9. PAYMENT OF ADDITIONAL AMOUNTS. (a) Any and all payments by
the Company hereunder or under the Convertible Instruments to any Purchaser and
each "qualified assignee" thereof shall be made free and clear of and without
deduction or withholding for any and all present or future taxes, levies,
imposts, deductions, charges or withholdings, and all liabilities with respect
thereto (all such taxes, levies, imposts, deductions, charges, withholdings and
liabilities being hereinafter referred to as "Taxes") unless such Taxes are
required by law or the administration thereof to be deducted or withheld. If
the Company shall be required by law or the administration thereof to deduct or
withhold any Taxes from or in respect of any sum payable under the Convertible
Instruments (i) the sum payable shall be increased as may be necessary so that
after making all required deductions or withholdings (including deductions or
withholdings applicable to additional amounts paid under this Section 3.9) such
Purchaser receives an amount equal to the sum it would have received if no such
deduction or withholding had been made; (ii) the Company shall make such
deductions or withholdings; and (iii) the Company shall forthwith pay the full
amount deducted or withheld to the relevant taxation or other authority in
accordance with applicable law. A "qualified assignee" of a Purchaser is a
Person that is organized under the laws of (I) the United States or (II) any
jurisdiction other than the United States or any political subdivision thereof
and that (y) represents and warrants to each of the Company that payments of the
Company to such assignee under the laws in existence on the date of this
Agreement would not be subject to any Taxes and (z) from time to time, as and
when requested by the Company, executes and delivers to the Company and the
Internal Revenue Service forms, and provides the Company with any information,
necessary to establish such assignee's continued exemption from Taxes under
applicable law.
(b) The Company shall forthwith pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies (all such taxes, charges and levies hereinafter referred to as "Other
Taxes") which arise from any payment made under any of the Financing Documents
or from the execution, delivery or registration of, or otherwise with respect
to, this Agreement.
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(c) The Company shall indemnify each Purchaser, or qualified assignee, for
the full amount of Taxes or Other Taxes (including, without limitation, any
Taxes or Other Taxes imposed by any jurisdiction on amounts payable under this
Section 3.9) paid by each Purchaser, or qualified assignee, and any liability
(including penalties, interest and expenses) arising therefrom or with respect
thereto, whether or not such Taxes or Other Taxes were correctly or legally
asserted. Payment under this indemnification shall be made within 30 days from
the date such Purchaser or assignee makes written demand therefor. A certificate
as to the amount of such Taxes or Other Taxes submitted to the Company by such
Purchaser or assignee shall be conclusive evidence of the amount due from the
Company to such party.
(d) Within 30 days after the date of any payment of Taxes, the Company
will furnish to each Purchaser the original or a certified copy of a receipt
evidencing payment thereof.
ARTICLE IV
ADDITIONAL GRANT SHARES
SECTION 4.1. ADDITIONAL GRANT SHARES. Upon expiration of the Test
Period, the Company shall issue the Additional Grant Shares to the Purchasers
if, but only if, the Closing Bid Prices of the Common Stock for each Trading Day
during any consecutive 10 Trading Days during the Test Period does not equal at
least $10.675 per share (adjusted for any event specified in Article XI below).
All such Additional Grant Shares shall be delivered no later than January 5,
1998 to the Purchasers pro rata according to the number of Grant Shares issued
on the Closing Date, and in exchange thereof, the Purchasers shall pay to the
Company in cash the product of $.01 multiplied by the number of Additional Grant
Shares so issued.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
The Company represents and warrants to the Purchasers as of the Closing
Date as set forth herewith.
SECTION 5.1. CORPORATE EXISTENCE AND POWER. The Company and each
Subsidiary is a corporation (or other legal entity) duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and is duly qualified to conduct business as a foreign
corporation, and has all corporate power and all material governmental licenses,
authorizations, consents and approvals required to carry on its business as now
conducted and as proposed to be conducted, except where such failure would not
have a material adverse effect on the Company or the ability of the Company to
continue its current operations.
SECTION 5.2. AUTHORIZATION AND EXECUTION. The execution, delivery and
performance by the Company of each Financing Document and the issuance by the
Company of
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the Securities have been duly and validly authorized and are within its
corporate powers. This Agreement has been duly executed and delivered by the
Company and constitutes the valid and binding agreement of the Company. Each of
the Financing Documents constitutes the valid and binding obligation of the
Company, in each case enforceable against the Company in accordance with its
respective terms, subject to (i) applicable bankruptcy, insolvency or similar
laws affecting creditors rights generally and (ii) equitable principles of
general applicability.
SECTION 5.3. GOVERNMENTAL AUTHORIZATION.
(a) The execution and delivery by the Company of the Financing
Documents does not and will not, the issuance and sale by the Company of the
Securities does not and will not, and the consummation of the transactions
contemplated hereby and thereby will not, require any action by or in respect
of, or filing with, any governmental body, agency or governmental official
except (a) such actions or filings that have been undertaken or made prior to
the date hereof and that will be in full force and effect (or as to which all
applicable waiting periods have expired) on and as of the date hereof or which
are not required to be filed on or prior to the Closing Date, (b) such actions
or filings that, if not obtained, would not in the aggregate impose materially
adverse conditions upon the Company and (c) listing applications ("Listing
Applications") to be filed with NASDAQ relating to the Grant Shares, Additional
Grant Shares (if issued) and the shares of Common Stock issuable upon conversion
of the Convertible Instruments and exercise of the Warrants.
(b) When issued and delivered in accordance with the terms of this
Agreement, the Grant Shares, Additional Grant Shares (if issued) and the
Preferred Shares (if issued) will be duly and validly issued and outstanding,
fully paid and nonassessable, free and clear of all claims or pre-emptive
rights. Upon conversion in accordance with the terms of the Convertible
Instruments, or upon exercise in accordance with the terms of the Warrants
(assuming payment of the exercise price set forth in the Warrants), the shares
of Common Stock when issued upon conversion or exercise thereof shall be duly
and validly issued and outstanding, fully paid and nonassessable, free and clear
of any claims or pre-emptive rights. Assuming the representations and
warranties of the Purchasers herein are true and correct in all material
respects, each of the Securities will have been issued in material compliance
with all applicable U.S. federal and state securities laws.
SECTION 5.4. CONTRAVENTION. The execution and delivery by the Company of
the Financing Documents to which it is a party did not and will not, the
issuance and sale by the Company of the Securities did not and will not and the
consummation of the transactions contemplated hereby and thereby will not,
contravene or constitute a default under or violation of (i) any provision of
applicable law or regulation, (ii) the amended and restated articles of
incorporation or by-laws of the Company or any Subsidiary or (iii) any
agreement, judgment, injunction, order, decree or other instrument binding upon
the Company or any Subsidiary or any of their respective assets, or result in
the creation or imposition of any Lien on any asset of the Company or any
Subsidiary. The Company and each Subsidiary is in compliance with and conforms
to all statutes, laws, ordinances, rules, regulations, orders, restrictions and
all other
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legal requirements of any domestic or foreign government or any instrumentality
thereof having jurisdiction over the conduct of its businesses or the ownership
of its properties, except where such failure would not have a material adverse
effect on the business, condition (financial or otherwise), operations,
performance, properties or prospects of such corporation.
SECTION 5.5. FINANCIAL INFORMATION AND SEC REPORTS. The Company has
timely filed all forms, reports and documents with the Commission since July 24,
1996, required to be filed by it under the Exchange Act through the date hereof
(collectively, the "SEC Reports"). Such SEC Reports, at the time filed,
complied as to form in all material respects with the requirements of the
Exchange Act. None of the SEC Reports, including without limitation any
financial statements or schedules included therein, contains any untrue
statement of a material fact or omits to state a material fact necessary in
order to make the statements made, in light of the circumstances under which
they were made, not misleading. there have been no material adverse changes in
the Company=s business, properties, results of operations, condition (financial
or otherwise) or prospects since the date of the Company=s most recent Report on
Form 10-K for the year ended December 31, 1996, which have not been disclosed to
the Purchasers in writing. The audited and unaudited consolidated balance
sheets of the Company and its Subsidiaries contained in the SEC Reports, and the
related consolidated statements of income, changes in stockholders= equity and
changes in cash flows for the periods ended December 31, 1996 (the consolidated
balance sheet of the Company and its subsidiaries as of December 31, 1996 is
hereinafter referred to as the "Balance Sheet"), including the footnotes
thereto, except as indicated therein, have been prepared in accordance with GAAP
consistently followed throughout the periods indicated, except that the
unaudited financial statements do not contain notes and may be subject to normal
audit adjustments and normal annual adjustments. The Balance Sheet fairly
presents the financial condition of the Company and its Subsidiaries at the date
thereof and, except as indicated therein, reflects all claims against and all
debts and liabilities of the Company and its Subsidiaries, fixed or contingent,
as at the date thereof and the related statements of income, stockholders=
equity and changes in cash flows fairly present the results of the operations of
the Company and its Subsidiaries and the changes in their financial position for
the period indicated. Since December 31, 1996 (the "Balance Sheet Date"),
except as disclosed in the SEC Reports, there has been (x) no material adverse
change in the assets or liabilities, or in the business or condition, financial
or otherwise, or in the results of operations or prospects, of the Company and
its subsidiaries, whether as a result of any legislative or regulatory change,
revocation of any license or rights to do business, fire, explosion, accident,
casualty, labor trouble, flood, drought, riot, storm, condemnation, act of God,
public force or otherwise and (y) no material adverse change in the assets or
liabilities, or in the business or condition, financial or otherwise, or in the
results of operations or prospects, of the Company and its Subsidiaries except
in the ordinary course of business; and no fact or condition exists or is
contemplated or threatened which might cause such a change in the future.
SECTION 5.6. LITIGATION. There is no action, suit or proceeding pending
or, to the knowledge of the Company, threatened against the Company or any
Subsidiary, before any court or arbitrator or any governmental body, agency or
official in which there is a reasonable possibility of an adverse decision which
could materially adversely affect the business, condition
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(financial or otherwise), operations, performance, properties or prospects of
the Company or which challenges the validity of any Financing Document.
SECTION 5.7. COMPLIANCE WITH ERISA AND OTHER BENEFIT PLANS.
(a) Each member of the ERISA Group has fulfilled its obligations under the
minimum funding standards of ERISA and the Internal Revenue Code with respect to
each Plan and is in compliance in all material respects with the presently
applicable provisions of ERISA and the Internal Revenue Code with respect to
each Plan. No member of the ERISA Group has (i) sought a waiver of the minimum
funding standard under Section 412 of the Internal Revenue Code in respect of
any Plan, (ii) failed to make any required contribution or payment to any Plan
or Multiemployer Plan or in respect of any Benefit Arrangement, or made any
amendment to any Plan or Benefit Arrangement, which has resulted or could result
in the imposition of a Lien or the posting of a bond or other security under
ERISA or the Internal Revenue Code or (iii) incurred any liability under Title
IV of ERISA other than a liability to the PBGC for premiums under Section 4007
of ERISA
(b) The benefit plans not covered under clause (a) above (including profit
sharing, deferred compensation, stock option, employee stock purchase, bonus,
retirement, health or insurance plans, collectively the "Benefit Plans")
relating to the employees of the Company are duly registered where required by,
and are in good standing in all material respects under, all applicable laws.
All required employer and employee contributions and premiums under the Benefit
Plans to the date hereof have been made, the respective fund or funds
established under the Benefit Plans are funded in accordance with applicable
laws, and no past service funding liabilities exist thereunder.
(c) No Benefit Plans have any unfunded liabilities, either on a "going
concern" or "winding up" basis and determined in accordance with all applicable
laws and actuarial practices and using actuarial assumptions and methods that
are reasonable in the circumstances. No event has occurred and no condition
exists with respect to any Benefit Plans that has resulted or could reasonably
be expected to result in any pension plan having its registration revoked or
wound up (in whole or in part) or refused for the purposes of any applicable
laws or being placed under the administration of any relevant pension benefits
regulatory authority or being required to pay any taxes or penalties (in any
material amounts) under any applicable laws.
SECTION 5.8. ENVIRONMENTAL MATTERS. The costs and liabilities associated
with Environmental Laws (including the cost of compliance therewith) are
unlikely to have a material adverse effect on the business, condition (financial
or otherwise), operations, performance, properties or prospects of the Company
or any Subsidiary. Each of the Company and the Subsidiaries conducts its
businesses in compliance in all material respects with all applicable
Environmental Laws.
SECTION 5.9. TAXES. All United States federal, state, county,
municipality local or foreign income tax returns and all other material tax
returns (including foreign tax returns)
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which are required to be filed by or on behalf of the Company and each
Subsidiary have been filed and all material taxes due pursuant to such returns
or pursuant to any assessment received by the Company and each Subsidiary have
been paid except those being disputed in good faith and for which adequate
reserves have been established. The charges, accruals and reserves on the books
of the Company and each Subsidiary in respect of taxes or other governmental
charges have been established in accordance with GAAP.
SECTION 5.10. INVESTMENTS, JOINT VENTURES. The Company has no
Subsidiaries or other direct or indirect Investment in any Person, and the
Company is not a party to any partnership, management, shareholders' or joint
venture or similar agreement.
SECTION 5.11. NOT AN INVESTMENT COMPANY. Neither the Company nor any
Subsidiary is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended.
SECTION 5.12. FULL DISCLOSURE. The information heretofore furnished by
the Company to the Purchasers for purposes of or in connection with this
Agreement or any transaction contemplated hereby does not, and all such
information hereafter furnished by the Company or any Subsidiary to the
Purchasers will not (in each case taken together and on the date as of which
such information is furnished), contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
contained therein, in the light of the circumstances under which they are made,
not misleading.
SECTION 5.13. CAPITALIZATION. As of the date hereof, the authorized,
issued and outstanding capital stock of the Company is as set forth on Schedule
II hereto; and no other shares of capital stock of the Company will be
outstanding. Other than as set forth on Schedule II hereto, there are no
subscriptions, options, warrants, rights, convertible securities, exchangeable
securities or other agreements or commitments of any character pursuant to which
the Company is required to issue any shares of its capital stock.
SECTION 5.14. SOLICITATION. No form of general solicitation or general
advertising was used by the Company or, to the best of its actual knowledge, any
other Person acting on behalf of the Company in connection with the offer and
sale of the Securities. Neither the Company, nor, to its knowledge, any Person
acting on behalf of the Company, has, either directly or indirectly, sold or
offered for sale to any Person (other than the Purchasers) any of the Securities
or, within the six months prior to the date hereof, any other similar security
of the Company except as contemplated by this Agreement, and the Company
represents that neither itself nor any Person authorized to act on its behalf
(except that the Company makes no representation as to the Purchasers and their
Affiliates) will sell or offer for sale any such security to, or solicit any
offers to buy any such security from, or otherwise approach or negotiate in
respect thereof with, any Person or Persons so as thereby to cause the issuance
or sale of any of the Securities to be in violation of any of the provisions of
Section 5 of the Securities Act.
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SECTION 5.15. PERMITS. (a) Each of the Company and its Subsidiaries has
all material Permits as are necessary for the conduct of its business as it has
been carried on; (b) all such Permits are in full force and effect, and each of
the Company and its Subsidiaries has fulfilled and performed all material
obligations with respect to such Permits; (c) no event has occurred which
allows, or after notice or lapse of time would allow, revocation or termination
by the issuer thereof or which results in any other material impairment of the
rights of the holder of any such Permit; and (d) the Company has no reason to
believe that any governmental body or agency is considering limiting, suspending
or revoking any such Permit.
SECTION 5.16. LEASES. Except as disclosed on Schedule III hereto, neither
the Company nor any Subsidiary is a party to any capital lease obligation with a
value greater than $100,000 or to any operating lease with an aggregate annual
rental greater than $100,000 during the life of such lease.
SECTION 5.17. ABSENCE OF ANY UNDISCLOSED LIABILITIES OR CAPITAL CALLS.
There are no liabilities of the Company or any Subsidiary of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable or
otherwise, and there is no existing condition, situation or set of circumstances
which could reasonably be expected to result in such a liability, other than (i)
those liabilities provided for in the financial statements delivered pursuant to
Section 5.5 hereof and (ii) other undisclosed liabilities which, individually or
in the aggregate, are not material to the Company.
SECTION 5.18. GOVERNMENTAL REGULATION. Neither the Company nor any
Subsidiary is, or will be upon the issuance and sale of the Securities and the
use of the proceeds described herein, subject to regulation under the Public
Utility Holding Company Act of 1935, as amended, the Federal Power Act, the
Interstate Commerce Act or to any federal or state statute or regulation
limiting its ability to issue and perform its obligations under any Financing
Document.
SECTION 5.19. INTELLECTUAL PROPERTY RIGHTS. Each of the Company and its
Subsidiaries owns, or is licensed under, and has the rights to use, all material
patents, trademarks, trade names, copyrights, technology, know-how and processes
(collectively, "Intellectual Property") used in, or necessary for the conduct of
its business; no claims have been asserted by any Person to the use of any such
Intellectual Property or challenging or questioning the validity or
effectiveness of any license or agreement related thereto. To the best of the
Company's and its Subsidiaries' knowledge, there is no valid basis for any such
claim and the use of such Intellectual Property by the Company and its
Subsidiaries will not infringe upon the rights of any Person.
SECTION 5.20. INSURANCE. The Company and its Subsidiaries maintain, with
financially sound and reputable insurance companies, insurance in at least such
amounts and against such risks such that any uninsured loss would not have a
material adverse effect on the business, conditon (financial or otherwise),
operations, performance, properties or prospects of the Company. All insurance
coverages of the Company and its Subsidiaries are in full force and effect and
there are no past due premiums in respect of any such insurance.
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SECTION 5.21. TITLE TO PROPERTIES. The Company and its Subsidiaries have
good and indefeasible title to all their respective properties reflected on the
financial statements referred to in Section 5.5, and, except for the Liens
permitted by Section 8.11, there is no Lien on any asset of the Company or its
Subsidiaries. Except for financing statements (or their equivalent) filed,
recorded or registered with respect to Liens permitted by Section 8.11, there
are no currently effective financing statements (or their equivalent) of record
in any jurisdiction covering any tangible or intangible assets of the Company of
any Subsidiary.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
SECTION 6.1. PURCHASE FOR INVESTMENT; AUTHORITY; BINDING AGREEMENT. Each
Purchaser as to itself only hereby represents and warrants to the Company that:
(a) the Purchaser is an "accredited investor" within the meaning of Rule
501(a) under the Securities Act and the Securities to be acquired by it pursuant
to this Agreement are being acquired for its own account and not with a view
toward, or for sale in connection with, any distribution thereof except in
compliance with applicable United States federal and state securities law;
provided that the disposition of the Purchaser's property shall at all times be
and remain within its control;
(b) the execution, delivery and performance of this Agreement and the
purchase of the Securities pursuant hereto are within the Purchaser's corporate
or partnership powers, as applicable, and have been duly and validly authorized
by all requisite corporate or partnership action;
(c) this Agreement has been duly executed and delivered by the Purchaser.
(d) the execution and delivery by the Purchaser of the Financing Documents
to which it is a party does not, and the consummation of the transactions
contemplated hereby and thereby will not, contravene or constitute a default
under or violation of (i) any provision of applicable law or regulation, or (ii)
any agreement, judgment, injunction, order, decree or other instrument binding
upon the Purchasers;
(e) Purchaser understands that the Securities have not been registered
under the Securities Act and may not be transferred or sold except as specified
in this Agreement;
(f) this Agreement constitutes a valid and binding agreement of the
Purchaser enforceable in accordance with its terms, subject to (i) applicable
bankruptcy, insolvency or similar laws affecting creditors rights generally and
(ii) equitable principles of general applicability;
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(g) the Purchaser has such knowledge and experience in financial and
business matters so as to be capable of evaluating the merits and risks of its
investment in the Securities and the Purchaser is capable of bearing the
economic risks of such investment;
(h) the Purchaser is knowledgeable, sophisticated and experienced in
business and financial matters; the Purchaser has previously invested in
securities similar to the Securities and fully understands the limitations on
transfer described under Article IX hereof; the Purchaser has been afforded
access to information about the Company and the financial condition, results of
operations, property, management and prospects of the Company sufficient to
enable it to evaluate its investment in the Securities; the Purchaser has been
afforded 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 the risks of
investing in the Securities; and the Purchaser has been afforded the opportunity
to obtain such additional information which the Company possess or can acquire
that is necessary to verify the accuracy and completeness of the information
given to the Purchaser concerning the Company. The foregoing does not in any
way relieve the Company of its representations and other undertakings hereunder,
and shall not limit the Purchasers' ability to rely thereon;
(i) Infinity Investors Limited and Infinity Emerging Opportunities Limited
are each Nevis West Indies corporations and Lion Capital Partners, L.P. and
Sandera Partners, L.P. are each Texas limited partnerships; and
(j) no part of the source of funds used by the Purchaser to acquire the
Securities constitutes assets allocated to any separate account maintained by
the Purchaser in which any employee benefit plan (or its related trust) has any
interest.
ARTICLE VII
CONDITIONS PRECEDENT TO PURCHASE OF SECURITIES
SECTION 7.1. CLOSING. The closing hereunder shall occur upon the date
upon which each of the following conditions shall be satisfied:
(a) Receipt by each of the Purchasers of a certificate of the chief
financial officer of the Company as to the solvency of the Company, the adequacy
of its capital and its ability to pay its debts, all after giving effect to the
Principal Transactions;
(b) Receipt by each of the Purchasers of evidence satisfactory to it as to
(i) the receipt by the Company of all governmental, board of directors,
shareholders and third party consents and approvals necessary or desirable in
connection with the issuance and sale of the Securities, or the consummation of
the Principal Transactions, (ii) the expiration of all applicable waiting
periods without any action having been taken by any competent authority that
could restrain, prevent or impose any materially adverse conditions thereon or
that could seek or threaten any of
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the foregoing and (iii) the absence of any law or regulation that, in the
judgment of any Purchaser, could have any such effect;
(c) Receipt by each of the Purchasers of duly executed counterparts of
this Agreement, the Registration Rights Agreement and the Transfer Agent
Agreement signed by the Company and, with respect to the Transfer Agent
Agreement, signed by the Transfer Agent;
(d) Each of the Purchasers shall have received an opinion, dated the
Closing Date, of Morgan, Lewis & Bockius, LLP, counsel to the Company, in form
and substance satisfactory to the Purchasers, and shall have received, in form
and substance satisfactory to the Purchasers, such corporate resolutions,
certificates and other documents as the Purchasers shall reasonably request in
writing prior to the Closing Date;
(e) All fees and expenses due and payable by the Company on or prior to
the Closing Date shall have been paid or duly provided for in full as
contemplated by the Transfer Agent Agreement;
(f) The Warrants shall have been duly executed by the parties thereto and
delivered to the Purchasers;
(g) The Purchasers shall have received a certificate executed by the
President, chief executive officer or chief financial officer of the Company (a
"Status Certificate");
(h) The Company (after giving effect to the application of a portion of
the Purchase Price in repayment of the Bartnett Bank Facility), shall not have
any Debt outstanding (other than approximately $770,000 of indebtedness owed to
Charter Financial), and the Purchasers shall have received satisfactory evidence
that the (i) Barnett Bank Facility has been cancelled, (ii) Letters of Credit
issued in connection therewith have been cancelled and (iii) the cash collateral
specified therein has been returned to the Company;
(i) The Company Corporate Documents shall be in full force and effect and
no term or condition thereof shall have been amended, waived or otherwise
modified without the prior written consent of the Purchasers;
(j) There shall have occurred no material adverse change in the business,
condition (financial or otherwise), operations, performance, properties or
prospects of the Company or any Subsidiary since March 31, 1997;
(k) There shall exist no action, suit, investigation, litigation or
proceeding pending or threatened in any court or before any arbitrator or
governmental instrumentality that challenges the validity of or purports to
affect any Financing Document, any Principal Transaction or other transaction
contemplated hereby or thereby or that could reasonably be expected to have a
material adverse effect on the business, condition (financial or otherwise),
operations, performance, properties or prospects of the Company and its
Subsidiaries, taken as a whole, the
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enforceability of the Financing Documents or the Securities or the rights of the
holders of the Securities or the Purchasers hereunder;
(l) The representations and warranties of the Company contained in each
Financing Document shall be true and correct in all respects (in the case of any
representation or warranty containing any materiality qualification) or in all
material respects (in the case of any representation or warranty without any
materiality qualification) and the Company shall have performed and complied
with all covenants and agreements required by such Financing Documents to be
performed or complied with by it at or prior to the Closing Date;
(m) The Transfer Agent shall have confirmed receipt of the Convertible
Notes, Warrants and Grant Shares to be issued, duly executed by the Company and
in the denominations and registered in the names of the Purchasers specified in
or pursuant to Schedule I;
(n) The Purchasers shall have received written evidence that Whale
Securities Co., L.P. shall have consented to the issuance of the Securities and
waived any and all fees payable as a result thereof other than as set forth in
Section 13.7;
(o) Immediately before and after the Closing Date, no Default shall have
occurred and be continuing; and
(p) The Purchasers shall have received all other opinions, certificates,
instruments, agreements or other documents as they shall reasonably request.
SECTION 7.2. CONDITIONS TO THE COMPANY'S OBLIGATIONS. The obligations of
the Company to issue and sell to the Purchasers the Securities to be issued and
sold pursuant to this Agreement are subject to the satisfaction, at or prior to
the Closing Date, of the following conditions:
(a) The representations and warranties of the Purchasers contained herein
shall be true and correct in all material respects on the Closing Date and the
Purchasers shall have performed and complied in all material respects with all
agreements required by this Agreement to be performed or complied with by the
Purchasers at or prior to the Closing Date;
(b) The issue and sale of the Securities by the Company shall not be
prohibited by any applicable law, court order or governmental regulation; and
(c) Receipt by the Company of duly executed counterparts of this
Agreement, the Registration Rights Agreement, and the Transfer Agent Agreement
signed by the Purchasers, and, with respect to the Transfer Agent Agreement,
signed by the Transfer Agent.
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ARTICLE VIII
COVENANTS
The Company hereby agrees that, from and after the date hereof for so long
as any Convertible Instruments (and with respect to Section 8.22, the Warrants)
remain outstanding and for the benefit of the Purchasers and such holders from
time to time of the Convertible Instruments (and with respect to Section 8.22,
the Warrants):
SECTION 8.1. INFORMATION. The Company will deliver to each holder of the
Convertible Instruments:
(a) as soon as available and in any event within 90 days after the end of
each fiscal year of the Company, a consolidated balance sheet of the Company as
of the end of such fiscal year and the related consolidated statements of income
and cash flows and stockholders' equity for such fiscal year, setting forth in
each case in comparative form the figures for the previous fiscal year, all
reported on in a manner acceptable to the Commission by independent public
accountants of nationally recognized standing;
(b) as soon as available and in any event within 45 days after the end of
each of the first three fiscal quarters of each fiscal year of the Company, a
consolidated balance sheet of the Company as of the end of such quarter and the
related consolidated statements of income and cash flows and stockholders'
equity for such quarter and for the portion of the Company's fiscal year ended
at the end of such quarter, setting forth in each case in comparative form the
figures for the corresponding quarter and the corresponding portion of the
Company's previous fiscal year, all certified (subject to footnote presentation
and normal year-end adjustments) as to fairness of presentation, generally
accepted accounting principles and consistency by the chief financial officer or
the chief accounting officer of the Company;
(c) simultaneously with the delivery of each set of financial statements
referred to in clauses (a) and (b) above, a certificate from the Company stating
that no Default has occurred and is continuing, or, if as of the date of such
delivery a Default shall have occurred and be continuing, a certificate from the
Company setting forth the details of such Default and the action which the
Company is taking or proposes to take with respect thereto;
(d) within two days after any officer of the Company obtains knowledge of
a Default, a certificate of the chief financial officer or the chief accounting
officer of the Company setting forth the details thereof and the action which
the Company is taking or proposes to take with respect thereto;
(e) promptly upon the mailing thereof to the shareholders of the Company
generally, copies of all financial statements, reports and proxy statements so
mailed and any other document generally distributed to shareholders;
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(f) promptly upon the filing hereof, copies of all registration statements
(other than the exhibits thereto and any registration statements on Form S-8 or
its equivalent) and reports on Forms 10-K, 10-Q and 8-K (or their equivalents)
which the Company or any Subsidiary has filed with the Commission;
(g) if and when any member of the ERISA Group (i) gives or is required to
give notice to the PBGC of any "reportable event" (as defined in Section 4043 of
ERISA) with respect to any Plan which might constitute grounds for a termination
of such Plan under Title IV of ERISA, or knows that the plan administrator of
any Plan has given or is required to give notice of any such reportable event, a
copy of the notice of such reportable event given or required to be given to the
PBGC; (ii) receives notice of complete or partial withdrawal liability under
Title IV of ERISA or notice that any Multiemployer Plan is in reorganization, is
insolvent or has been terminated, a copy of such notice; (iii) receives notice
from the PBGC under Title IV of ERISA of an intent to terminate, impose
liability (other than for premiums under Section 4007 of ERISA) in respect of,
or appoint a trustee to administer any Plan, a copy of such notice; (iv) applies
for a waiver of the minimum funding standard under Section 412 of the Internal
Revenue Code, a copy of such application; (v) gives notice of intent to
terminate any Plan under Section 4041(c) of ERISA, a copy of such notice and
other information filed with the PBGC; (vi) gives notice of withdrawal from any
Plan pursuant to Section 4063 of ERISA, a copy of such notice; or (vii) fails to
make any required payment or contribution to any Plan or Multiemployer Plan or
in respect of any Benefit Arrangement or makes any amendment to any Plan or
Benefit Arrangement which has resulted or could result in the imposition of a
Lien or the posting of a bond or other security, a certificate of the chief
financial officer or the chief accounting officer of the Company setting forth
details as to such occurrence and action, if any, which the Company or
applicable member of the ERISA Group is required or proposes to take;
(h) promptly following the commencement thereof, notice and a description
in reasonable detail of any litigation or proceeding to which the Company or any
Subsidiary is a party in which the amount involved is $250,000 or more and not
covered by insurance or in which injunctive or similar relief is sought;
(i) promptly following the occurrence thereof, notice and a description in
reasonable detail of any material adverse change, or development involving a
prospective material adverse change, in the business, operations, property,
condition (financial or otherwise) or prospects of the Company, taken as a
whole; and
(j) from time to time such additional information regarding the financial
position or business of any of the Company and its Subsidiaries as the
Purchasers may reasonably request.
SECTION 8.2. PAYMENT OF OBLIGATIONS. The Company and its Subsidiaries
will pay and discharge, at or before maturity, all their respective material
obligations, including, without limitation, tax liabilities, except where the
same may be contested in good faith by appropriate proceedings and will
maintain, in accordance with GAAP, appropriate reserves for the accrual of any
of the same.
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SECTION 8.3. MAINTENANCE OF PROPERTY; INSURANCE. (a) The Company and
each Subsidiary will keep, all property useful and necessary in its business in
good working order and condition, ordinary wear and tear excepted.
(b) The Company and each Subsidiary will maintain insurance in at least
such amounts and against such risks as it has insured against as of the Closing
Date.
(c) The Company will maintain key-man life insurance of at least
$5,000,000 on the life of Earl Takefman naming the Company as the sole
beneficiary thereof.
SECTION 8.4. MAINTENANCE OF EXISTENCE. The Company will continue, and
each Subsidiary will continue, to engage in business of the same general type as
now conducted by the Company and such Subsidiaries, and will preserve, renew and
keep in full force and effect its respective corporate existence and their
respective material rights, privileges and franchises necessary or desirable in
the normal conduct of business.
SECTION 8.5. COMPLIANCE WITH LAWS. The Company and each Subsidiary will
comply, in all material respects, with all federal, state, municipal, local or
foreign applicable laws, ordinances, rules, regulations, municipal by-laws,
codes and requirements of governmental authorities (including, without
limitation, Environmental Laws and ERISA and the rules and regulations
thereunder) except (i) where compliance therewith is contested in good faith by
appropriate proceedings or (ii) where non-compliance therewith could not
reasonably be expected, in the aggregate, to have a material adverse effect on
the business, condition (financial or otherwise), operations, performance,
properties or prospects of the Company or such Subsidiary.
SECTION 8.6. INSPECTION OF PROPERTY, BOOKS AND RECORDS. The Company and
each Subsidiary will keep proper books of record and account in which full, true
and correct entries shall be made of all dealings and transactions in relation
to their respective businesses and activities; and will permit during normal
business hours representatives of the Purchasers to visit and inspect any of
their respective properties, upon reasonable prior notice, to examine and make
abstracts from any of their respective books and records and to discuss their
respective affairs, finances and accounts with their respective executive
officers and independent public accountants, all at such reasonable times.
SECTION 8.7. INVESTMENT COMPANY ACT. The Company will not be or become
an open-end investment trust, unit investment trust or face-amount certificate
company that is or is required to be registered under Section 8 of the
Investment Company Act of 1940, as amended.
SECTION 8.8. LIMITATION ON DEBT OR OTHER LIABILITIES. Neither the
Company nor any Subsidiary will create, incur, assume or suffer to exist (at any
time after the Closing Date, after giving effect to the application of the
proceeds of the issuance of the Securities) any Debt, except for the following
(such Debt, "Permitted Debt"):
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(i) Debt incurred or assumed solely to pay all or any part of the
purchase price or cost of construction, of property (or any improvement thereon)
acquired or constructed by the Company or a Subsidiary after the Closing Date
provided: (a) any Lien with respect to such Debt shall extend solely to the
item or items of such property (or improvements thereon) so acquired or
constructed and, if required by the terms of the instrument originally creating
such Lien, other property (or improvement thereon) which is an improvement to or
is acquired for specific use in connection with such acquired or constructed
property (or improvement thereon) or which is real property being improved by
such acquired or constructed property (or improvement thereon); (b) the
principal amount of the Debt for such property shall at no time exceed an amount
equal to the cost of the operation of the property (or improvement thereon) so
acquired or constructed; and (c) any Lien with respect to such Debt shall be
created substantially contemporaneously with the acquisition or construction of
such property;
(ii) Debt incurred in connection with equipment leases to which the
Company or its Subsidiary is a party incurred in the ordinary course of
business;
(iii) Debt incurred in connection with trade accounts payable,
imbalances and refunds arising in the ordinary course of business;
(iv) Revolving Credit Debt;
(v) Debt incurred with respect to the Convertible Notes; and
(vi) Debt outstanding as of Closing Date and listed on Schedule V.
SECTION 8.9. RESTRICTED PAYMENTS. Neither the Company nor any Subsidiary
will declare or make Restricted Payments in excess of $100,000 during any
calendar year.
SECTION 8.10. INVESTMENTS. Neither the Company nor any Subsidiary will
make or acquire any Investment in any Person other than (a) Investments in Cash
Equivalents and (b) Investments in Subsidiaries existing on the Closing Date.
SECTION 8.11. LIENS. Neither the Company nor any Subsidiary will create,
assume or suffer to exist any Lien on any asset now owned or hereafter acquired
by it, except:
(i) (A) inchoate mechanics, workmen's and carriers' liens,
incident to current construction, (B) mechanics, warehousemen's, unpaid
vendors and carriers' liens incident to such construction, (C) statutory
and common law Liens of landlords under equipment leases to which the
Company or any Subsidiary is a party and (D) Liens of carriers,
warehousemen, mechanics and materialmen or other similar statutory Liens;
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(ii) Liens incurred on deposits made in the ordinary course
of business in connection with workers' compensation, performance bonds,
unemployment insurance and other types of social security, other than any
Lien imposed by or under ERISA;
(iii) Liens for taxes not yet due;
(iv) Easements, rights of way, permits, licenses, zoning
ordinances, covenants, restrictions, defects, minor irregularities of title
and other similar Liens on property which in the case of any particular
parcel of real property do not materially detract from the value or
utilization of such real property;
(v) Liens created by or resulting from any litigation or legal
proceeding which is currently being contested by such Company or Subsidiary
in good faith and by appropriate proceedings; and
(vi) Liens securing Permitted Debt.
SECTION 8.12. TRANSACTIONS WITH AFFILIATES. The Company and each
Subsidiary will not, directly or indirectly, pay any funds to or for the account
of, make any investment (whether by acquisition of stock or indebtedness, by
loan, advance, transfer of property, guarantee or other agreement to pay,
purchase or service, directly or indirectly, any Debt, or otherwise) in, lease,
sell, transfer or otherwise dispose of any assets, tangible or intangible, to,
or participate in, or effect any transaction in connection with any joint
enterprise or other joint arrangement with, any Affiliate, except, on terms to
the Company or such Subsidiary no less favorable than terms that could be
obtained by the Company or such Subsidiary from a Person that is not an
Affiliate of the Company, as determined in good faith by the Board of Directors
of the Company; PROVIDED that no determination of the Board of Directors shall
be required with respect to any such transactions entered into in the ordinary
course of business.
SECTION 8.13. MERGER OR CONSOLIDATION. The Company and each Subsidiary
will not, in a single transaction or a series of related transactions, (i)
consolidate with or merge with or into any other Person, or (ii) permit any
other Person to consolidate with or merge into it, unless (w) either (A) the
Company shall be the survivor of such merger or consolidation or (B) the
surviving Person shall expressly assume by supplemental agreement all of the
obligations of the Company under the Securities and this Agreement; (x)
immediately before and immediately after giving effect to such transaction
(including any indebtedness incurred or anticipated to be incurred in connection
with the transaction), no Default or Event of Default shall have occurred and be
continuing and, following the transaction, the Company may incur $1.00 of Debt
without violating Section 8.8 hereof; (y) if the Company is not the surviving
entity, such surviving entity's common shares shall be listed on either The New
York Stock Exchange, American Stock Exchange, or NASDAQ National Market or
NASDAQ Small Cap Market and (z) the Company has delivered to the Purchasers an
officers' certificate and opinion of counsel, each stating that such
consolidation, merger or transfer complies with this Agreement, that the
surviving Person agrees to be bound thereby and that all conditions precedent in
this Agreement relating to such
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transaction have been satisfied; PROVIDED, however, nothing contained in this
Section 8.13 shall alter or diminish the Company's obligations under Section
3.5(a) of this Agreement.
SECTION 8.14. SUPPLEMENTAL INFORMATION. If at any time the Company is not
subject to the requirements of Section 13 or 15(d) of the Exchange Act, the
Company will promptly furnish at its expense, upon request, for the benefit of
the holders from time to time of Securities, and prospective purchasers of
Securities, information satisfying the information requirements of Rule 144
under the Securities Act.
SECTION 8.15. USE OF PROCEEDS. The proceeds from the issuance and sale of
the Securities by the Company shall be used solely to (i) repay the remaining
outstanding balance due and owing on the Barnett Bank Facility, which shall not
exceed $3,000,000 plus accrued and unpaid interest thereon on the Closing Date
and certain fees and expenses not to exceed $50,000, and (ii) general corporate
purposes. None of the proceeds from the issuance and sale of Securities by the
Company pursuant to this Agreement will be used directly or indirectly for the
purpose, whether immediate, incidental or ultimate, of purchasing or carrying
any "margin stock" within the meaning of Regulation G of the Board of Governors
of the Federal Reserve System.
SECTION 8.16. LIMITATION ON RESTRICTIONS AFFECTING SUBSIDIARIES. The
Company will not enter into, or suffer to exist, any agreement with any Person
which prohibits or limits the ability of any Subsidiary to (a) pay dividends or
make other distributions or pay any Debt owed to the Company or any Subsidiary,
(b) make loans or advances to the Company or any Subsidiary or (c) transfer any
of its properties or assets to the Company or any Subsidiary.
SECTION 8.17. RESTRICTIONS ON CERTAIN AMENDMENTS. Neither the Company nor
any Subsidiary will waive any provision of, amend, or suffer to be amended, any
provision of such entity's existing indebtedness, any material contract or
agreement previously or hereafter filed by the Company with the Commission as
part of its SEC Reports, any Company Corporate Document or Subsidiary Corporate
Document if such amendment would materially adversely affect the Purchasers or
the holders of the Securities without the prior written consent of the Majority
Holders; provided, the Company may amend the Norman License Agreement to provide
for the payment of royalties thereunder in shares of Common Stock as previously
disclosed to the Purchasers. The Company will not, without the prior written
consent of the Majority of the Holders, form any non-wholly owned Subsidiary
after the Closing Date.
SECTION 8.18. COMPLIANCE WITH TERMS AND CONDITIONS OF MATERIAL CONTRACTS.
The Company will comply, in all material respects, with all terms and conditions
of all material contracts to which it is subject.
SECTION 8.19. CONSOLIDATED NET WORTH. The Company will not permit its
Consolidated Net Worth at the end of any of its fiscal quarters to be less than
the sum of (i) $3,000,000 and (ii) fifty percent (50%) of the aggregate
Consolidated Net Earnings of the Company after December 31, 1996 and through
such fiscal quarter end.
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SECTION 8.20. LIMITATION ON ASSET SALES. Neither the Company nor any
Subsidiary will consummate an Asset Sale unless (i) it receives consideration in
cash at the time of such Asset Sale at least equal to the fair market value of
the assets sold or otherwise disposed of (as determined in good faith by the
Company's Board of Directors) and (ii) the Net Cash Proceeds of such sale are
used to either (a) purchase similar assets in the same line of business of
equivalent value within 12 months of the date of the Asset Sale or (b)
immediately redeem or prepay the Convertible Instruments or (c) a combination of
purchases and prepayment permitted by the foregoing clauses (a) and (b). As
used herein, "Asset Sale" means any sale, lease, transfer or other disposition
(or series of related sales, leases, transfers or dispositions) of shares of
capital stock of a Subsidiary (other than directors' qualifying shares),
property or other assets (each referred to for the purposes of this definition
as a "disposition"), including any disposition by means of a merger,
consolidation or similar transaction (other than as permitted under Section
8.13), other than a disposition of property or assets at fair market value in
the ordinary course of business.
SECTION 8.21. LIMITATION ON CAPITAL EXPENDITURES. Permit the sum of all
Capital Expenditures of the Company and its Subsidiaries to exceed in the
aggregate the following amounts for the following fiscal time periods:
FISCAL PERIOD AGGREGATE CAPITAL EXPENDITURES
------------- ------------------------------
Closing date through
December 31, 1997 $2,000,000
January 1, 1998 through
December 31, 1998 $3,000,000
January 1, 1999 through
December 31, 1999 $3,000,000
January 1, 2000 through
Maturity Date $2,000,000
Provided, however, if the remaining outstanding principal balance of the
Convertible Notes on December 31, 1997 is equal to or less than $2,500,000, then
the foregoing limitation shall terminate as of December 31, 1998.
SECTION 8.22. RESERVED SHARES AND LISTINGS.
(a) The Company will reserve from its authorized but unissued shares
of Common Stock a sufficient number of shares of Common Stock to permit
issuance of the Additional Grant Shares, the conversion in full of the then
outstanding Convertible Instruments and the exercise in full of the then
outstanding Warrants;
(b) The Company will maintain the listing of its Common Stock on the
NASDAQ Small Cap Market;
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(c) The Company will not repurchase or otherwise enter into any other
transaction (including stock split, recapitalization or other transaction)
which would cause a decrease in the number of its shares of Common Stock
issued and outstanding (other than transactions that similarly decrease the
number of shares of Common Stock into which the Convertible Instruments and
Warrants are convertible or exercisable, as the case may be);
(d) The Company will (i) retain the Transfer Agent as the stock
transfer agent of the Company, and (ii) if the Transfer Agent voluntarily
or involuntarily fails to so serve, select an independent, unaffiliated
replacement stock transfer agent willing to perform the duties of the
Transfer Agent under the Transfer Agent Agreement; and
(e) On or prior to each of the dates that the Commission declares
effective the Grant Share Registration Statement and the Second
Registration Statement, the Company shall properly filed all Listing
Applications with NASDAQ associated with the shares of Common Stock covered
by such registration statements.
SECTION 8.23 ISSUANCE OF SHARES OF COMMON STOCK. Upon conversion of any
Convertible Instruments in accordance with its terms, and/or exercise of any
Warrant in accordance with its terms, the Company will, and will use its best
lawful efforts to cause the Transfer Agent to, issue one or more certificates
representing shares of Common Stock in such name or names and in such
denominations specified by a Purchaser in a Notice of Conversion or Notice of
Exercise, as the case may be. As long as the Grant Share Registration Statement
or Second Registration Statement, as applicable, contemplated by the
Registration Rights Agreement shall remain effective the (x) Grant Shares and
Additional Grant Shares and (y) the shares of Common Stock issuable upon
conversion of Convertible Instruments or exercise of the Warrants shall be
issued to any transferee of such shares from a Purchaser without restrictive
legend. The Company further warrants that no instructions other than these
instructions have been or will be given to the Transfer Agent. Nothing in this
Section shall affect in any way a Purchaser's obligations to comply with all
securities laws applicable to such Purchaser upon resale of such shares of
Common Stock, including any prospectus delivery requirements.
ARTICLE IX
LIMITATION ON TRANSFERS
SECTION 9.1 RESTRICTIONS ON TRANSFER. From and after their respective
dates of issuance, none of the Securities shall be transferable except upon the
conditions specified in this Section 9, which conditions are intended to ensure
compliance with the provisions of the Securities Act in respect of the Transfer
of any of such Securities or any interest therein. Each Purchaser will use its
best efforts to cause any proposed transferee of any Securities held by it to
agree to take and hold such Securities subject to the provisions and upon the
conditions specified in this Section 9.
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SECTION 9.2. RESTRICTIVE LEGENDS.
(a) Each certificate for Securities issued to a Purchaser or to a
subsequent transferee shall (except as contemplated by Section 8.23 and Section
10.3 hereof) include a legend in substantially the following form:
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"). THE HOLDER
HEREOF, BY PURCHASING SUCH SECURITIES, AGREES FOR THE BENEFIT OF THE CORPORATION
THAT SUCH SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO
THE CORPORATION, (B) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT PROVIDED BY RULE 144 THEREUNDER, IF AVAILABLE, OR (C) IF
REGISTERED UNDER THE SECURITIES ACT.
SECTION 9.3. NOTICE OF PROPOSED TRANSFERS. Prior to any proposed
Transfer of the Securities OTHER THAN a transfer (i) registered under the
Securities Act, (ii) to an affiliate of a Purchaser which is an "accredited
investor" within the meaning of Rule 501(a) under the Securities Act, provided
that any such transferee shall agree to be bound by the terms of this Agreement,
and (iii) to be made in reliance on Rule 144 under the Securities Act, the
holder thereof shall give written notice to the Company of such holder's
intention to effect such Transfer, setting forth the manner and circumstances of
the proposed Transfer, which shall be accompanied by (A) an opinion of counsel
to the Company, confirming that such transfer does not give rise to a violation
of the Securities Act, (B) representation letters in form and substance
reasonably satisfactory to the Company to ensure compliance with the provisions
of the Securities Act and (C) letters in form and substance reasonably
satisfactory to the Company from each such transferee stating such transferee's
agreement to be bound by the terms of this Agreement and the Registration Rights
Agreement. Such proposed Transfer may be effected only if the Company shall have
received such notice of transfer, opinion of counsel, representation letters and
other letters referred to in the immediately preceding sentence, whereupon the
holder of such Securities shall be entitled to Transfer such Securities in
accordance with the terms of the notice delivered by the holder to the Company.
ARTICLE X
ADDITIONAL AGREEMENTS AMONG THE PARTIES
SECTION 10.1. REGISTRATION RIGHTS.
(a) The Company shall grant the Purchasers registration rights covering
the Grant Shares, Additional Grant Shares and all of the shares of Common Stock
issuable on conversion of the Convertible Instruments or upon exercise of the
Warrants on the terms set forth in the Registration Rights Agreement.
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(b) The Company shall file a registration statement on Form S-3 (or such
other form as is then available for registration) covering the sale of the Grant
Shares (the "Grant Share Registration Statement") as soon as practicable after
July 24, 1997 (but not later than July 28, 1997). In the event the Grant Share
Registration Statement is not declared effective by the Commission within the
earlier to occur of five (5) Business Days of the receipt of a "no review"
letter from the Commission (the "No Review Letter") and the earlier to occur of
fifty (50) days of filing thereof or September 15, 1997, and such effectiveness
is not maintained until the first anniversary of the Closing Date (subject to
the right of the Company to suspend the effectiveness thereof for not more than
30 consecutive days or an aggregate of 90 days during such three (3) year
period), the Company shall pay to the Purchasers, as liquidated damages and not
as a penalty, an amount equal to $1,000 per day for each day that the Grant
Share Registration Statement is not declared effective or maintained within such
period. In addition, the Company shall also prepare and file on or before
November 15, 1997, a registration statement on Form S-3 (or such other form as
is then available for registration) covering the sale of Additional Grant Shares
and the sale of shares of Common Stock issuable upon conversion of the
Convertible Instruments and upon exercise of the Warrants (the "Second
Registration Statement"). The Company shall further use its best efforts to
cause the Second Registration Statement to be declared effective by the
Commission no later than January 12, 1998. If the Second Registration Statement
is (x) not declared effective by the Commission by January 12, 1998, or (y) such
effectiveness is not maintained for the Second Registration Maintenance Period,
the interest rate on the Convertible Notes and the dividend rate on the
Preferred Shares, as applicable, will both automatically be increased without
further action by the Company or the Purchasers to 18% per annum until such time
as the Second Registration Statement is declared effective (and for such time
during the Second Registration Maintenance Period that such effectiveness is not
maintained).
(c) Any such liquidated damages, or increased interest or dividend rate
shall be paid in cash by the Company to the Purchasers by wire transfer in
immediately available funds on the last day of each calendar week following the
event requiring its payment.
SECTION 10.2. PROHIBITION ON DISCOUNTED EQUITY OFFERINGS. Until such time
as the Convertible Instruments have been repaid in full, the Company agrees it
will not issue (or, unless such issuance would, upon the closing thereof, result
in the repayment in full of the Convertible Instruments, agree to issue) any of
its equity securities (or securities convertible into or exchangeable or
exercisable for equity securities), unless any shares of Common Stock issued or
issuable in connection therewith are "restricted securities". As used herein
"restricted securities" shall mean securities which may not be sold either
pursuant to an exemption from registration under the Securities Act or pursuant
to a registration statement filed by the Company with the Commission, in each
case prior to the latter to occur of September 30, 1998 or nine months following
the date of issuance of such securities. The restrictions contained in this
Section 10.2 shall not apply to the issue by the Company (or the agreement to
issue) Convertible Securities or Common Stock in connection with (x) the
acquisition of a business or of assets otherwise permitted under this Agreement,
(y) stock option or other compensatory plans and (3) the Norman License
Agreement.
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<PAGE>
SECTION 10.3. LIQUIDATED DAMAGES.
(a) The Company shall, and shall use its best efforts to cause the
Transfer Agent to, issue and deliver (x) shares of Common Stock within three (3)
New York Stock Exchange Trading Days of receipt of a written Notice of
Conversion or Notice of Exercise, as applicable, or (y) shares of Common Stock
without restrictive legends within seven (7) New York Stock Exchange Trading
Days of delivery of a Notice of Conversion or Notice of Exercise, as applicable
(or, at any time after the Grant Shares or Additional Grant Shares have been
registered for resale under the Securities Act or are eligible for resale
pursuant to Rule 144 of the Securities Act, delivery of confirmations,
certificates or opinions certifying that such shares have been resold in
compliance with applicable law) (the "Deadline"). Notwithstanding the
foregoing, the delivery obligations of the Company under clause (y) above shall
be conditioned on (i) the existence and effectiveness of a Grant Share
Registration Statement or Second Registration Statement, as applicable, and (ii)
receipt of materials reasonably requested by the Company from the Purchasers
(which shall not include an opinion of counsel to be delivered by the Company's
counsel to the Transfer Agent regarding the effectiveness of such registration
statements as contemplated by the Transfer Agent Agreement) to permit the
issuance of certificates of Common Stock without restrictive legend. The
Company understands that a delay in the issuance of such certificates after the
Deadline could result in economic loss to the Purchaser. If for any reason the
Company fails to issue by the Deadline such certificates of Common Stock by the
Deadline, as compensation, and not as a penalty, the Company agrees to pay
liquidated damages to the Purchasers for such late issuance of such certificates
an amount equal to $1,000 per day for each day such certificates are not
delivered for the first ten (10) days after the Deadline and $2,000 per day for
each day thereafter.
(b) The Company shall promptly pay the Purchasers any liquidated damages
incurred under this Section by wire transfer in immediately available funds to
an account designated by the Purchasers. Nothing herein shall waive the
Company's obligations to deliver shares of Common Stock upon a conversion of the
Convertible Instruments or exercise of the Warrants or limit any Purchaser's
right to pursue actual damages (less the amount of any liquidated damages
received pursuant to the foregoing) for the Company's failure to issue and
deliver shares of Common Stock to such Purchaser consistent with the terms of
this Agreement.
SECTION 10.4. CONVERSION NOTICE. The Company agrees that, in addition to
any other remedies which may be available to the Purchasers, including, but not
limited to, the remedies available under Section 10.3, in the event the Company
fails for any reason (other than as a result of actions taken by a Purchaser in
breach of this Agreement) to effect delivery to a Purchaser of certificates as
contemplated by Section 10.3 representing the Minimum Number of shares of Common
Stock on or prior to the Deadline after conversion of any Convertible
Instrument, or certificates contemplated by Section 10.3 after exercise of any
Warrant, such Purchaser will be entitled, if prior to the delivery of such
certificates, to revoke the Notice of Conversion or Notice of Exercise, as
applicable, by delivering a notice to such effect to the Company and the
Transfer Agent whereupon the Company and the Purchaser shall each be restored to
their respective positions immediately prior to delivery of such Notice of
Conversion or Notice of Exercise.
BRIDGE SECURITIES PURCHASE AGREEMENT - Page 38
(Visual Edge Systems Inc.)
<PAGE>
SECTION 10.5. LIMITATION ON CONVERSION PRIOR TO DEFAULT.
(a) In addition to and not in lieu of the limitations on conversion set
forth in the Convertible Notes, Certificate of Designation and Warrants, the
conversion and exercise rights of the Purchasers set forth in the Convertible
Notes, Certificate of Designation and Warrants, as applicable, shall be limited,
solely to the extent required, from time to time, such that in no instance shall
the maximum number of shares of Common Stock which the Purchasers (singularly,
together with any Persons who in the determination of such Purchasers, together
with such Purchasers, constitute a group as defined in Rule 13d-5 of the
Exchange Act) may receive in respect of any conversion of the Convertible Notes
or Preferred Shares, or exercise of the Warrants, exceed, at any one time, an
amount equal to the remainder of (i) 4.99% of the then issued and outstanding
shares of Common Stock of the Company following such conversion or exercise
MINUS (ii) the number of shares of Common Stock of the Company then owned by the
Purchasers (but exclusive of any shares of Common Stock deemed beneficially
owned due to ownership of the Convertible Instruments and Warrants) (the
foregoing being herein referred to as the "Limitation on Conversion"). At the
request of the Company, the applicable Purchasers shall certify in each Notice
of Conversion and Notice of Exercise that it is in compliance with the
Limitation on Conversion.
(b) The Limitation on Conversion shall not apply, and shall be of no
further force and effect, (i) upon the occurrence of any redemption transaction
described in Section 3.5 or 3.6 hereof, (ii) on the Maturity Date or (iii) the
occurrence of any Event of Default described in Section 12.1 hereof and for
which the Purchaser has provided written notice thereof and which is not cured
within the greater of the applicable time period specified in either (A) such
written notice of the Purchaser or (B) Section 12.1 hereof.
(d) In addition to and not in lieu of the Limitation on Conversion,
notwithstanding the conversion rights set forth in the Convertible Notes and
Certificate of Designation and subject to subsection (e) below, the maximum
principal amount of the Convertible Instruments as originally issued by the
Company (and without reduction for any redemption thereof) which the Purchasers
in the aggregate shall be entitled to convert by delivery of a Notice of
Conversion shall be as follows:
DATES OF CONVERSION APPLICABLE PERCENTAGE
------------------- ---------------------
January 1, 1998 - February 28, 1998 25%
March 1, 1998 - April 30, 1998 50%
May 1, 1998 - June 30, 1998 75%
July 1, 1998 and thereafter 100%
(e) The foregoing limitation shall not apply, and the Convertible
Instruments shall be convertible in full, after January 1, 1998 upon the
occurrence of any event causing the Limitation on Conversion to not apply as
specified in subsection (b) above.
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(Visual Edge Systems Inc.)
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(f) Subject to the foregoing limitations, each Purchaser shall, at its
option, have the sole right to determine whether to exercise the right of
conversion or exercise for the Convertible Notes, Preferred Shares and Warrants.
The Company shall honor each Notice of Conversion and Notice of Exercise in the
order received.
ARTICLE XI
ADJUSTMENT OF FIXED PRICE
SECTION 11.1. REORGANIZATION. The exercise price of the Warrants set
forth therein and the Maximum Conversion Price (collectively, the "Fixed
Prices") shall be adjusted as hereafter provided.
SECTION 11.2. SHARE REORGANIZATION. If and whenever the Company shall:
(i) subdivide the outstanding shares of Common Stock into a
greater number of shares;
(ii) consolidate the outstanding shares of Common Stock into
a smaller number of shares;
(iii) issue Common Stock or securities convertible into or
exchangeable for shares of Common Stock as a stock dividend to all or
substantially all the holders of Common Stock; or
(iv) make a distribution on the outstanding Common Stock to
all or substantially all the holders of Common Stock payable in Common
Stock or securities convertible into or exchangeable for Common Stock;
any of such events being herein called a "Share Reorganization", then in each
such case the applicable Fixed Price shall be adjusted, effective immediately
after the record date at which the holders of Common Stock are determined for
the purposes of the Share Reorganization or, if no record date is fixed, the
effective date of the Share Reorganization, by multiplying the applicable Fixed
Price in effect on such record or effective date, as the case may be, by a
fraction of which:
(I) the numerator shall be the number of shares of Common
Stock outstanding on such record or effective date (without giving effect
to the transaction); and
(II) the denominator shall be the number of shares of Common
Stock outstanding after giving effect to such Share Reorganization,
including, in the case of a distribution of securities convertible into or
exchangeable for shares of Common Stock, the number of shares of Common
Stock that would have been outstanding if such
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<PAGE>
securities had been converted into or exchanged for Common Stock on such
record or effective date.
SECTION 11.3. RIGHTS OFFERING. If and whenever the Company shall issue to
all or substantially all the holders of Common Stock, rights, options or
warrants under which such holders are entitled, during a period expiring not
more than 45 days after the record date of such issue, to subscribe for or
purchase Common Stock (or securities convertible into or exchangeable for Common
Stock), at a price per share (or, in the case of securities convertible into or
exchangeable for Common Stock, at an exchange or conversion price per share at
the date of issue of such securities) of less than 95% of the Market Price of
the Common Stock on such record date (any such event being herein called a
"Rights Offering"), then in each such case the applicable Fixed Price shall be
adjusted, effective immediately after the record date at which holders of Common
Stock are determined for the purposes of the Rights Offering, by multiplying the
applicable Fixed Price in effect on such record date by a fraction of which:
(i) the numerator shall be the sum of:
(I) the number of shares of Common Stock outstanding on such
record date; and
(II) a number obtained by dividing:
(A) either,
(x) the product of the total number of shares of Common
Stock so offered for subscription or purchase and the price at which such
shares are so offered, or
(y) the product of the maximum number of shares of Common
Stock into or for which the convertible or exchangeable securities so
offered for subscription or purchase may be converted or exchanged and the
conversion or exchange price of such securities,
or, as the case may be, by
(B) the Market Price of the Common Stock on such record date;
and
(ii) the denominator shall be the sum of:
(I) the number of shares of Common Stock outstanding on such
record date; and
(II) the number of shares of Common Stock so offered for
subscription or purchase (or, in the case of securities convertible into or
exchangeable for Common
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Stock, the maximum number of shares of Common Stock for or into which the
securities so offered for subscription or purchase may be converted or
exchanged).
In addition to the foregoing, the number of Additional Grant Shares issuable as
provided herein shall be adjusted upon the occurrence of any Rights Offering in
the same manner as the applicable Fixed Price is so adjusted, to ensure issuance
of the appropriate number of Additional Grant Shares. To the extent that such
rights, options or warrants are not exercised prior to the expiry time thereof,
the applicable Fixed Price shall be readjusted effective immediately after such
expiry time to the applicable Fixed Price which would then have been in effect
upon the number of shares of Common Stock (or securities exchangeable into
Common Stock) actually delivered upon the exercise of such rights, options or
warrants.
SECTION 11.4. SPECIAL DISTRIBUTION. If and whenever the Company shall
issue or distribute to all or substantially all the holders of Common Stock:
(i) shares of the Company of any class, other than Common Stock;
(ii) rights, options or warrants; or
(iii) any other assets (excluding cash dividends and equivalent
dividends in shares paid in lieu of cash dividends in the ordinary course);
and if such issuance or distribution does not constitute a Share Reorganization
or a Rights Offering (any such event being herein called a "Special
Distribution"), then in each such case the applicable Fixed Price shall be
adjusted, effective immediately after the record date at which the holders of
Common Stock are determined for purposes of the Special Distribution, by
multiplying the applicable Fixed Price in effect on such record date by a
fraction of which:
(i) the numerator shall be the difference between:
(A) the product of the number of shares of Common Stock
outstanding on such record date and the Market Price of the Common Stock
on such date; and
(B) the fair market value, as determined by the Directors (whose
determination shall be conclusive), to the holders of Common Stock of the
shares, rights, options, warrants, evidences of indebtedness or other
assets issued or distributed in the Special Distribution (net of any
consideration paid therefor by the holders of Common Stock), and
(ii) the denominator shall be the product of the number of shares
of Common Stock outstanding on such record date and the Market Price of the
Common Stock on such date.
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SECTION 11.5. CAPITAL REORGANIZATION. If and whenever there shall occur:
(i) a reclassification or redesignation of the shares of Common
Stock or any change of the shares of Common Stock into other shares, other
than in a Share Reorganization;
(ii) a consolidation, merger or amalgamation of the Company with,
or into another body corporate; or
(iii) the transfer of all or substantially all of the assets of
the Company to another body corporate;
(any such event being herein called a "Capital Reorganization"), then in each
such case the holder who exercises the right to convert Convertible Instruments
or exercise the Warrants after the effective date of such Capital Reorganization
shall be entitled to receive and shall accept, upon the exercise of such right,
in lieu of the number of shares of Common Stock to which such holder was
theretofore entitled upon the exercise of the conversion privilege, the
aggregate number of shares or other securities or property of the Company or of
the body corporate resulting from such Capital Reorganization that such holder
would have been entitled to receive as a result of such Capital Reorganization
if, on the effective date thereof, such holders had been the holder of the
number of shares of Common Stock to which such holder was theretofore entitled
upon conversion; provided, however, that no such Capital Reorganization shall be
consummated in effect unless all necessary steps shall have been taken so that
such holders shall thereafter be entitled to receive such number of shares or
other securities of the Company or of the body corporate resulting from such
Capital Reorganization, subject to adjustment thereafter in accordance with
provisions the same, as nearly as may be possible, as those contained above.
SECTION 11.6. ADJUSTMENT RULES. The following rules and procedures shall
be applicable to adjustments made in this Article XI:
(A) no adjustment in the applicable Fixed Price shall be required
unless such adjustment would result in a change of at least 1% in the
applicable Fixed Price then in effect, provided, however, that any
adjustments which, but for the provisions of this clause would otherwise
have been required to be made, shall be carried forward and taken into
account in any subsequent adjustment;
(b) no adjustment in the applicable Fixed Price shall be made
pursuant to this Article XI in respect of the issue from time to time of
Common Stock to holders of Common Stock who exercise an option to receive
substantially equivalent dividends in Common Stock in lieu of receiving
cash dividends in the ordinary course; and
(c) if a dispute shall at any time arise with respect to any
adjustment of the applicable Fixed Price, such dispute shall be
conclusively determined by the auditors of the Company or, if they are
unable or unwilling to act, by a firm of independent chartered
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<PAGE>
accountants selected by the Directors and any such determination shall be
binding upon the Company and Purchasers.
SECTION 11.7. CERTIFICATE AS TO ADJUSTMENT. The Company shall from time
to time promptly the occurrence of any event which requires an adjustment in the
applicable Fixed Price deliver to the Purchasers a certificate specifying the
nature of the event requiring the adjustment, the amount of the adjustment
necessitated thereby, the applicable Fixed Price after giving effect to such
adjustment and setting forth, in reasonable detail, the method of calculation
and the facts upon which such calculation is based.
SECTION 11.8. NOTICE TO NOTEHOLDERS. If the Company shall fix a record
date for:
(a) any Share Reorganization (other than the subdivision of
outstanding Common Stock into a greater number of shares or the
consolidation of outstanding Common Stock into a smaller number of shares),
(b) any Rights Offering.,
(c) any Special Distribution,
(d) any Capital Reorganization (other than a reclassification or
redesignation of the Common Stock into other shares), or
(e) any cash dividend other than a cash dividend on the Preferred
Shares,
the Company shall, not less than 10 days prior to such record date or, if no
record date is fixed, prior to the effective date of such event, give to the
Purchasers notice of the particulars of the proposed event or the extent that
such particulars have been determined at the time of giving the notice.
ARTICLE XII
EVENTS OF DEFAULT
SECTION 12.1. EVENTS OF DEFAULT. If one or more of the following events
(each an "Event of Default") shall have occurred and be continuing:
(a) failure by the Company to pay or prepay when due, all or any part
of the principal on any of the Convertible Instruments;
(b) failure by the Company to pay (i) within 3 Business Days of the
due date thereof any interest on any Convertible Notes or dividends on the
Preferred Shares or (ii) within 5 Business Days following the delivery of
notice to the Company of any fees or
BRIDGE SECURITIES PURCHASE AGREEMENT - Page 44
(Visual Edge Systems Inc.)
<PAGE>
any other amount payable (not otherwise referred to in (a) above or this
clause (b)) by the Company under this Agreement;
(c) failure by the Company to timely comply with the requirements of
Section 10.3(a) or (b) hereof, which failure is not cured within seven (7)
days of such failure;
(d) an event of default shall have occurred and is continuing under
any Financing Document;
(e) failure on the part of the Company to observe or perform any
covenant contained in Sections 8.8-8.10, 8.13, 8.15, 8.20 and 8.21 of this
Agreement;
(f) failure on the part of the Company to observe or perform any
covenant contained in any Financing Document (other than those covered by
clauses (a), (b), (c), (d) or (e) above) for the lesser of (A) 30 days
after written notice from any holder of a Convertible Instrument and (B)
60 days from the date the Company became aware of such occurrence;
(g) the trading in the Common Stock shall have been suspended by the
Commission or by NASDAQ (except for any suspension of trading of limited
duration solely to permit dissemination of material information regarding
the Company and except if, at the time there is any suspension on the
NASDAQ Market, the Common Stock is then listed and approved for trading on
either the New York Stock Exchange, the American Stock Exchange, the NASDAQ
Small Cap Market, or the NASDAQ National Market within two (2) Trading Days
thereof);
(h) failure of the Company to file the Listing Applications, which
failure is not cured within five (5) Business Days of such failure;
(i) the Company shall have its Common Stock delisted from the NASDAQ
Market for at least ten (10) consecutive Trading Days and is unable to
obtain a listing on either the New York Stock Exchange, the American Stock
Exchange, the NASDAQ Small Cap Market or the NASDAQ National Market within
such ten (10) Trading Days;
(j) the Grant Share Registration Statement or the Second Registration
Statement, as applicable, shall not have been declared effective by the
Commission, with such effectiveness maintained for the periods specified in
Section 10.1, which results in the Company incurring the obligations set
forth therein for a period in excess of 90 consecutive days;
(k) the Company or any Subsidiary has commenced a voluntary case or
other proceeding seeking liquidation, winding-up, reorganization or other
relief with respect to itself or its debts under any bankruptcy,
insolvency, moratorium or other similar law now or hereafter in effect or
seeking the appointment of a trustee, receiver, liquidator,
BRIDGE SECURITIES PURCHASE AGREEMENT - Page 45
(Visual Edge Systems Inc.)
<PAGE>
custodian or other similar official of it or any substantial part of its
property, or has consented to any such relief or to the appointment of or
taking possession by any such official in an involuntary case or other
proceeding commenced against it, or has made a general assignment for the
benefit of creditors, or has failed generally to pay its debts as they
become due, or has taken any corporate action to authorize any of the
foregoing;
(l) an involuntary case or other proceeding has been commenced
against the Company or any Subsidiary, seeking liquidation, winding-up,
reorganization or other relief with respect to it or its debts under any
bankruptcy, insolvency, moratorium or other similar law now or hereafter in
effect or seeking the appointment of a trustee, receiver, liquidator,
custodian or other similar official of it or any substantial part of its
property, and such involuntary case or other proceeding shall remain
undismissed and unstayed for a period of 60 days, or an order for relief
has been entered against the Company or any Subsidiary under the federal
bankruptcy laws as now or hereafter in effect;
(m) default in respect of any Debt in excess of $250,000 of the
Company or any Subsidiary, or the Company or any Subsidiary has failed to
pay at maturity or within any applicable period of grace any such Debt;
(n) judgments or orders for the payment of money which in the
aggregate at any one time exceed $375,000 and are not covered by insurance
have been rendered against the Company or any Subsidiary by a court of
competent jurisdiction and such judgments or orders shall continue
unsatisfied and unstayed for a period of 60 days;
(o) any representation, warranty, certification or statement made by
the Company in any Financing Document or which is contained in any
certificate, document or financial or other statement furnished at any time
under or in connection with any Financing Document shall prove to have
been untrue in any material respect when made; or
(p) any member of the ERISA Group has failed to pay when due an
amount or amounts aggregating in excess of $250,000 which it shall have
become liable to pay under Title IV of ERISA; or notice of intent to
terminate a Material Plan has been filed under Title IV of ERISA by any
member of the ERISA Group, any plan administrator or any combination of the
foregoing; or the PBGC has instituted proceedings under Title IV of ERISA
to terminate, to impose liability (other than for premiums under Section
4007 of ERISA) in respect of, or to cause a trustee to be appointed to
administer any Material Plan; or a condition has existed by reason of which
the PBGC is entitled to obtain a decree adjudicating that any Material Plan
must be terminated; or there has occurred a complete or partial withdrawal
from, or a default, within the meaning of Section 4219(c) (5) of ERISA,
with respect to, one or more Multiemployer Plans which could cause one or
more members of the ERISA Group to incur a current payment obligation in
excess of $250,000,
BRIDGE SECURITIES PURCHASE AGREEMENT - Page 46
(Visual Edge Systems Inc.)
<PAGE>
then, and in every such occurrence, any Purchaser may, with respect to an
Event of Default specified in paragraphs (a) or (b), and the Majority
Holders may, with respect to any Event of Default, by notice to the
Company, declare the Convertible Instruments to be, and the Convertible
Instruments shall thereon become immediately due and payable; PROVIDED that
in the case of any of the Events of Default specified in paragraph (k) or
(l) above with respect the Company or any Subsidiary, then, without any
notice to the Company or any other act by any Purchaser, the entire amount
of the Convertible Instruments shall become immediately due and payable,
PROVIDED FURTHER, if any Event of Default has occurred and is continuing,
and irrespective of whether any Convertible Instrument has been declared
immediately due and payable hereunder, any Purchaser of Convertible
Instruments may proceed to protect and enforce the rights of such Purchaser
by an action at law, suit in equity or other appropriate proceeding,
whether for the specific performance of any agreement contained herein or
in any Convertible Instrument, or for an injunction against a violation of
any of the terms hereof or thereof, or in aid of the exercise of any power
granted hereby or thereby or by law or otherwise, and PROVIDED FURTHER, in
the case of an Event of Default, the amount declared due and payable on the
Convertible Instruments shall be (x) prior to the expiration of the Bridge
Period, the Par Value Redemption Price thereof and (y) after expiration of
the Bridge Period, the Formula Price thereof.
SECTION 12.2. POWERS AND REMEDIES CUMULATIVE. No right or remedy herein
conferred upon or reversed to the Purchasers is intended to be exclusive of any
other right or remedy, and every right and remedy shall, to the extent permitted
by law, be cumulative and in addition to every other right and remedy given
hereunder or now or hereafter existing at law or in equity or otherwise. The
assertion or employment of any right or remedy hereunder, or otherwise, shall
not prevent the concurrent assertion or employment of any other appropriate
right or remedy. Every power and remedy given by the Convertible Instruments or
by law may be exercised from time to time, and as often as shall be deemed
expedient, by the Purchasers.
BRIDGE SECURITIES PURCHASE AGREEMENT - Page 47
(Visual Edge Systems Inc.)
<PAGE>
ARTICLE XIII
MISCELLANEOUS
SECTION 13.1. NOTICES. All notices, demands and other communications to
any party hereunder shall be in writing (including telecopier or similar
writing) and shall be given to such party at its address set forth on the
signature pages hereof, or such other address as such party may hereafter
specify for the purpose to the other parties; provided, any notice to a
Subsidiary of the Company (other than the Company) shall be given to the
Company. Each such notice, demand or other communication shall be effective (i)
if given by telecopy, when such telecopy is transmitted to the telecopy number
specified on the signature page hereof, (ii) if given by mail, four days after
such communication is deposited in the mail with first class postage prepaid,
addressed as aforesaid or (iii) if given by any other means, when delivered at
the address specified in or pursuant to this Section.
SECTION 13.2. NO WAIVERS; AMENDMENTS.
(a) No failure or delay on the part of any party in exercising any right,
power or remedy hereunder shall operate as a waiver thereof, nor shall any
single or partial exercise of any such right, power or remedy preclude any other
or further exercise thereof or the exercise of any other right, power or remedy.
(b) Any provision of this Agreement may be amended, supplemented or waived
if, but only if, such amendment, supplement or waiver is in writing and is
signed by each Financing Entity party hereto and the Majority Holders; PROVIDED,
that without the consent of each holder of any Convertible Instrument affected
thereby, an amendment or waiver may not (a) reduce the aggregate principal
amount of Convertible Instruments whose holders must consent to an amendment or
waiver, (b) reduce the rate or extend the time for payment of interest on any
Convertible Instrument, (c) reduce the principal amount of or extend the stated
maturity of any Convertible Instrument or (d) make any Convertible Instrument
payable in money or property other than as stated in such Convertible
Instrument. In determining whether the holders of the requisite principal amount
of Convertible Instruments have concurred in any direction, consent, or waiver
as provided in any Financing Document, Convertible Instruments which are owned
by the Company or any other obligor on or guarantor of the Convertible
Instruments, or by any Person Controlling, Controlled by, or under Common
Control with any of the foregoing, shall be disregarded and deemed not to be
outstanding for the purpose of any such determination; and PROVIDED FURTHER that
no such amendment, supplement or waiver which affects the rights of the
Purchasers and their affiliates otherwise than solely in their capacities as
holders of Convertible Instruments shall be effective with respect to them
without their prior written consent.
SECTION 13.3. INDEMNIFICATION. The Company agrees to indemnify and hold
harmless each Purchaser, its affiliates, and each Person, if any, who controls
such Purchaser, or any of its affiliates, within the meaning of the Securities
Act or the Exchange Act (a Controlling Person"), and the respective partners,
agents, employees, officers and directors of the Purchasers,
BRIDGE SECURITIES PURCHASE AGREEMENT - Page 48
(Visual Edge Systems Inc.)
<PAGE>
their affiliates and any such Controlling Person (each an Indemnified Party" and
collectively, the "Indemnified Parties"), from and against any and all losses,
claims, damages, liabilities and expenses (including, without limitation and as
incurred, reasonable costs of investigating, preparing or defending any such
claim or action, whether or not such Indemnified Party is a party thereto,
provided that the Company shall not be obligated to advance such costs to any
Indemnified Party other than the Purchasers unless it has received from such
Indemnified Party an undertaking to repay to the Company the costs so advanced
if it should be determined by final judgment of a court of competent
jurisdiction that such Indemnified Party was not entitled to indemnification
hereunder with respect to such costs) which may be incurred by such Indemnified
Party in connection with any investigative, administrative or judicial
proceeding brought or threatened that relates to or arises out of, or is in
connection with any activities contemplated by any Financing Document or any
other services rendered in connection herewith; PROVIDED that the Company will
not be responsible for any claims, liabilities losses, damages or expenses that
are determined by final judgment of a court of competent jurisdiction to result
from such Indemnified Party's gross negligence, willful misconduct or bad faith.
If any action shall be brought against an Indemnified Party with respect to
which indemnity may be sought against the Company under this Agreement, such
Indemnified Party shall promptly notify the Company in writing and the Company,
at its option, may, assume the defense thereof, including the employment of
counsel reasonably satisfactory to such Indemnified Party and payment of all
reasonable fees and expenses. The failure to so notify the Company shall not
affect any obligations the Company may have to such Indemnified Party under this
Agreement or otherwise unless the Company is materially adversely affected by
such failure. Such Indemnified Party shall have the right to employ separate
counsel in such action and participate in the defense thereof, but the fees and
expenses of such counsel shall be at the expense of such Indemnified Party,
unless: (i) the Company has failed to assume the defense and employ counsel or
(ii) the named parties to any such action (including any impleaded parties)
include such Indemnified Party and the Company, and such Indemnified Party shall
have been advised by counsel that there may be one or more legal defenses
available to it which are different from or additional to those available to the
Company, in which case, if such Indemnified Party notifies the Company in
writing that it elects to employ separate counsel at the expense of the Company,
the Company shall not have the right to assume the defense of such action or
proceeding on behalf of such Indemnified Party, PROVIDED, HOWEVER, that the
Company shall not, in connection with any one such action or proceeding or
separate but substantially similar or related actions or proceedings in the same
jurisdiction arising out of the same general allegations or circumstances, be
responsible hereunder for the reasonable fees and expenses of more than one such
firm of separate counsel, in addition to any local counsel, which counsel shall
be designated by the Purchasers. The Company shall not be liable for any
settlement of any such action effected without the written consent of the
Company (which shall not be unreasonably withheld) and the Company agrees to
indemnify and hold harmless each Indemnified Party from and against any loss or
liability by reason of settlement of any action effected with the consent of the
Company. In addition, the Company will not, without the prior written consent of
the Purchasers, settle or compromise or consent to the entry of any judgment in
or otherwise seek to terminate any pending or threatened action, claim, suit or
proceeding in
BRIDGE SECURITIES PURCHASE AGREEMENT - Page 49
(Visual Edge Systems Inc.)
<PAGE>
respect to which indemnification or contribution may be sought hereunder
(whether or not any Indemnified Party is a party thereto) unless such
settlement, compromise, consent or termination includes an express unconditional
release of the Purchasers and the other Indemnified Parties, satisfactory in
form and substance to the Purchasers, from all liability arising out of such
action, claim, suit or proceeding.
If for any reason the foregoing indemnity is unavailable (otherwise than
pursuant to the express terms of such indemnity) to an Indemnified Party or
insufficient to hold an Indemnified Party harmless, then in lieu of indemnifying
such Indemnified Party, the Company shall contribute to the amount paid or
payable by such Indemnified Party as a result of such claims, liabilities,
losses, damages, or expenses (i) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and by the
Purchasers on the other from the transactions contemplated by this Agreement or
(ii) if the allocation provided by clause (i) is not permitted under applicable
law, in such proportion as is appropriate to reflect not only the relative
benefits received by the Company on the one hand and the Purchasers on the
other, but also the relative fault of the Company and the Purchasers as well as
any other relevant equitable considerations. Notwithstanding the provisions of
this Section 13.3, the aggregate contribution of all Indemnified Parties shall
not exceed the amount of fees actually received by the Purchasers pursuant to
this Agreement. It is hereby further agreed that the relative benefits to the
Company on the one hand and the Purchasers on the other with respect to the
transactions contemplated hereby shall be determined by reference to, among
other things, whether any untrue or alleged untrue statement of material fact or
the omission or alleged omission to state a material fact related to information
supplied by the Company or by the Purchasers and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or 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 indemnification, contribution and expense reimbursement obligations set
forth in this Section 13.3 (i) shall be in addition to any liability the Company
may have to any Indemnified Party at common law or otherwise, (ii) shall survive
the termination of this Agreement and the other Financing Documents and the
payment in full of the Convertible Instruments and (iii) shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of the Purchasers or any other Indemnified Party.
SECTION 13.4. EXPENSES: DOCUMENTARY TAXES. The Company agrees to pay (i)
the out-of-pocket costs, expenses and other payments in connection with the
purchase and sale of the Securities as contemplated by this Agreement, including
the fees and disbursements of special counsel for the Purchasers incurred in
connection with the preparation of the Financing Documents, in the amount of
$26,500 as contemplated by Section 1 of the Transfer Agent Agreement, (ii) all
reasonable out-of-pocket expenses of the Purchasers, including fees and
disbursements of counsel, in connection with any waiver or consent hereunder or
under any other Financing Document or any amendment hereof or thereof and (iii)
all reasonable out-of-pocket expenses of the Purchasers and each holder of
Securities, including fees and disbursements of
BRIDGE SECURITIES PURCHASE AGREEMENT - Page 50
(Visual Edge Systems Inc.)
<PAGE>
counsel, in connection with any collection, bankruptcy, insolvency and other
enforcement proceedings resulting therefrom. In addition, the Company agrees to
pay any and all stamp, transfer and other similar taxes, assessments or charges
payable in connection with the execution and delivery of any Financing Document
or the issuance of the Securities to the Purchasers.
SECTION 13.5. PAYMENT. The Company agrees that, so long as the Purchasers
shall own any Convertible Instruments purchased by it from the Company
hereunder, the Company will make payments to such Purchaser of all amounts due
thereon by wire transfer by 1:00 P.M. (New York City time) on the date of
payment to the Transfer Agent Agreement for disbursement to the Purchasers as
required by the Transfer Agent Agreement.
SECTION 13.6. SUCCESSORS AND ASSIGNS. This Agreement shall be binding
upon each Financing Entity and upon the Purchasers and their respective
successors and assigns; PROVIDED that no Financing Entity shall assign or
otherwise transfer its rights or obligations under this Agreement to any other
Person without the prior written consent of the Majority Holders. All provisions
hereunder purporting to give rights to Purchasers and their affiliates or to
holders of Securities are for the express benefit of such Persons and their
successors and assigns.
SECTION 13.7. BROKERS. The Company represents and warrants that, except
for (i) Alpine Capital Partners, Inc. (which shall receive on the Closing Date
the Alpine Fee set forth in the Transfer Agent Agreement), and (ii) Whale
Securities Co., L.P. (which shall receive on the Closing Date shares of Common
Stock equal to $150,000 calculated in the same manner as the Grant Shares),it
has not employed any broker, finder, financial advisor or investment banker who
would be entitled to any brokerage, finder's or other fee or commission payable
by the Company in connection with the sale of the Securities. Each Purchaser
hereby warrants that it has not employed any broker, finder, financial advisor
or investment banker who would be entitled to any brokerage, finder's or other
fee or commission payable by the Company in connection with the sale of the
Securities.
SECTION 13.8. NEW YORK LAW; SUBMISSION TO JURISDICTION; WAIVER OF JURY
TRIAL; APPOINTMENT OF AGENT. THIS AGREEMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH AND GOVERNED BY THE LAWS OF THE STATE OF NEW YORK. EACH PARTY HERETO HEREBY
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW
YORK CITY FOR PURPOSES OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY. EACH PARTY HERETO
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH
IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING
BROUGHT IN SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A
COURT HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH PARTY HERETO HEREBY
IRREVOCABLY WAIVES ANY AND ALL RIGHT TO
BRIDGE SECURITIES PURCHASE AGREEMENT - Page 51
(Visual Edge Systems Inc.)
<PAGE>
TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
The Company and each Purchaser hereby irrevocably designates, appoints and
empowers Morgan, Lewis & Bockius LLP with offices at 101 Park Avenue, New York,
New York 10178 as its designees, appointee and agent to receive, accept and
acknowledge for and on its behalf, and in respect of its property, service of
any and all legal process, summons, notices and documents which may be served in
any such action or proceeding. If for any reason such designee, appointee and
agent shall cease to be available to act as such, the Company and Purchasers
agree to designate a similarly qualified entity as their new designee, appointee
and agent in New York.
SECTION 13.9. SEVERABILITY. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions of this Agreement shall remain in full force and
effect and shall in no way be affected, impaired or invalidated unless a failure
of consideration would result thereby.
SECTION 13.10 SURVIVAL. In addition to the survival of the
indemnification, contribution and expense reimburse obligations set forth in
Section 3.9 and Section 13.3 hereof, the provisions contained herein which are
incorporated by reference into the Warrants and the provisions set forth in
Sections 10.1 and 10.3 hereof shall survive the termination of this Agreement
and the payment in full of the Convertible Instruments and shall remain
operative and in full force and effect.
SECTION 13.11. COUNTERPARTS. This Agreement may be executed by telecopy
signature and in any number of counterparts each of which shall be an original
with the same effect as if the signatures there to and hereto were upon the same
instrument.
[SIGNATURE PAGES FOLLOW]
BRIDGE SECURITIES PURCHASE AGREEMENT - Page 52
(Visual Edge Systems Inc.)
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed by their respective authorized officers, as of the date first
above written.
VISUAL EDGE SYSTEMS INC.
By: /s/ Alan Lubell
---------------------------------
Name: Alan Lubell
-------------------------------
Title: Chairman of the Board
------------------------------
Address: 2424 North Federal Highway
Suite 100
Boca Raton, Florida 33431
Telephone: (514) 937-0787
Fax: (514) 937-0286
Attn: Earl Takefman
With a copy to: David W. Pollak, Esq.
Morgan, Lewis & Bockius, LLP
101 Park Avenue
New York, New York 10178
Fax: (212) 309-6058
Attn: Earl Takefman
INFINITY INVESTORS LIMITED
By: /s/ J. A. Loughran
---------------------------------
Name: J. A. Loughran
-------------------------------
Title: Director
------------------------------
Address: 27 Wellington Road
Cord, Ireland
Telephone: 353-21-501-109
Fax: 353-21-501-255
Attn: J. A. Loughran
With a copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1600
Fax: (214) 720-1662
Attn.: Barrett Wissman
BRIDGE SECURITIES PURCHASE AGREEMENT - Page 53
(Visual Edge Systems Inc.)
<PAGE>
INFINITY EMERGING
OPPORTUNITIES LIMITED
By: /s/ J. A. Loughran
---------------------------------
Name: J. A. Loughran
-------------------------------
Title: Director
------------------------------
Address: 27 Wellington Road
Cord, Ireland
Telephone: 353-21-501-109
Fax: 353-21-501-255
Attn: J. A. Loughran
With a copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1600
Fax: (214) 720-1662
Attn.: Barrett Wissman
SANDERA PARTNERS, L.P.
By: Sandera Capital Management, L.P.,
its General Partner
By: Sandera Capital, L.L.C.,
its General Partner
By: /s/ Clark K. Hunt
-------------------------------
Name: Clark K. Hunt
-----------------------------
Title: Managing Director
----------------------------
Address: 1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1600
Fax: (214) 720-1662
Attn.: Barrett Wissman
BRIDGE SECURITIES PURCHASE AGREEMENT - Page 54
(Visual Edge Systems Inc.)
<PAGE>
With a copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1600
Fax: (214) 720-1662
Attn.: Barrett Wissman
LION CAPITAL PARTNERS, L.P.
By: Mountain Capital Management,
L.L.C., its General Partner
By: /s/ Clark K. Hunt
-------------------------------
Name: Clark K. Hunt
-----------------------------
Title: Managing Director
----------------------------
Address: 1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1600
Fax: (214) 720-1662
Attn.: Barrett Wissman
With a copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1600
Fax: (214) 720-1662
Attn.: Barrett Wissman
BRIDGE SECURITIES PURCHASE AGREEMENT - Page 55
(Visual Edge Systems Inc.)
<PAGE>
Schedule I - Pro Rata Portion of Securities
Schedule II - Capitalization of the Company
Schedule III - Leases
Schedule IV - Subsidiaries
Exhibit A - Form of Convertible Note
Exhibit B - Form of Notice of Conversion - Notes
Exhibit C - Notice of Conversion - Preferred
Exhibit D - Form of Notice of Exercise
Exhibit E - Form of Registration Rights Agreement
Exhibit F - Form of Transfer Agent Agreement
Exhibit G - Form of Warrant
BRIDGE SECURITIES PURCHASE AGREEMENT - Page 56
(Visual Edge Systems Inc.)
<PAGE>
SCHEDULE 1
CONVERTIBLE NOTES
================================================================================
Name Purchase Price Aggregate Principal
Amount of Notes
- --------------------------------------------------------------------------------
Infinity Investors Limited $4,500,000 $4,500,000
- --------------------------------------------------------------------------------
Infinity Emerging
Opportunities Limited $1,000,000 $1,000,000
- --------------------------------------------------------------------------------
Sandera Partners, L.P. $1,000,000 $1,000,000
- --------------------------------------------------------------------------------
Lion Capital Partners, L.P. $1,000,000 $1,000,000
- --------------------------------------------------------------------------------
TOTAL $7,500,000 $7,500,000
========== ==========
================================================================================
GRANT SHARES
================================================================================
Name Number of Shares Purchase Price
($.01 per share)
- --------------------------------------------------------------------------------
Infinity Investors Limited 56,207 $562
- --------------------------------------------------------------------------------
Infinity Emerging
Opportunities Limited 12,490 $125
- --------------------------------------------------------------------------------
Sandera Partners, L.P. 12,490 $125
- --------------------------------------------------------------------------------
Lion Capital Partners, L.P. 12,490 $125
- --------------------------------------------------------------------------------
TOTAL 93,677 $937
====== ====
================================================================================
WARRANTS
================================================================================
Name Number of Shares
- --------------------------------------------------------------------------------
Infinity Investors Limited 60,000
- --------------------------------------------------------------------------------
Infinity Emerging
Opportunities Limited 13,334
- --------------------------------------------------------------------------------
Sandera Partners, L.P. 13,334
- --------------------------------------------------------------------------------
Lion Capital Partners, L.P. 13,334
- --------------------------------------------------------------------------------
TOTAL 100,000
=======
================================================================================
<PAGE>
Exhibit 99.2
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of June 13,
1997, among VISUAL EDGE SYSTEMS, INC., a Delaware corporation (the "Company"),
and the other undersigned parties hereto, (collectively, the "Funds").
1. INTRODUCTION. The Company and the Funds have today executed that
certain Bridge Securities Purchase Agreement (the "Note Purchase Agreement"),
pursuant to which the Company has agreed, among other things, to issue an
aggregate of $7.5 million (U.S.) principal amount of 8.25% Convertible
Exchangable Bridge Notes of the Company (the "Notes") to the Funds or their
successors, assigns or transferees (collectively, the "Holders"). The Notes are
convertible into an indeterminable number of shares (the "Note Conversion
Shares") of the Company's common stock, par value $.01 per share (the "Common
Stock"), pursuant to the terms of the Notes. The Notes are also mandatorily
exchangeable after January 1, 1998 into certain shares of the Company's
convertible preferred stock (the "Preferred Stock"), which such shares of
Preferred Stock shall be convertible into an indeterminable number of shares
(the "Stock Conversion Shares") of the Company's Common Stock, pursuant to the
terms of the applicable Certificate of Designation. In addition, pursuant to
the terms of the Note Purchase Agreement and the transactions contemplated
thereby, the Company has issued to the Funds (i) an aggregate of 93,677 shares
of Common Stock (the "Grant Shares") and (ii) Common Stock Purchase Warrants
exercisable for an aggregate 100,000 shares of Common Stock (the "Warrant
Shares"). The Company has agreed to issue an indeterminable number of
additional shares of Common Stock (the "Additional Grant Shares") on or before
January 5, 1998, upon the occurrence of certain events specified in the Note
Purchase Agreement. The number of Note Conversion Shares, Stock Conversion
Shares, Grant Shares, Warrant Shares and Additional Grant Shares (collectively,
the "Securities") is subject to adjustment upon the occurrence of stock splits,
recapitalizations and similar events occurring after the date hereof. The
Company represents and warrants that the Company's Common Stock is currently
eligible for trading on the Nasdaq Stock Market's SmallCap Market ("SmallCap
Market") under the symbol "EDGE". This Agreement shall become effective upon
the issuance of the Notes to any of the Holders pursuant to the Note Purchase
Agreement. Certain capitalized terms used in this Agreement are defined in
Section 3 hereof; references to sections shall be to sections of this Agreement.
2. REGISTRATION UNDER SECURITIES ACT, ETC.
2.1 REGISTRATION ON REQUEST.
(A) GRANT SHARE REGISTRATION. As soon as practicable after July 24,
1997, but in any event, prior to July 28, 1997, demand for which is hereby given
and acknowledged, the Company shall prepare and file a registration statement to
effect the registration under the Securities Act of all, but not less than all,
of the Registrable Securities which relate to the Grant Shares; all to the
extent requisite to permit the public resale of the Grant Shares to be so
registered. The Company shall use its best efforts to cause the Registration
Statement which is the subject of this Section 2.1(a) (the "Grant Share
Registration Statement") to be declared effective by the Commission upon the
earlier to occur of (i) fifty (50) days after the original
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filing thereof and (2) five (5) days after receipt of a "no review" or similar
letter from the Commission.
(B) NOTE CONVERSION SHARE, STOCK CONVERSION SHARE, WARRANT SHARE AND
ADDITIONAL GRANT SHARE REGISTRATION. On or before November 15, 1997, demand for
which is hereby given and acknowledged, the Company shall effect the
registration under the Securities Act of all, but not less than all, of the
Registrable Securities which relate (or, because of the indeterminable number
thereof, which could reasonably be deemed to relate) to the Note Conversion
Shares, Stock Conversion Shares, Warrant Shares or Additional Grant Shares (the
"Other Shares"); all to the extent requisite to permit the public disposition of
such Registrable Securities so to be registered. The Company shall use its best
efforts to cause the Registration Statement which is the subject of this
Section 2.1(b) (the "Second Registration Statement") to be declared effective by
the Commission upon the earlier to occur of (i) January 12, 1998 and (ii) five
(5) days after receipt of a "no review" or similar letter from the Commission.
Nothing contained herein shall be deemed to limit the number of Other Shares to
be registered by the Company hereunder. As a result, should the Second
Registration Statement not relate to the maximum number of Other Shares acquired
by (or potentially acquirable by) the holders thereof upon conversion of the
Note, conversion of the Preferred Stock, exercise of the Warrant or in
connection with the issuance of Additional Grant Shares, the Company shall be
required to file a separate registration statement (utilizing Rule 462
promulgated under the Exchange Act, where applicable) relating to such Other
Shares which then remain unregistered (provided at least 25,000 Other Shares
remain unregistered). The provisions of this Agreement shall relate to such
separate registration statement as if it were an amendment to the Second
Registration Statement.
(C) REGISTRATION STATEMENT FORM. Registrations under this Section
2.1 shall be on such appropriate registration form of the Commission (i) as
shall be reasonably selected by the Company and (ii) as shall permit the
disposition of such Registrable Securities in accordance with the intended
method or methods of disposition specified in the Funds' request for such
registration.
(D) EXPENSES. The Company will pay all Registration Expenses in
connection with any registration requested pursuant to this Section 2.1.
(E) EFFECTIVE REGISTRATION STATEMENT. A registration requested
pursuant to this Section 2.1 shall not be deemed to have been effected (i)
unless a registration statement with respect thereto has become effective within
the time period specified herein, provided that a registration which does not
become effective after the Company has filed a registration statement with
respect thereto solely by reason of the refusal to proceed of any holder of
Registrable Securities (other than a refusal to proceed based upon the advice of
counsel relating to a disclosure matter unrelated to such holder) shall be
deemed to have been effected by the Company unless the holders of the
Registrable Securities shall have elected to pay all Registration Expenses in
connection with such registration, (ii) if, after it has become effective, such
registration becomes subject to any stop order, injunction or other order or
extraordinary requirement of the Commission or other governmental agency or
court for any reason, (iii) if, after it has become effective, such registration
ceases to be effective or useful to the sellers of the
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Registrable Securities for more than an aggregate of ninety (90) days or (iv)
the conditions to closing specified in the purchase agreement or underwriting
agreement entered into in connection with such registration are not satisfied,
other than by reason of some act or omission by the Holders.
(F) SELECTION OF UNDERWRITERS. The offerings requested may be, at the
option of a majority (by number of Securities ) of the holders of the
Registrable Securities so included, an underwritten offering and the underwriter
or underwriters thereof shall be selected by the holders of at least a majority
(by number of Securities) of the Registrable Securities as to which registration
has been requested and shall be acceptable to the Company.
(G) PRIORITY IN REQUESTED REGISTRATIONS. If a registration pursuant
to this Section 2.1 involves an underwritten offering, and the managing
underwriter shall advise the Company in writing (with a copy to each holder of
Registrable Securities) that, in its opinion, the number of securities requested
to be included in such registration exceeds the number which can be sold in such
offering, the Company will include in such registration, to the extent of the
number which the Company is so advised can be sold in such offering, Registrable
Securities, pro rata among such holders on the basis of the number of such
securities held (or then acquirable upon conversion of the Securities) by such
holders. In connection with any registration in which any Registrable
Securities requested for inclusion are excluded, no securities other than
Registrable Securities shall be covered by such registration.
2.2 INCIDENTAL REGISTRATION.
(A) RIGHT TO INCLUDE REGISTRABLE SECURITIES. If at any time after
January 1, 1998 but before the fifth anniversary of the date hereof the Company
proposes to register any of its securities under the Securities Act (other than
by a registration in connection with an acquisition in a manner which would not
permit registration of Registrable Securities for sale to the public, on Form
S-8, or any successor form thereto, on Form S-4, or any successor form thereto
and other than pursuant to Section 2.1), on an underwritten basis (either
best-efforts or firm-commitment) it will each such time give prompt written
notice to all Holders of its intention to do so and of such Holders' rights
under this Section 2.2. Upon the written request of any such Holder made within
twenty (20) days after the receipt of any such notice (which request shall
specify the Registrable Securities intended to be disposed of by such Holder and
the intended method of disposition thereof), the Company will, subject to the
terms of this Agreement, effect the registration under the Securities Act of up
to that number of Registrable Securities equal to that number of Note Conversion
Shares acquirable upon conversion of up to 75% of the original principal amount
of the Notes which the Company has been so requested to register by the Holders
thereof, to the extent requisite to permit the disposition (in accordance with
the intended methods thereof as aforesaid) of such Registrable Securities so to
be registered, by inclusion of such Registrable Securities in the registration
statement which covers the securities which the Company proposes to register,
provided that if, at any time after giving written notice of its intention to
register any securities and prior to the effective date of the registration
statement filed in connection with such registration, the Company shall
determine for any reason either not to register or to delay registration of such
securities, the Company may, at its election, give
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written notice of such determination to each Holder and, thereupon, (i) in the
case of a determination not to register, shall be relieved of its obligation to
register any Registrable Securities in connection with such registration (but
not from its obligation to pay the Registration Expenses in connection
therewith), without prejudice, however, to the rights of any holder or holders
of Registrable Securities entitled to do so to request that such registration be
effected as a registration under Section 2.1, and (ii) in the case of a
determination to delay registering, shall be permitted to delay registering any
Registrable Securities, for the same period as the delay in registering such
other securities. No registration effected under this Section 2.2 shall relieve
the Company of its obligation to effect any registration upon request under
Section 2.1, nor shall any such registration hereunder be deemed to have been
effected pursuant to Section 2.1. The Company will pay all Registration Expenses
in connection with each registration of Registrable Securities requested
pursuant to this Section 2.2. The right provided the Holders of the Registrable
Securities pursuant to this Section shall be exercisable at their sole
discretion and will in no way limit any of the Company's obligations to pay the
Securities according to their terms.
(B) PRIORITY IN INCIDENTAL REGISTRATIONS. If the managing
underwriter of the underwritten offering contemplated by this Section 2.2 shall
inform the Company and holders of the Registrable Securities requesting such
registration by letter of its belief that the number of securities requested to
be included in such registration exceeds the number which can be sold in (or
during the time of) such offering, then the Company will include in such
registration, to the extent of the number which the Company is so advised can be
sold in (or during the time of) such offering, (i) first securities proposed by
the Company to be sold for its own account, and (ii) second Registrable
Securities and securities of other selling security holders requested to be
included in such registration pro rata on the basis of the number of shares of
such securities so proposed to be sold and so requested to be included;
provided, however, the holders of Registrable Securities shall have priority to
all shares sought to be included by officers and directors of the Company as
well as holders of ten percent (10%) or more of the Company's Common Stock.
2.3 REGISTRATION PROCEDURES. If and whenever the Company is required to
effect the registration of any Registrable Securities under the Securities Act
as provided in Sections 2.1 and 2.2, the Company shall, as expeditiously as
possible:
(i) prepare and file with the Commission the requisite registration
statement to effect such registration (including such audited financial
statements as may be required by the Securities Act or the rules and
regulations promulgated thereunder) and thereafter use its best efforts to
cause such registration statement to be declared effective by the
Commission, as soon as practicable, but in any event no later than the
First Required Effectiveness Date or Second Required Effectiveness Date, as
applicable, provided, however, that the Company may discontinue any
registration of its securities which are not Registrable Securities (and,
under the circumstances specified in Section 2.2, its securities which are
Registrable Securities) at any time prior to the effective date of the
registration statement relating thereto, provided further that before
filing such registration statement or any amendments thereto, the Company
will furnish to the counsel selected
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by the holders of Registrable Securities which are to be included in such
registration, copies of all such documents proposed to be filed;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration
statement effective and to comply with the provisions of the Securities Act
with respect to the disposition of all Registrable Securities covered by
such registration statement until the earlier to occur of (I) (A) with
respect to the Grant Share Registration Statement, two (2) years after the
date of this Agreement, (B) with respect to the Second Registration
Statement, five (5) years after the date of this Agreement, and (C) with
respect to a registration statement described in Section 2.2 above, the
time period determined by the Company and (II) such time as all of such
Registrable Securities have been disposed of in accordance with the
intended methods of disposition by the seller or sellers thereof set forth
in such registration statement or otherwise;
(iii) furnish to each seller of Registrable Securities covered by such
registration statement and each underwriter, if any, of the Registrable
Securities being sold by such seller such number of conformed copies of
such registration statement and of each such amendment and supplement
thereto (in each case including all exhibits), such number of copies of the
prospectus contained in such registration statement (including each
preliminary prospectus and any summary prospectus) and any other prospectus
filed under Rule 424 under the Securities Act, in conformity with the
requirements of the Securities Act, and such other documents, as such
seller and underwriter, if any, may reasonably request in order to
facilitate the public sale or other disposition of the Registrable
Securities owned by such seller;
(iv) use its best efforts to register or qualify all Registrable
Securities and other securities covered by such registration statement
under such other securities laws or blue sky laws as any seller thereof and
any underwriter of the securities being sold by such seller shall
reasonably request, to keep such registrations or qualifications in effect
for so long as such registration statement remains in effect, and take any
other action which may be reasonably necessary or advisable to enable such
seller and underwriter to consummate the disposition in such jurisdictions
of the securities owned by such seller, except that the Company shall not
for any such purpose be required to qualify generally to do business as a
foreign corporation in any jurisdiction wherein it would not but for the
requirements of this subdivision (iv) be obligated to be so qualified or to
consent to general service of process in any such jurisdiction;
(v) use its best efforts to cause all Registrable Securities covered
by such registration statement to be registered with or approved by such
other governmental agencies or authorities as may be necessary to enable
the seller or sellers thereof to consummate the disposition of such
Registrable Securities;
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(vi) furnish to each seller of Registrable Securities a signed
counterpart, addressed to such seller, and the underwriters, if any, of (except
for the Grant Share Registration Statement and Second Registration Statement):
(x) an opinion of counsel for the Company, dated the
effective date of such registration statement (or, if such
registration includes an underwritten public offering, an opinion
dated the date of the closing under the underwriting agreement),
reasonably satisfactory in form and substance to such seller, and
(y) a "comfort" letter (or, in the case of any such Person
which does not satisfy the conditions for receipt of a "comfort"
letter specified in Statement on Auditing Standards No. 72, an
"agreed upon procedures" letter), dated the effective date of such
registration statement (and, if such registration includes an
underwritten public offering, a letter of like kind dated the date
of the closing under the underwriting agreement), signed by the
independent public accountants who have certified the Company's
financial statements included in such registration statement,
covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in
the case of the accountants' letter, with respect to events
subsequent to the date of such financial statements, as are
customarily covered in opinions of issuer's counsel and in
accountants' letters delivered to the underwriters in underwritten
public offerings of securities (with, in the case of an "agreed upon
procedures" letter, such modifications or deletions as may be
required under Statement on Auditing Standards No. 35) and, in the
case of the accountants' letter, such other financial matters, and,
in the case of the legal opinion, such other legal matters, as such
seller (or the underwriters, if any) may reasonably request;
(vii) notify the holders of Registrable Securities, their counsel and
the managing underwriter or underwriters, if any, promptly and confirm such
advice in writing promptly thereafter:
(v) when the registration statement, the prospectus or any
prospectus supplement related thereto or post-effective amendment to
the registration statement has been filed, and, with respect to the
registration statement or any post-effective amendment thereto, when
the same has become effective;
(w) of any request by the Commission for amendments or
supplements to the registration statement or the prospectus or for
additional information;
(x) of the issuance by the Commission of any stop order
suspending the effectiveness of the registration statement or the
initiation of any proceedings by any Person for that purpose;
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(y) if at any time the representations and warranties of the
Company made as contemplated by Section 2.4 below cease to be true
and correct in all material respects;
(z) of the receipt by the Company of any notification with
respect to the suspension of the qualification of any Registrable
Securities for sale under the securities or blue sky laws of any
jurisdiction or the initiation or threat of any proceeding for such
purpose;
(viii) notify each seller of Registrable Securities covered by such
registration statement, at any time when a prospectus relating thereto is
required to be delivered under the Securities Act, upon discovery that, or
upon the happening of any event as a result of which, the prospectus
included in such registration statement, as then in effect, includes an
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing, and at the
request of any such seller promptly prepare and furnish to such seller and
each underwriter, if any, a reasonable number of copies of a supplement to
or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such securities, such prospectus
shall not include 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 not misleading in the light of the circumstances then
existing;
(ix) use its best efforts to obtain the withdrawal of any order
suspending the effectiveness of the registration statement at the earliest
possible moment;
(x) otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earning statement covering
the period of at least twelve months, but not more than eighteen months,
beginning with the first full calendar month after the effective date of
such registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and Rule 158 thereunder;
(xi) except for a registration statement described in Section 2.2
above, enter into such agreements and take such other actions as sellers of
such Registrable Securities holding 51% of the shares so to be sold shall
reasonably request in writing (at the expense of such Sellers) in order to
expedite or facilitate the disposition of such Registrable Securities; and
(xii) use its best efforts to list all Registrable Securities covered
by such registration statement on any securities exchange on which any of
the Registrable Securities are then listed.
The Company may require each seller of Registrable Securities as to which
any registration is being effected to furnish the Company such information
regarding such seller and
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the distribution of such securities as the Company may from time to time
reasonably request in writing.
The Company will not file any registration statement or amendment thereto
or any prospectus or any supplement thereto (including such documents
incorporated by reference and proposed to be filed after the initial filing of
the registration statement) to which the holders of at least a majority of the
Registrable Securities covered by such registration statement or the underwriter
or underwriters, if any, shall reasonably object, provided that the Company may
file such document in a form required by law or upon the advice of its counsel.
The Company represents and warrants to each holder of Registrable
Securities that it has obtained all necessary waivers, consents and
authorizations necessary to execute this Agreement and consummate the
transactions contemplated hereby.
Each holder of Registrable Securities agrees by acquisition of such
Registrable Securities that, upon receipt of any notice from the Company of the
occurrence of any event of the kind described in subdivision (viii) of this
Section 2.3, such holder will forthwith discontinue such holder's disposition of
Registrable Securities pursuant to the registration statement relating to such
Registrable Securities until such holder's receipt of the copies of the
supplemented or amended prospectus contemplated by subdivision (viii) of this
Section 2.3 and, if so directed by the Company, will deliver to the Company (at
the Company's expense) all copies, other than permanent file copies, then in
such Holder's possession of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice.
If any such registration statement refers to any Holder of Registrable
Securities by name or otherwise as the holder of any securities of the Company,
then such holder shall have the right to require (a) the insertion therein of
language, in form and substance satisfactory to such holder, to the effect that
the holding by such holder of such securities is not to be construed as a
recommendation by such holder of the investment quality of the Company's
securities covered thereby and that such holding does not imply that such holder
will assist in meeting any future financial requirements of the Company, or (b)
in the event that 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.
2.4 UNDERWRITTEN OFFERINGS.
(A) REQUESTED UNDERWRITTEN OFFERINGS. If requested by the
underwriters for any underwritten offering by holders of Registrable Securities
pursuant to a registration requested under Section 2.1, the Company will enter
into an underwriting agreement with such underwriters for such offering, and to
contain such representations and warranties by the Company and such other terms
as are generally prevailing in agreements of this type, including, without
limitation, indemnities to the effect and to the extent provided in Section 2.7.
The holders of the Registrable Securities will cooperate with the Company in the
negotiation of the underwriting agreement and will give consideration to the
reasonable suggestions of the Company regarding the form thereof, provided that
nothing herein contained shall diminish the
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foregoing obligations of the Company. The holders of Registrable Securities to
be distributed by such underwriters shall be parties to such underwriting
agreement and may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of, the
Company to and for the benefit of such underwriters shall also be made to and
for the benefit of such holders of Registrable Securities and that any or all of
the conditions precedent to the obligations of such underwriters under such
underwriting agreement be conditions precedent to the obligations of such
holders of Registrable Securities. Any such holder of Registrable Securities
shall not be required to make any representations or warranties to or agreements
with the Company or the underwriters other than representations and warranties
contained in a writing furnished by such holder expressly for use in such
registration statement or representations, warranties and agreements regarding
such holder, such holder's Registrable Securities and such holder's intended
method of distribution and any other representation required by law.
(B) [INTENTIONALLY LEFT BLANK].
(C) HOLDBACK AGREEMENTS.
(i) Subject to such other reasonable requirements as may be imposed
by the underwriter as a condition of inclusion of a holder's Registrable
Securities in the registration statement, each holder of Registrable
Securities agrees by acquisition of such Registrable Securities, if so
required by the managing underwriter, not to sell, make any short sale of,
loan, grant any option for the purchase of, effect any public sale or
distribution of or otherwise dispose of, except as part of such
underwritten registration, any equity securities of the Company, during
such reasonable period of time requested by the underwriter; provided
however, such period shall not exceed the 120 day period commencing 30 days
prior to the commencement of such underwritten offering and ending 90 days
following the completion of such underwritten offering.
(D) PARTICIPATION IN UNDERWRITTEN OFFERINGS. No Person may participate in
any underwritten offering hereunder unless such Person (i) agrees to sell such
Person's securities on the basis provided in any underwriting arrangements
approved, subject to the terms and conditions hereof, by the holders of a
majority of Registrable Securities to be included in such underwritten offering
and (ii) completes and executes all questionnaires, indemnities, underwriting
agreements and other documents (other than powers of attorney) required under
the terms of such underwriting arrangements. Notwithstanding the foregoing, no
underwriting agreement (or other agreement in connection with such offering)
shall require any holder of Registrable Securities to make any representations
or warranties to or agreements with the Company or the underwriters other than
representations and warranties contained in a writing furnished by such holder
expressly for use in the related registration statement or representations,
warranties or agreements regarding such holder, such holder's Registrable
Securities and such holder's intended method of distribution and any other
representation required by law.
2.5 PREPARATION; REASONABLE INVESTIGATION. In connection with the
preparation and filing of each registration statement under the Securities Act
pursuant to this Agreement, the Company will give the holders of Registrable
Securities registered under such registration
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statement, their underwriters, if any, and their respective counsel and
accountants, the opportunity to participate in the preparation of such
registration statement, each prospectus included therein or filed with the
Commission, and each amendment thereof or supplement thereto, and will give each
of them such access to its books and records and such opportunities to discuss
the business of the Company with its officers and the independent public
accountants who have certified its financial statements as shall be necessary,
in the reasonable opinion of such holders' and such underwriters' respective
counsel, to conduct a reasonable investigation within the meaning of the
Securities Act.
2.6 [INTENTIONALLY LEFT BLANK]
2.7 INDEMNIFICATION.
(A) INDEMNIFICATION BY THE COMPANY. In the event of any registration
of any securities of the Company under the Securities Act, the Company will, and
hereby does agree to, indemnify and hold harmless the holder of any Registrable
Securities covered by such registration statement, its directors and officers,
each other Person who participates as an underwriter in the offering or sale of
such securities and each other Person, if any, who controls such holder or any
such underwriter within the meaning of the Securities Act against any losses,
claims, damages or liabilities, joint or several, to which such holder or any
such director or officer or underwriter or controlling person may become subject
under the Securities Act or otherwise, insofar as such losses, claims, damages
or liabilities (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any registration statement
under which such securities were registered under the Securities Act, any
preliminary prospectus, final prospectus or summary prospectus contained
therein, or any amendment or supplement thereto, or any omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and the Company will
reimburse such holder and each such director, officer, underwriter and
controlling person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending any such loss, claim,
liability, action or proceeding, provided that the Company shall not be liable
in any such case to the extent that any such loss, claim, damage, liability (or
action or proceeding in respect thereof) or expense arises out of or is based
upon an untrue statement or alleged untrue statement or omission or alleged
omission made in such registration statement, any such preliminary prospectus,
final prospectus, summary prospectus, amendment or supplement in reliance upon
and in conformity with written information furnished to the Company by such
holder or underwriter stating that it is for use in the preparation thereof and,
provided further that the Company shall not be liable to any Person who
participates as an underwriter in the offering or sale of Registrable Securities
or to any other Person, if any, who controls such underwriter within the meaning
of the Securities Act, in any such case to the extent that any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense arises
out of such Person's failure to send or give a copy of the final prospectus, as
the same may be then supplemented or amended, within the time required by the
Securities Act to the Person asserting the existence of an untrue statement or
alleged untrue statement or omission or alleged omission at or prior to the
written confirmation of the sale of Registrable Securities to such
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Person if such statement or omission was corrected in such final prospectus.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of such holder or any such director, officer,
underwriter or controlling person and shall survive the transfer of such
securities by such holder.
(B) INDEMNIFICATION BY THE SELLERS. The Company may require, as a
condition to including any Registrable Securities in any registration statement
filed pursuant to this Agreement, that the Company shall have received an
undertaking satisfactory to it from the prospective seller of such Registrable
Securities, to indemnify and hold harmless (in the same manner and to the same
extent as set forth in subdivision (a) of this Section 2.7) the Company, each
director of the Company, each officer of the Company and each other Person, if
any, who controls the Company within the meaning of the Securities Act, with
respect to any statement or alleged statement in or omission or alleged omission
from such registration statement, any preliminary prospectus, final prospectus
or summary prospectus contained therein, or any amendment or supplement thereto,
if such statement or alleged statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company through an instrument duly executed by such seller specifically stating
that it is for use in the preparation of such registration statement,
preliminary prospectus, final prospectus, summary prospectus, amendment or
supplement. Any such indemnity shall remain in full force and effect, regardless
of any investigation made by or on behalf of the Company or any such director,
officer or controlling person and shall survive the transfer of such securities
by such seller.
(C) NOTICES OF CLAIMS. ETC. Promptly after receipt by an indemnified
party of notice of the commencement of any action or proceeding involving a
claim referred to in the preceding subdivisions of this Section 2.7, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action, provided that the failure of any indemnified party to give notice
as provided herein shall not relieve the indemnifying party of its obligations
under the preceding subdivisions of this Section 2.7, except to the extent that
the indemnifying party is actually prejudiced by such failure to give notice. In
case any such action is brought against an indemnified party, unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such claim, the
indemnifying party shall be entitled to participate in and to assume the defense
thereof, jointly with any other indemnifying party similarly notified, to the
extent that the indemnifying party may wish, with counsel reasonably
satisfactory to such indemnified party, and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party shall not be liable to such indemnified party
for any legal or other expenses subsequently incurred by the latter in
connection with the defense thereof other than reasonable costs of
investigation. No indemnifying party shall, without the consent of the
indemnified party, consent to entry of any judgment or enter into any settlement
of any such action which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such indemnified party of a release from
all liability, or a covenant not to sue, in respect to such claim or litigation.
No indemnified party shall consent to entry of any judgment
REGISTRATION RIGHTS AGREEMENT-PAGE 11
(VISUAL EDGE)
<PAGE>
or enter into any settlement of any such action the defense of which has been
assumed by an indemnifying party without the consent of such indemnifying party.
(D) OTHER INDEMNIFICATION. Indemnification similar to that specified
in the preceding subdivisions of this Section 2.7 (with appropriate
modifications) shall be given by the Company and each seller of Registrable
Securities (but only if and to the extent required pursuant to the terms of
2.7(b)) with respect to any required registration or other qualification of
securities under any Federal or state law or regulation of any governmental
authority, other than the Securities Act.
(E) INDEMNIFICATION PAYMENTS. The indemnification required by this
Section 2.7 shall be made by periodic payments of the amount thereof during the
course of the investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred.
(F) CONTRIBUTION. If the indemnification provided for in the
preceding subdivisions of this Section 2.7 is unavailable to an indemnified
party in respect of any expense, loss, claim, damage or liability referred to
therein, 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 expense, loss, claim, damage or liability (i) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the holder or underwriter, as the case may be, on
the other from the distribution of the Registrable Securities or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law, in
such proportion as is appropriate to reflect not only the relative benefits
referred to in clause (i) above but also the relative fault of the Company on
the one hand and of the holder or underwriter, as the case may be, on the other
in connection with the statements or omissions which resulted in such expense,
loss, damage or liability, as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one hand
and the holder or underwriter, as the case may be, on the other in connection
with the distribution of the Registrable Securities shall be deemed to be in the
same proportion as the total net proceeds received by the Company from the
initial sale of the Registrable Securities by the Company to the purchasers
pursuant to the Note Purchase Agreement and the Warrants bear to the gain, if
any, realized by the selling holder or the underwriting discounts and
commissions received by the underwriter, as the case may be. The relative fault
of the Company on the one hand and of the holder or underwriter, as the case may
be, on the other shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission to
state a material fact relates to information supplied by the Company, by the
holder or by the underwriter and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or omission,
provided that the foregoing contribution agreement shall not inure to the
benefit of any indemnified party if indemnification would be unavailable to such
indemnified party by reason of the provisions contained in the first sentence of
subdivision (a) of this Section 2.7, and in no event shall the obligation of any
indemnifying party to contribute under this subdivision (f) exceed the amount
that such indemnifying party would have been obligated to pay by way of
indemnification if the indemnification provided for under subdivisions (b) of
this Section 2.7 had been available under the circumstances.
REGISTRATION RIGHTS AGREEMENT-PAGE 12
(VISUAL EDGE)
<PAGE>
The Company and the holders of Registrable Securities agree that it would
not be just and equitable if contribution pursuant to this subdivision (f) were
determined by pro rata allocation (even if the holders and any underwriters were
treated as one entity for such purpose) or by any other method of allocation
that does not take account of the equitable considerations referred to in the
immediately preceding paragraph. The amount paid or payable by an indemnified
party as a result of the losses, claims, damages and liabilities referred to in
the immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth in the preceding sentence and subdivision (c) of this
Section 2.7, any legal or other expenses reasonably incurred by such indemnified
party in connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this subdivision (f), no holder of
Registrable Securities or underwriter shall be required to contribute any amount
in excess of the amount by which (i) in the case of any such holder, the net
proceeds received by such holder from the sale of Registrable Securities or (ii)
in the case of an underwriter, the total price at which the Registrable
Securities purchased by it and distributed to the public were offered to the
public exceeds, in any such case, the amount of any damages that such holder or
underwriter has otherwise been required to pay by reason of such untrue or
alleged untrue statement or omission. 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.
3. DEFINITIONS. As used herein, unless the context otherwise requires,
the following terms have the following respective meanings:
'COMMISSION": The Securities and Exchange Commission or any other Federal
agency at the time administering the Securities Act.
"COMMON STOCK": As defined in Section 1.
"COMPANY": As defined in the introductory paragraph of this Agreement.
"CONVERSION SHARES": As defined in Section 1.
"EXCHANGE ACT": The Securities Exchange Act of 1934, as amended, and the
rules and regulations of the Commission thereunder.
"NOTES": As defined in Section 1, such term to include any securities
issued in substitution of or in addition to such Notes.
"NOTE PURCHASE AGREEMENT": As defined in Section 1.
"PERSON": A corporation, association, partnership, organization, business,
individual, governmental or political subdivision thereof or a governmental
agency.
REGISTRATION RIGHTS AGREEMENT-PAGE 13
(VISUAL EDGE)
<PAGE>
"PREFERRED STOCK": As defined in Section 1, such term to include any
securities issued in substitution of or in addition to such Preferred Stock.
"REGISTRABLE SECURITIES": The Securities and any securities issued or
issuable with respect to such Securities by way of stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization or otherwise. Once issued such securities
shall cease to be Registrable Securities when (a) a registration statement with
respect to the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in accordance
with such registration statement, (b) they shall have been distributed to the
public pursuant to Rule 144 (or any successor provision) under the Securities
Act, (c) they shall have been otherwise transferred, new certificates for them
not bearing a legend restricting further transfer shall have been delivered by
the Company and subsequent disposition of them shall not require registration or
qualification of them under the Securities Act or any similar state law then in
force, (d) they shall have ceased to be outstanding, or (e) on the fifth
anniversary of this Agreement.
"REGISTRATION EXPENSES": All expenses incident to the Company's
performance of or compliance with this Agreement, including, without limitation,
all registration, filing and NASD fees, all stock exchange and SmallCap Market
listing fees, all fees and expenses of complying with securities or blue sky
laws, all word processing, duplicating and printing expenses, messenger and
delivery expenses, the fees and disbursements of counsel for the Company and of
its independent public accountants, including the expenses of any special audits
or "cold comfort" letters required by or incident to such performance and
compliance, the reasonable fees and disbursements of not more than one law firm
(not to exceed $25,000) retained by the holder or holders of more than 50% of
the Registrable Securities, premiums and other costs of policies of insurance of
the Company against liabilities arising out of the public offering of the
Registrable Securities being registered and any fees and disbursements of
underwriters customarily paid by issuers or sellers of securities, but excluding
underwriting discounts and commissions and transfer taxes, if any, provided
that, in any case where Registration Expenses are not to be borne by the
Company, such expenses shall not include salaries of Company personnel or
general overhead expenses of the Company, auditing fees, premiums or other
expenses relating to liability insurance required by underwriters of the Company
or other expenses for the preparation of financial statements or other data
normally prepared by the Company in the ordinary course of its business or which
the Company would have incurred in any event.
"SECURITIES ACT": The Securities Act of 1933, as amended, and the rules
and regulations of the Commission thereunder.
4. RULE 144. The Company shall timely file the reports required to be
filed by it under the Securities Act and the Exchange Act (including but not
limited to the reports under Sections 13 and 15(d) of the Exchange Act referred
to in subparagraph (c) of Rule 144 adopted by the Commission under the
Securities Act) and the rules and regulations adopted by the Commission
thereunder (or, if the Company is not required to file such reports, will, upon
the request of any holder of Registrable Securities, make publicly available
other information) and
REGISTRATION RIGHTS AGREEMENT-PAGE 14
(VISUAL EDGE)
<PAGE>
will take such further action as any holder of Registrable Securities may
reasonably request, all to the extent required from time to time to enable such
holder to sell Registrable Securities without registration under the Securities
Act within the limitation of the exemptions provided by (a) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, or (b) any
similar rule or regulation hereafter adopted by the Commission. Upon the request
of any holder of Registrable Securities, the Company will deliver to such holder
a written statement as to whether it has complied with the requirements of this
Section 4.
5. AMENDMENTS AND WAIVERS. This Agreement may be amended and the Company
may take any action herein prohibited, or omit to perform any act herein
required to be performed by it, only if the Company shall have obtained the
written consent to such amendment, action or omission to act, of the holder or
holders of the sum of the 51% or more of the shares of (i) Registrable
Securities issued at such time, plus (ii) Registrable Securities issuable upon
exercise or conversion of the Securities then constituting derivative securities
(if such Securities were not fully exchanged or converted in full as of the
date such consent is sought). Each holder of any Registrable Securities at the
time or thereafter outstanding shall be bound by any consent authorized by this
Section 5, whether or not such Registrable Securities shall have been marked to
indicate such consent.
6. NOMINEES FOR BENEFICIAL OWNERS. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election, be treated as the holder of such
Registrable Securities for purposes of any request or other action by any holder
or holders of Registrable Securities pursuant to this Agreement or any
determination of any number or percentage of shares of Registrable Securities
held by any holder or holders of Registrable Securities contemplated by this
Agreement. If the beneficial owner of any Registrable Securities so elects, the
Company may require assurances reasonably satisfactory to it of such owner's
beneficial ownership of such Registrable Securities.
7. NOTICES. Except as otherwise provided in this Agreement, all notices,
requests and other communications to any Person provided for hereunder shall be
in writing and shall be given to such Person (a) in the case of a party hereto
other than the Company, addressed to such party in the manner set forth in the
Note Purchase Agreement or at such other address as such party shall have
furnished to the Company in writing, or (b) in the case of any other holder of
Registrable Securities, at the address that such holder shall have furnished to
the Company in writing, or, until any such other holder so furnishes to the
Company an address, then to and at the address of the last holder of such
Registrable Securities who has furnished an address to the Company, or (c) in
the case of the Company, at the address set forth on the signature page hereto,
to the attention of its President, or at such other address, or to the attention
of such other officer, as the Company shall have furnished to each holder of
Registrable Securities at the time outstanding. Each such notice, request or
other communication shall be effective (i) if given by mail, 72 hours after such
communication is deposited in the mails with first class postage prepaid,
addressed as aforesaid or (ii) if given by any other means (including, without
limitation, by fax or air courier), when delivered at the address specified
above, provided that any such notice, request or communication shall not be
effective until received.
REGISTRATION RIGHTS AGREEMENT-PAGE 15
(VISUAL EDGE)
<PAGE>
8. ASSIGNMENT. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the parties hereto. In addition, and whether or
not any express assignment shall have been made, the provisions of this
Agreement which are for the benefit of the parties hereto other than the Company
shall also be for the benefit of and enforceable by any subsequent holder of any
Registrable Securities, subject to the provisions respecting the minimum numbers
or percentages of shares of Registrable Securities required in order to be
entitled to certain rights, or take certain actions. contained herein.
9. DESCRIPTIVE HEADINGS. The descriptive headings of the several
sections and paragraphs of this Agreement are inserted for reference only and
shall not limit or otherwise affect the meaning hereof.
10. GOVERNING LAW. THIS AGREEMENT SHALL BE CONSTRUED AND ENFORCED IN
ACCORDANCE WITH, AND THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAWS OF
THE STATE OF NEW YORK WITHOUT REFERENCE TO THE PRINCIPLES OF CONFLICTS OF LAWS.
11. COUNTERPARTS. This Agreement may be executed by facsimile and may be
signed simultaneously in any number of counterparts, each of which shall be
deemed an original, but all such counterparts shall together constitute one and
the same instrument.
12. ENTIRE AGREEMENT. This Agreement embodies the entire agreement and
understanding between the Company and each other party hereto relating to the
subject matter hereof and supersedes all prior agreements and understandings
relating to such subject matter.
14. SEVERABILITY. If any provision of this Agreement, or the application
of such provisions to any Person or circumstance, shall be held invalid, the
remainder of this Agreement, or the application of such provision to Persons or
circumstances other than those to which it is held invalid, shall not be
affected thereby.
[SIGNATURE PAGE FOLLOWS]
REGISTRATION RIGHTS AGREEMENT-PAGE 16
(VISUAL EDGE)
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
and delivered by their respective officers thereunto duly authorized as of the
date first above written.
VISUAL EDGE SYSTEMS INC.
By: /s/ Alan Lubell
------------------------------------------
Name: Alan Lubell
----------------------------------------
Title: Chairman of the Board
---------------------------------------
Address: 2424 North Federal Highway
Suite 100
Boca Raton, Florida 33431
Telephone: (514) 937-0787
Fax: (514) 937-0286
Attn: Earl Takefman
With a copy to: David W. Pollak, Esq.
Morgan, Lewis & Bockius, LLP
101 Park Avenue
New York, New York 10178
Fax: (212) 309-6058
Attn: Earl Takefman
INFINITY INVESTORS LIMITED
By: /s/ J. A. Loughran
------------------------------------------
Name: J. A. Loughran
----------------------------------------
Title: Director
---------------------------------------
Address: 27 Wellington Road
Cork, Ireland
Telephone: 353-21-501-109
Fax: 353-21-501-255
Attn: J. A. Loughran
With a copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1600
Fax: (214) 720-1662
Attn.: Barrett Wissman
REGISTRATION RIGHTS AGREEMENT-PAGE 17
(VISUAL EDGE)
<PAGE>
INFINITY EMERGING
OPPORTUNITIES LIMITED
By: /s/ J. A. Loughran
------------------------------------------
Name: J. A. Loughran
----------------------------------------
Title: Director
---------------------------------------
Address: 27 Wellington Road
Cork, Ireland
Telephone: 353-21-501-109
Fax: 353-21-501-255
Attn: J. A. Loughran
With a copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1600
Fax: (214) 720-1662
Attn.: Barrett Wissman
SANDERA PARTNERS, L.P.
By: Sandera Capital Management, L.P.,
its General Partner
By: Sandera Capital, L.L.C.,
its General Partner
By: /s/ Clark K. Hunt
--------------------------------
Name: Clark K. Hunt
------------------------------
Title: Managing Director
-----------------------------
Address: 1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1600
Fax: (214) 720-1662
Attn.: Barrett Wissman
REGISTRATION RIGHTS AGREEMENT-PAGE 18
(VISUAL EDGE)
<PAGE>
With a copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1600
Fax: (214) 720-1662
Attn.: Barrett Wissman
LION CAPITAL PARTNERS, L.P.
By: Mountain Capital Management,
L.L.C., its General Partner
By: /s/ Clark K. Hunt
-------------------------------------
Name: Clark K. Hunt
-----------------------------------
Title: Managing Director
----------------------------------
Address: 1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1600
Fax: (214) 720-1662
Attn.: Barrett Wissman
With a copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: (214) 720-1600
Fax: (214) 720-1662
Attn.: Barrett Wissman
REGISTRATION RIGHTS AGREEMENT-PAGE 19
(VISUAL EDGE)
<PAGE>
Exhibit 99.3
TRANSFER AGENT AGREEMENT
THIS TRANSFER AGENT AGREEMENT (this "Agreement"), dated as of June 13,
1997, among VISUAL EDGE SYSTEMS INC. a Delaware corporation (the "Company"),
INFINITY INVESTORS LIMITED, a Nevis West Indies corporation ("Infinity"),
INFINITY EMERGING OPPORTUNITIES LIMITED, a Nevis West Indies corporation
("IEOL"), SANDERA PARTNERS, L.P. (Sandera"), a Texas limited partnership, and
LION CAPITAL PARTNERS, L.P. ("Lion"), a Texas limited partnership, being
collectively being referred to as the "Holders") and AMERICAN STOCK TRANSFER &
TRUST COMPANY (the "Transfer Agent").
R E C I T A L S:
WHEREAS, pursuant to that certain Bridge Securities Purchase Agreement
dated the date hereof (the "Purchase Agreement") by and among the Company and
the Holders, the Company agreed to issue to the Holders $7,500,000 aggregate
principal amount of convertible notes (the "Convertible Notes"), which are (i)
at any time after January 1, 1998, convertible, at the option of the Holders,
into shares of common stock, $.01 par value per share, of the Company (the
"Common Stock") and (ii) under certain circumstances described in the Purchase
Agreement exchangeable for shares of Series A Convertible Preferred Stock of the
Company (the "Preferred Shares") which, at the option of the Holders, are
convertible into shares of Common Stock (such shares issuable upon such
conversion of the Convertible Notes and/or Preferred Shares being referred to as
the "Shares"); and
WHEREAS, the Company and the Holders have agreed to enter into this
Agreement with the Transfer Agent to (i) facilitate the closing of the Purchase
Agreement (the "Closing"), (ii) provide for a system of accounting for the
Convertible Notes and Preferred Shares (the "Convertible Instruments") and (iii)
facilitate the conversion of the Convertible Instruments and issuance of the
Shares associated therewith.
NOW, THEREFORE, in consideration of the foregoing, the parties hereby agree
as follows:
1. CLOSINGS. The Transfer Agent hereby agrees to act as an escrow agent
to facilitate the Closing as follows:
(a) On the date hereof, the Holders shall wire transfer to an account
designated by the Transfer Agent $7,500,000 in the aggregate (the "Purchase
Price"), and the Company shall deliver to the Transfer Agent (i) the Convertible
Notes, (ii) the Grant Shares (as defined in the Purchase Agreement) and (iii)
the Warrants (as defined in the Purchase
TRANSFER AGENT AGREEMENT-PAGE 1
(VISUAL EDGE SYSTEMS INC.)
<PAGE>
Agreement), in the names of the Holders and in the amounts as set forth on
Schedule 1 hereto. The Transfer Agent may, at its discretion, confirm the
authenticity of the Convertible Notes, Grant Shares and Warrants by transmitting
a copy of the same in the form received from the Company to Infinity, on behalf
of the Holders, or its counsel, for written or oral verification as to the form
thereof.
(b) Immediately following such deliveries, together with a delivery
from the Company to the Transfer Agent of a fully executed copy of the Purchase
Agreement, the Transfer Agent shall wire transfer to the Company the Purchase
Price less $26,500 (I) (the "Expense Reimbursement Fee"), (II) $187,500 (the
"Alpine Fee") and (III) the sum specified by the Company (the "Bank Payoff
Amount") necessary to repay in full the Barnett Bank Facility (as such term is
defined in the Purchase Agreement), pursuant to wire transaction or other
instructions as provided by the Company. The Transfer Agent shall also wire
transfer (I) the Expense Reimbursement Fee to the Holders, care of HW Partners
L.P., pursuant to wire transfer or other instructions provided by HW Partners,
L.P., (II) the Alpine Fee to Alpine Capital Partners, Inc. pursuant to wire
transfer or other instructions provided by Alpine Capital Partners, Inc., and
(III) the Bank Payoff Amount to the bank specified by the Company, pursuant to
wire transfer or other instructions provided by the Company. All interest (if
any) earned on the funds placed in escrow and prior to their distribution as set
forth herein shall be for the account of the Holders.
(c) Contemporaneous with the transfer of funds as described in
Subsection (b) above, the Transfer Agent shall (i) deliver the Grant Shares and
the Warrants to the Holders at the addresses set forth herein and (ii) hold the
Convertible Notes for the benefit of the Holders, as hereafter described.
(d) Notwithstanding the foregoing, by joint written agreement, the
Holders and the Company may agree to effect the Closing without using the
services of the Transfer Agent. In such event, the Holders shall (i) wire
transfer the Purchase Price, less the Expense Reimbursement Fee, Alpine Fee and
Bank Payoff Amount to the Company against counter-delivery by the Company of the
original Convertible Notes, Grant Shares and Warrants to the Holders or their
designee, (ii) wire transfer the Expense Reimbursement Fee to HW Partners, L.P.,
(iii) wire transfer the Alpine Fee to Alpine Capital Partners, Inc., (iv) wire
transfer the Bank Payoff Amount in a mutually agreeable manner and (v)
thereafter deliver the Convertible Notes to the Transfer Agent to be held for
the benefit of the Holders pursuant to the terms of this Agreement.
(e) As contemplated by Section 3.8 of the Purchase Agreement, upon a
Recapitalization Event (as defined therein), the Company shall promptly deliver
the Preferred Shares, together with the letter specified by Section 3.8 of the
Purchase Agreement, to the Transfer Agent, with a copy thereof to the Holders.
Thereafter, the Transfer Agent shall account for the Convertible Notes and
Preferred Shares in accordance with the terms hereof, including reduction in the
Accounting Ledger (as hereafter defined) of the principal balance of
TRANSFER AGENT AGREEMENT-PAGE 2
(VISUAL EDGE SYSTEMS INC.)
<PAGE>
the Convertible Notes by the principal amount (liquidation value) of the
Preferred Shares received upon consummation of a Recapitalization Event.
2. OWNERSHIP OF CONVERTIBLE NOTES. Record and beneficial ownership of
the Convertible Instruments shall remain in the name of the Holders (unless and
until transferred pursuant to the terms thereof, with written notice thereof to
the Transfer Agent). Any transfer or purported transfer of the Convertible
Instruments (a) not made pursuant to the terms of the Convertible Instruments
and (b) not properly noticed to the Transfer Agent shall be null and void AB
INITIO and shall not be given effect thereto by the Transfer Agent. The
Transfer Agent shall not be required to acknowledge any transfer of the
Convertible Instruments unless accompanied by written confirmation thereof from
the Holders.
3. PAYING AGENT. The Transfer Agent shall act as paying agent for the
Convertible Instruments. Accordingly, all payments of interest, dividends,
redemption and/or principal amounts required of the Company related to the
Convertible Instruments shall be made to the Transfer Agent for the account and
benefit of the holders of such Convertible Instruments as registered on the
books of the Transfer Agent (each, a "Registered Holder"). Upon the receipt of
any such payment of interest or principal amounts, in cash, the Transfer Agent
shall promptly wire transfer such sum to the account of the Registered Holders
as reflected on the books of the Transfer Agent. The wire transfer account of
each Holder is as set forth on Schedule 2 attached hereto. The address of each
Holder is as set forth in Section 8 hereof. In the event the Company exercises
its option to pay interest or dividends on the Convertible Instruments in shares
of Common Stock, the Company shall so advise the Transfer Agent at least two (2)
Business Days prior to the applicable interest or dividend payment date, and
shall irrevocably direct the Transfer Agent to issue the appropriate number of
shares of Common Stock representing interest or dividends, as applicable, to the
Registered Holder on the applicable interest or dividend payment date.
4. ACCOUNTING AGENT. The Transfer Agent shall act as the accounting
agent of the Company and the Registered Holders and shall establish and maintain
an accounting ledger for the Convertible Instruments (the "Accounting Ledger").
The Transfer Agent shall credit (reduce) the outstanding balance of liquidation
preference of the Convertible Instruments by all (i) payments of principal,
interest or dividends made by the Company to the Transfer Agent as paying agent
as required pursuant to Section 3 above and (ii) by the appropriate amount upon
delivery of Shares to the applicable Registered Holder following receipt of a
Notice of Conversion (as defined in Section 5 below). At such time as the
balance of the Convertible Notes and liquidation preference of the Preferred
Shares, as applicable, as reflected on the Accounting Ledger is zero following
the procedures described in this Agreement, the Transfer Agent shall return such
Convertible Notes and/or Preferred Shares to the Company marked "paid in full"
or "cancelled", respectively.
5. ISSUANCE OF CONVERTED SHARES.
TRANSFER AGENT AGREEMENT-PAGE 3
(VISUAL EDGE SYSTEMS INC.)
<PAGE>
(a) Consistent with the terms of the Certificate of Designation and
each Convertible Note, in order to convert all or a portion of a Convertible
Instrument into Shares, a Registered Holder shall deliver written notice (each,
a "Notice of Conversion"), in the form annexed to the Purchase Agreement, to the
Transfer Agent for the portion of the Convertible Instrument that it elects to
so convert and a calculation of the number of Shares to be issued upon such
conversion. Upon receipt by the Transfer Agent of any such Notice of Conversion
(including receipt via facsimile) from any Registered Holder, the Transfer Agent
shall immediately deliver a copy thereof to the Company, via facsimile,
requesting the Company to confirm the number of Shares to be issued to such
Registered Holder in connection therewith.
The Company shall, upon receipt thereof, promptly confirm or dispute the number
of Shares to be issued to the Registered Holder, providing written notice
thereof via facsimile to the Transfer Agent and the Registered Holder (the
"Company Notice"). In the event the Company confirms the number of Shares to be
so issued, it shall, as part of the Company Notice, direct the Transfer Agent to
issue such Shares to the Registered Holder. In the event the Company disputes
the number of Shares to be so issued, the Company and the Registered Holder
shall immediately, in good faith, seek to resolve such dispute.
(b) The Transfer Agent shall not be required to issue any Shares
unless and until receipt (including via facsimile) of (i) written notice from
either (x) the Company, confirming the number of Shares to be issued or (y) the
Registered Holder and the Company, setting forth the number of Shares to be
issued, or (ii) a final nonappealable order of a court of competent jurisdiction
directing the Transfer Agent to issue a specified number of Shares.
Notwithstanding the foregoing, each Holder expressly reserves all rights and
remedies against the Company for the failure of the Company to confirm to the
Transfer Agent in any applicable Company Notice the number of Shares issuable as
set forth in a properly completed and accurate Notice of Conversion.
(c) Reference is hereby made to that certain Registration Rights
Agreement appended to the Purchase Agreement. At such time as a Second
Registration Statement as contemplated therein has been declared effective by
the Securities and Exchange Commission covering the resale of the Shares, the
Company shall cause its legal counsel to deliver to the Transfer Agent an
opinion certifying that Shares may be sold by the Registered Holder pursuant to
such registration statement with the purchaser thereof receiving share
certificates, without restrictive legend, which opinion shall remain effective
so long as such Second Registration Statement remains in full force and effect.
In the event that, at any time, the Second Registration Statement ceases to be
effective, the Company or its legal counsel shall immediately deliver written
notice thereof to the Transfer Agent and the Registered Holders stating that the
opinion of the Company's legal counsel may no longer be relied upon by the
Transfer Agent (unless and until an additional or amended, as applicable, Second
Registration Statement is so declared effective with an accompanying opinion to
that effect from the Company's legal counsel). Upon the receipt of any Notice
of Conversion while a Second Registration Statement is effective, the share
certificates representing the Shares described above shall be with a restrictive
legend unless the Registered Holder, either in connection with the delivery of
the Notice of Conversion or
TRANSFER AGENT AGREEMENT-PAGE 4
(VISUAL EDGE SYSTEMS INC.)
<PAGE>
thereafter, delivers written notice to the Transfer Agent and the Company
(including notice via telecopy) that the Shares have been sold by the Registered
Holder pursuant to such registration statement, whereupon the Transfer Agent
shall issue share certificates to the purchaser thereof without restrictive
legend.
6. TERMINATION. This Agreement shall terminate promptly upon the earlier
to occur of (i) written demand by the Company and all Registered Holders or (ii)
no unpaid balance or liquidation preference remains with respect to any of the
Convertible Instruments. Notwithstanding the foregoing, the Transfer Agent may
terminate its obligations under this Agreement at such time as the Transfer
Agent no longer serves as the Transfer Agent for the Company's Common Stock, by
delivery of written notice thereof to the Registered Holders and the Company.
Upon delivery of such notice, the Transfer Agent shall deliver the original
Convertible Instruments to Infinity on behalf of all Registered Holders,
together with a copy of the Accounting Ledger (with corresponding copies
delivered to the Company). Immediately thereafter, Infinity and the Company
shall, in good faith, attempt to establish an agreement similar to this
Agreement with the Company's new stock transfer agent.
7. FEES. The Company hereby agrees to pay the Transfer Agent for
reasonable fees charged for all services rendered hereunder.
8. NOTICES. Any notice or demand to be given or that may be given under
this Agreement shall be in writing and shall be (a) delivered by hand, (b)
delivered through or by expedited mail or package service, or (c) transmitted by
telecopy, in each case with personal delivery acknowledged, addressed to the
parties as follows. Each such notice or demand shall be effective (i) if given
by telecopy, when such telecopy is transmitted to telecopier number specified in
this Agreement, (ii) if given by any other means, when delivered at the
addressed as specified herein.
As to the Company Visual Edge Systems Inc.
2424 North Federal Highway, Ste. 100
Boca Raton, Florida 33431
Telephone: (514) 937-0787
Fax: (514) 937-0286
With a copy to: David W. Pollak
Morgan, Lewis & Bockius, LLP
101 Park Avenue
New York, York 10178
Fax: (212) 309-6058
As to: Infinity Investors Limited and
Infinity Emerging Opportunities Limited
27 Wellington Road
TRANSFER AGENT AGREEMENT-PAGE 5
(VISUAL EDGE SYSTEMS INC.)
<PAGE>
Cork, Ireland
Telephone: 353-21-501-109
Fax: 353-21-501-255
Attn: J. A. Loughran
With a copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: 214/720-1600
Fax: 214/720-1662
Attn.: Barrett Wissman
As to: Sandera Partners, L.P. and
Lion Capital Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: 214/720-1600
Fax: 214/720-1662
Attn: Barrett Wissman
With a copy to: HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Telephone: 214/720-1600
Fax: 214/720-1662
Attn: Barrett Wissman
As to any other As set forth on the books of
Registered Holder: the Transfer Agent.
As to the Transfer
Agent American Stock Transfer
& Trust Company
2601 15th Avenue
Brooklyn, New York 11219
Fax: (718) 331-1852
Telephone: (718) 331-1852
9. NONCONTRAVENTION. The Company agrees that it will not at any time
take any action or undertake any activity that would in any material way impede,
restrict or limit the right
TRANSFER AGENT AGREEMENT-PAGE 6
(VISUAL EDGE SYSTEMS INC.)
<PAGE>
and ability of the Registered Holders to convert the Convertible Instruments and
receive Shares pursuant to the terms and provisions of this Agreement.
10. INDEMNIFICATION. The Company agrees to indemnify and hold harmless
the Transfer Agent, each officer, director, employee and agent of the Transfer
Agent, and each person, if any, who controls the Transfer Agent within the
meaning of the Securities Act of 1933, as amended (the "Act"), or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), against any losses,
claims, damages, or liabilities, joint or several, to which it, they or any of
them, or such controlling person, may become subject, under the Act, the
Exchange Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon the
performance by the Transfer Agent of its duties pursuant to the Agreement; and
will reimburse the Transfer Agent, and each officer, director, employee and
agent of the Transfer Agent, and each such controlling person for any reasonable
legal or other expenses reasonably incurred by it or any of them in connection
with investigating or defending any such loss, claim, damage, liability or
action; provided, however, that the Company will not be liable in any case if
such loss, claim, damage or liability arises out of or is based upon any action
not taken in good faith, or any action or omission that constitutes gross
negligence or willful misconduct.
Promptly after receipt by an indemnified party under this Section 10 of
notice of the commencement of any action, such indemnified party will, if a
claim in respect thereof is to be made against the Company under this Section,
notify in writing the Company of the commencement thereof, and failure so to
notify the Company will relieve the Company from any liability under this
Section as to the particular item for which indemnification is then being sought
but not from any other liability which it may have to any indemnified party.
Failure by the Transfer Agent to notify the Company shall not relieve the
Company from its indemnification obligations hereunder, unless such failure
materially prejudices the Company. In case any such action is brought against
any indemnified party, and it notifies the Company of the commencement thereof,
the Company will be entitled to assume the defense thereof, with counsel who
shall be to the reasonable satisfaction of such indemnified party. The Company
shall not be liable to any such indemnified party on account of any settlement
of any claim of action effected without the consent of the Company.
11. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, except where the Delaware
General Corporation Law would apply, without giving effect to conflicts of law
rules of such jurisdiction. Any action brought to enforce, or otherwise arising
out of, this Agreement, shall be heard and determined in either a federal or
state court sitting in the State of New York.
12. ENTIRE AGREEMENT; AMENDMENTS. This Agreement, constitutes the full
and entire understanding of the parties with respect to the subject matter
hereof. Neither this Agreement nor any term hereof may be amended, waived,
discharged, or terminated other than
TRANSFER AGENT AGREEMENT-PAGE 7
(VISUAL EDGE SYSTEMS INC.)
<PAGE>
by a written instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought.
13. COUNTERPARTS. This Agreement may be executed in one or more
counterparts and by facsimile signature.
[SIGNATURE PAGE FOLLOWS]
TRANSFER AGENT AGREEMENT-PAGE 8
(VISUAL EDGE SYSTEMS INC.)
<PAGE>
IN WITNESS WHEREOF, the undersigned have hereunto set their hands as of the
date first above written.
VISUAL EDGE SYSTEMS INC.
By: /s/ Alan Lubell
-----------------------------------------------
Title: Chairman of the Board
--------------------------------------------
INFINITY INVESTORS LIMITED
By: /s/ J. A. Loughran
-----------------------------------------------
Title: Director
--------------------------------------------
INFINITY EMERGING
OPPORTUNITIES LIMITED
By: /s/ J. A. Loughran
-----------------------------------------------
Title: Director
--------------------------------------------
SANDERA PARTNERS, L.P.
By: Sandera Capital Management, L.P.,
its General Partner
By: Sandera Capital, L.L.C.,
its General Partner
By: /s/ Clark K. Hunt
-------------------------------------
Title: Managing Director
----------------------------------
LION CAPITAL PARTNERS, L.P.
By: Mountain Capital Management,
L.L.C., its General Partner
By: /s/ Clark K. Hunt
-------------------------------------------
Title: Managing Director
----------------------------------------
TRANSFER AGENT AGREEMENT-PAGE 9
(VISUAL EDGE SYSTEMS INC.)
<PAGE>
AMERICAN STOCK TRANSFER &
TRUST COMPANY
By: /s/ Herbert J. Lemmer
-----------------------------------------------
Title: Vice President
--------------------------------------------
TRANSFER AGENT AGREEMENT-PAGE 10
(VISUAL EDGE SYSTEMS INC.)
<PAGE>
Exhibit 99.4
THIS COMMON STOCK PURCHASE WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"); OR UNDER ANY APPLICABLE LAW OR
REGULATION OF ANY STATE. THIS COMMON STOCK WARRANT MAY NOT BE SOLD, OFFERED,
ASSIGNED OR TRANSFERRED UNLESS THE WARRANT IS REGISTERED UNDER THE SECURITIES
ACT AND APPLICABLE STATE SECURITIES LAWS, OR SUCH OFFERS, SALES, ASSIGNMENTS AND
TRANSFERS ARE MADE PURSUANT TO THE AVAILABLE EXEMPTIONS FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS. FURTHERMORE, THESE SECURITIES ARE SUBJECT TO
CERTAIN LIMITATIONS ON CONVERSION AS DESCRIBED IN THAT CERTAIN BRIDGE SECURITIES
PURCHASE AGREEMENT DATED THE DATE HEREOF (THE "PURCHASE AGREEMENT") BETWEEN,
AMONG OTHERS, THE COMPANY AND THE INITIAL HOLDER HEREOF. THIS COMMON STOCK
PURCHASE WARRANT CERTIFICATE REFERS TO AND IS SPECIFICALLY GOVERNED BY CERTAIN
PROVISIONS CONTAINED IN THE PURCHASE AGREEMENT, A COPY OF WHICH IS ON FILE WITH
AND MAY BE OBTAINED FROM THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS.
VISUAL EDGE SYSTEMS INC.
COMMON STOCK PURCHASE WARRANT
DATED: June 13, 1997
No. 1
Number of Common Shares: 60,000 Holder: Infinity
Investors Limited
Purchase Price: $10.675 27 Wellington Road
Expiration Date: June 13, 2002 Cork, Ireland
For identification only. The governing terms of this Warrant are set forth
below.
Visual Edge Systems Inc., a Delaware corporation (the "COMPANY"), hereby
certifies that, for value received, Infinity Investors Limited or assigns (each
a "Holder"), is entitled, subject to the terms set forth below, to purchase from
the Company at any time or from time to time after the date hereof and prior to
the fifth anniversary hereof (the "EXERCISE PERIOD"), at the Purchase Price
hereinafter set forth, sixty thousand (60,000) fully paid and nonassessable
shares of Common Stock (as hereinafter defined) of the Company. The number and
character of such shares of Common Stock and the Purchase Price are subject to
adjustment as provided herein.
This Warrant (this "Warrant"; such term to include any warrants issued in
substitution therefor) is one of a series of Common Stock Purchase Warrants
issued in connection with that certain Bridge Securities Purchase Agreement (the
"Purchase Agreement") dated of even date herewith between, among others, the
initial Holder hereof and the Company.
COMMON STOCK PURCHASE WARRANT NO. 1-PAGE 1
(VISUAL EDGE SYSTEMS INC.)
<PAGE>
The purchase price per share of Common Stock issuable upon exercise of this
Warrant (the "PURCHASE PRICE") shall initially be $10.675; PROVIDED, HOWEVER,
that the Purchase Price shall be adjusted from time to time as provided herein.
As used herein the following terms, unless the context otherwise requires,
have the following respective meanings:
(a) The term "COMPANY" shall include Visual Edge Systems Inc. and any
entity that shall succeed or assume the obligations of such corporation
hereunder.
(b) The term "COMMON STOCK" includes (a) the Company's common stock,
$.01 par value per share, (b) any other capital stock of any class or classes
(however designated) of the Company, authorized on or after such date, the
holders of which shall have the right, without limitation as to amount, either
to all or to a share of the balance of current dividends and liquidating
dividends after the payment of dividends and distributions on any shares
entitled to preference, and the holders of which shall ordinarily, in the
absence of contingencies, be entitled to vote for the election of a majority of
directors of the Company (even though the right so to vote has been suspended by
the happening of such a contingency) and (c) any other securities into which or
for which any of the securities described in (a) or (b) may be converted or
exchanged pursuant to a plan of recapitalization, reorganization, merger, sale
of assets or otherwise.
(c) The term "OTHER SECURITIES" refers to any stock (other than
Common Stock) and other securities of the Company or any other person (corporate
or otherwise) that the holder of this Warrant at any time shall be entitled to
receive, or shall have received, on the exercise of this Warrant, in lieu of or
in addition to Common Stock, or that at any time shall be issuable or shall have
been issued in exchange for or in replacement of Common Stock or Other
Securities pursuant to Section 4 or otherwise.
1. EXERCISE OF WARRANT.
1.1. METHOD OF EXERCISE. This Warrant may be exercised in whole
or in part (but not as to a fractional share of Common Stock), at any time
and from time to time during the Exercise Period, by the Holder hereof by
delivery of a notice of exercise (a "Notice of Exercise") substantially in
the form attached hereto as EXHIBIT A via facsimile to the Company.
Promptly thereafter the Holder shall surrender this Warrant to the Company
at its principal office, accompanied by payment of the Purchase Price
multiplied by the number of shares of Common Stock for which this Warrant
is being exercised (the "EXERCISE PRICE"). Payment of the Exercise Price
shall be made by check or bank draft payable to the order of the Company or
by wire transfer to the account of the Company. If the amount of the
payment received by the Company is less than the Exercise Price, the Holder
will be notified of the deficiency and shall make payment in
COMMON STOCK PURCHASE WARRANT NO. 1-PAGE 2
(VISUAL EDGE SYSTEMS INC.)
<PAGE>
that amount within five (5) business days. In the event the payment exceeds
the Exercise Price, the Company will promptly refund the excess to the
Holder. Upon exercise, the Holder shall be entitled to receive, promptly
after payment in full, one or more certificates, issued in the Holder's
name or in such name or names as the Holder may direct, subject to the
limitations on transfer contained herein, for the number of shares of
Common Stock so purchased. The shares so purchased shall be deemed to be
issued as of the close of business on the date on which the Company shall
have received from the Holder payment of the Exercise Price (the "EXERCISE
DATE").
1.2. REGULATION D RESTRICTIONS. The Holder hereof represents and
warrants to the Company that it has acquired this Warrant and anticipates
acquiring the shares of Common Stock issuable upon exercise of the Warrant
solely for its own account for investment purposes and not with a view to
or for distributing such securities unless such distribution has been
registered with the Securities and Exchange Commission or an applicable
exemption is available therefor. At the time this Warrant is exercised, the
Company may require the Holder to state in the Notice of Exercise such
representations concerning the Holder as are necessary or appropriate to
assure compliance by the Holder with the Securities Act.
1.3. COMPANY ACKNOWLEDGMENT. The Company will, at the time of the
exercise of this Warrant, upon the request of the Holder hereof,
acknowledge in writing its continuing obligation to afford to the Holder
any rights to which the Holder shall continue to be entitled after such
exercise in accordance with the provisions of this Warrant. If the Holder
shall fail to make any such request, such failure shall not affect the
continuing obligation of the Company to afford to the Holder any such
rights.
1.4. LIMITATION ON EXERCISE. Notwithstanding the rights of the
Holder to exercise all or a portion of this Warrant as described herein,
such exercise rights shall be limited solely in the manner set forth in the
Purchase Agreement as if such provisions were specifically set forth
herein.
2. DELIVERY OF STOCK CERTIFICATES, ETC., ON EXERCISE. As soon as
practicable after the exercise of this Warrant, and in any event within the time
periods specified in the Purchase Agreement, the Company at its expense
(including the payment by it of any applicable issue, stamp or transfer taxes
upon issuance to the Holder) will cause to be issued in the name of and
delivered to the Holder thereof, or, to the extent permissible hereunder, to
such other person as the Holder may direct, a certificate or certificates for
the number of fully paid and nonassessable shares of Common Stock (or Other
Securities) to which the Holder shall be entitled on such exercise, plus, in
lieu of any fractional share to which the Holder would otherwise be entitled,
cash equal to such fraction multiplied by the then applicable Purchase Price,
together with any other stock or other securities and property (including cash,
where applicable) to which the Holder is entitled upon such exercise pursuant to
Section 1 or otherwise.
COMMON STOCK PURCHASE WARRANT NO. 1-PAGE 3
(VISUAL EDGE SYSTEMS INC.)
<PAGE>
3. ADJUSTMENT FOR DIVIDENDS IN OTHER STOCK PROPERTY, ETC.,
RECLASSIFICATION, ETC. In case at any time or from time to time the holders of
Common Stock (or Other Securities) shall have received, or (on or after the
record date fixed for the determination of stockholders eligible to receive)
shall have become entitled to receive, without payment therefor, other or
additional stock or other securities or property (other than cash) by way of
dividend or any cash (excluding cash dividends payable solely out of earnings or
earned surplus of the Company), or other or additional stock or other securities
or property (including cash) by way of spin-off, split-up, reclassification,
recapitalization, combination of shares or similar corporate rearrangement other
than additional shares of Common Stock (or Other Securities) issued as a stock
dividend or in a stock split (adjustments in respect of which are provided for
in Section 5), then and in each such event, the Holder of this Warrant, on the
exercise hereof as provided in Section 1 shall be entitled to receive the amount
of stock and other securities and property (including cash in the cases referred
to in subdivisions (b) and (c) of this Section 3) that the Holder would have
been entitled to receive on the effective date of such event if the Holder had
so exercised this Warrant immediately prior thereto, giving effect to all
adjustments called for during such period by Sections 4 and 5.
4. ADJUSTMENT FOR REORGANIZATION, CONSOLIDATION, MERGER, ETC.
4.1. REORGANIZATION, ETC. In case at any time or from time to
time, the Company shall (a) effect a reorganization, (b) consolidate with
or merge into any other person or (c) transfer all or substantially all of
its properties or assets to any other person under any plan or arrangement
contemplating the dissolution of the Company, then, in each such case, the
Holder of this Warrant, on the exercise hereof as provided in Section 1 at
any time after the consummation of such reorganization, consolidation or
merger or the effective date of such dissolution, as the case may be, shall
receive, in lieu of the Common Stock (or Other Securities) issuable on such
exercise prior to such consummation or such effective date, the stock and
other securities and property (including cash) to which the Holder would
have been entitled upon such consummation or in connection with such
dissolution, as the case may be, if the Holder had so exercised this
Warrant, immediately prior thereto, all subject to further adjustment
thereafter as provided herein.
4.2. DISSOLUTION. In the event of any dissolution of the Company
following the transfer of all or substantially all of its properties or
assets, the Company, prior to such dissolution, shall at its expense
deliver or cause to be delivered the stock and other securities and
property (including cash, where applicable) receivable by the Holder of
this Warrant after the effective date of such dissolution pursuant to this
Section 4 to a bank or trust company, as trustee for the Holder or Holders
of this Warrant.
4.3. CONTINUATION OF TERMS. Upon any reorganization,
consolidation, merger or transfer (and any dissolution following any
transfer) referred to in this Section 4, this Warrant shall continue in
full force and effect and the terms hereof shall be applicable to the
shares of stock and other securities and property receivable on the
exercise of this
COMMON STOCK PURCHASE WARRANT NO. 1-PAGE 4
(VISUAL EDGE SYSTEMS INC.)
<PAGE>
Warrant after the consummation of such reorganization, consolidation or
merger or the effective date of dissolution following any such transfer, as
the case may be, and shall be binding upon the issuer of any such stock or
other securities, including, in the case of any such transfer, the person
acquiring all or substantially all of the properties or assets of the
Company, whether or not such person shall have expressly assumed the terms
of this Warrant as provided in Section 8.
5. ADJUSTMENT FOR EXTRAORDINARY EVENTS. The Purchase Price to be paid by
the Holder upon exercise of this Warrant shall be adjusted in case at any time
or from time to time the Company should (i) subdivide the outstanding shares of
Common Stock into a greater number of shares, (ii) consolidate the outstanding
shares of Common Stock into a smaller number of shares, (iii) issue shares of
Common Stock or securities convertible into or exchangeable for shares of Common
Stock as a dividend to all or substantially all holders of shares of Common
Stock or (iv) issue by reclassification of shares of Common Stock, any shares of
capital stock of the Company, in each event pursuant to Article XI of the
Purchase Agreement as if such provisions were specifically set forth herein.
6. EXERCISE PRICE RESET. If the Company is obligated to issue any
Additional Grant Shares (as defined in the Purchase Agreement), the Purchase
Price shall thereupon become immediately adjusted in the manner set forth on
SCHEDULE 1 attached hereto.
7. REDEMPTION.
7.1. VOLUNTARY REDEMPTION. The Company may, at any time
commencing October 1, 1998 (but not prior thereto), at its option and
following at least thirty (30) days prior written notice to the Holder,
redeem (each, a "Redemption") for cash from funds legally available
therefor, all or any portion of this Warrant for a redemption price per
share (the "Redemption Price") equal to $.10 per share of Common Stock (or
Other Securities) issuable upon exercise of this Warrant (the "Warrant
Shares") on the Redemption Date (as hereinafter defined); PROVIDED,
HOWEVER, that if (1) the Threshold Price (as hereinafter defined) on the
Reference Date (as hereinafter defined) is equal to or in excess of $17.50
and the Redemption Date is between October 1, 1998 and March 31, 1999, then
the Company may redeem up to (but not more than) 33-1/3% of the total
number of Warrant Shares underlying this Warrant; (2) the Threshold Price
on the Reference Date is equal to or in excess of $20.00 and the Redemption
Date is between April 1, 1999 and September 30, 1999, then the Company may
redeem up to (but not more than) 66-2/3% of the total number of Warrant
Shares underlying this Warrant; and (3) the Threshold Price on the
Reference Date is equal to or in excess of $22.50 and the Redemption Date
is after October 1, 1999, then the Company may redeem up to 100% of the
total number of Warrant Shares underlying this Warrant. As used herein
"Threshold Price" shall mean the lowest closing bid price for the Common
Stock (as specified by Bloomberg, L.P.) during the [20] trading days ending
three days prior to the date on which the Company delivers the Redemption
Notice and "Reference Date" shall mean
COMMON STOCK PURCHASE WARRANT NO. 1-PAGE 5
(VISUAL EDGE SYSTEMS INC.)
<PAGE>
such third (3rd) day preceding the date on which the Redemption Notice is
delivered to the Holders.
7.2. NOTICE OF REDEMPTION. If the Company elects to redeem any
or all of this Warrant pursuant to the terms hereof, the Company shall (i)
give not less than thirty (30) days prior written notice of such Redemption
(the "Redemption Notice") to the Holder (together with each of the other
holders of the warrants of the same class hereof) at such Holder's address
as it appears on the books and records of the Company by facsimile
transmission (if such Holder shall have provided a facsimile number), and
(ii) set aside, apart from its other funds, or provide written evidence
reasonably satisfactory to each Holder of the Company's ability to fund the
Redemption Price in the amount equal to the Redemption Price subject to
Redemption at that time for the benefit of all Holders subject to
Redemption; and the Warrant Shares then subject to Redemption and not
otherwise converted prior to the Redemption Date shall, on the date which
is thirty (30) days after the deposit of Redemption Notice in accordance
with clause (i) of this sentence (the "Redemption Date"), cease to be
outstanding and the rights of the Holders and owners thereof shall be
limited to payment of the Redemption Price thereof. The Company shall
deliver the Redemption Price to the Holders in cash or by wire transfer as
indicated by the Holder within two (2) business days of the Redemption
Date. Should any Holder not receive payment of any amounts due on
Redemption of its Warrant Shares by reason of the Company's failure to make
payment at the times described above for any reason (other than as a
result of any action by Holder in breach of this Warrant or the Purchase
Agreement), the Company shall pay to the applicable Holder on demand (x)
interest on the sums not paid when due at an annual rate equal to sixteen
percent (16%), compounding at the end of each thirty (30) days, until the
applicable Holder is paid in full, and (y) all costs of collection,
including, but not limited to reasonable attorneys' fees and costs, whether
or not suit or other formal proceedings are instituted. The Redemption
Price shall (in the reasonable discretion of the Board of Directors of the
Company) be adjusted to take into account any stock split or other similar
event.
7.3. SELECTION OF WARRANT SHARES. The Company shall select the
Warrants to be redeemed in a Redemption in which not all Warrants of this
class are to be redeemed so that the Warrant Shares of each Holder selected
for Redemption shall bear the same proportion to the total Warrant Shares
owned by that Holder that the proportion of all Warrant Shares selected for
Redemption bears to the total number of Warrant Shares. Should any Warrant
Shares required to be redeemed under the terms hereof not be redeemed
solely by reason of limitations imposed by law, the applicable Warrant
Shares shall be redeemed on the earliest possible date that the applicable
Warrant Shares may be redeemed to the maximum extent permitted by law.
Except as set forth above, the Board of Directors shall prescribe the
manner in which any Redemption shall be effected.
8. NO IMPAIRMENT. The Company will not, by amendment of its Certificate
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the
COMMON STOCK PURCHASE WARRANT NO. 1-PAGE 6
(VISUAL EDGE SYSTEMS INC.)
<PAGE>
observance or performance of any of the terms of this Warrant, but will at all
times in good faith assist in the carrying out of all such terms and in the
taking of all such action as may be necessary or appropriate in order to protect
the rights of the Holder of this Warrant against impairment. Without limiting
the generality of the foregoing, the Company (a) will not increase the par value
of any shares of stock receivable on the exercise of this Warrant above the
amount payable therefor on such exercise, (b) will take all such action as may
be necessary or appropriate in order that the Company may validly and legally
issue fully paid and nonassessable shares of stock on the exercise of this
Warrant and (c) will not transfer all or substantially all of its properties and
assets to any other person (corporate or otherwise), or consolidate with or
merge into any other person or permit any such person to consolidate with or
merge into the Company (if the Company is not the surviving person), unless such
other person shall expressly assume in writing and will be bound by all the
terms of this Warrant.
9. ACCOUNTANTS' CERTIFICATE AS TO ADJUSTMENTS. In each case of any
adjustment or readjustment in the shares of Common Stock (or Other Securities)
or the Purchase Price issuable on the exercise of this Warrant, the Company at
its expense will cause independent certified public accountants of national
standing selected by the Company (which may be the Company's auditors) to
compute such adjustment or readjustment in accordance with the terms of this
Warrant and prepare a certificate setting forth such adjustment or readjustment
and showing in detail the facts upon which such adjustment or readjustment is
based, including a statement of (a) the consideration received or receivable by
the Company for any additional shares of Common Stock (or Other Securities)
issued or sold or deemed to have been issued or sold, (b) the number of shares
of Common Stock (or Other Securities) outstanding or deemed to be outstanding
and (c) the Purchase Price and the number of shares of Common Stock to be
received upon exercise of this Warrant, in effect immediately prior to such
issue or sale and as adjusted and readjusted as provided in this Warrant. The
Company will forthwith mail a copy of each such certificate to the Holder of
this Warrant, and will, on the written request at any time of the Holder of this
Warrant, furnish to the Holder a like certificate setting forth the Purchase
Price at the time in effect and showing how it was calculated. Notwithstanding
the foregoing, the Company shall not be required to cause its independent
certified public accountants to deliver more than one (1) such certificate in
each calendar quarter.
10. NOTICES OF RECORD DATE, ETC. In the event of
(a) any taking by the Company of a record of the holders of any class
or securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any
class or any other securities or property, or to receive any other right,
or
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any transfer of
all or substantially all the assets of the Company to, or consolidation or
merger of the Company with or into, any other person, or
COMMON STOCK PURCHASE WARRANT NO. 1-PAGE 7
(VISUAL EDGE SYSTEMS INC.)
<PAGE>
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
then, and in each such event, the Company will mail or cause to be mailed
to the Holder of this Warrant a notice specifying (i) the date on which any
such record is to be taken for the purpose of such dividend, distribution
or right, and stating the amount and character of such dividend,
distribution or right, and (ii) the date on which any such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding-up is to take place, and the time, if
any, as of which the holders of record of Common Stock (or Other
Securities) shall be entitled to exchange their shares of Common Stock (or
Other Securities) for securities or other property deliverable on such
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding-up. Such notice
shall be mailed at least 20 days prior to the date specified in such notice
on which any action is to be taken.
11. RESERVATION OF STOCK, ETC. ISSUABLE ON EXERCISE OF WARRANT. The
Company will at all times reserve and keep available, solely for issuance and
delivery on the exercise of this Warrant, all shares of Common Stock (or Other
Securities) from time to time issuable on the exercise of this Warrant.
12. EXCHANGE OF WARRANT. On surrender for exchange of this Warrant,
properly endorsed, to the Company, the Company at its expense will issue and
deliver to or on the order of the holder thereof a new Warrant of like tenor, in
the name of such Holder or as such Holder (on payment by such holder of any
applicable transfer taxes) may direct, calling in the aggregate on the face or
faces thereof for the number of shares of Common Stock called for on the face of
the Warrant so surrendered.
13. REPLACEMENT OF WARRANT. On receipt of evidence reasonably satisfactory
to the Company of the loss, theft, destruction or mutilation of this Warrant
and, in the case of any such loss, theft or destruction of this Warrant, on
delivery of an indemnity agreement or security reasonably satisfactory in form
and amount to the Company or, in the case of any such mutilation, on surrender
and cancellation of this Warrant, the Company at its expense will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
14. REMEDIES. The Company stipulates that the remedies at law of the
Holder of this Warrant in the event of any default by the Company in the
performance of or compliance with any of the terms of this Warrant are not and
will not be adequate, and that such terms may be specifically enforced by a
decree for the specific performance of any agreement contained herein or by an
injunction against a violation of any of the terms hereof or otherwise.
15. NEGOTIABILITY, ETC. This Warrant is issued upon the following terms,
to all of which each Holder or owner hereof by the taking hereof consents and
agrees:
COMMON STOCK PURCHASE WARRANT NO. 1-PAGE 8
(VISUAL EDGE SYSTEMS INC.)
<PAGE>
(a) title to this Warrant may be transferred by endorsement (by the
Holder hereof executing the form of assignment at the end hereof) and
delivery in the same manner as in the case of a negotiable instrument
transferable by endorsement and delivery;
(b) any person in possession of this Warrant properly endorsed is
authorized to represent himself as absolute owner hereof and is empowered
to transfer absolute title hereto by endorsement and delivery hereof to a
BONA FIDE purchaser hereof for value; each prior taker or owner waives and
renounces all of his equities or rights in this Warrant in favor of each
such BONA FIDE purchaser, and each such BONA FIDE purchaser shall acquire
absolute title hereto and to all rights represented hereby;
(c) until this Warrant is transferred on the books of the Company,
the Company may treat the registered Holder hereof as the absolute owner
hereof for all purposes, notwithstanding any notice to the contrary; and
(d) notwithstanding the foregoing, this Warrant may not be sold,
transferred or assigned except pursuant to an effective registration
statement under the Securities Act of 1933, as amended (the "Act"), or,
pursuant to an applicable exemption therefrom (including in accordance with
Regulation D promulgated under the Act).
16. REGISTRATION RIGHTS. The Company is obligated to register the shares
of Common Stock issuable upon exercise of this Warrant in accordance with the
terms of a Registration Rights Agreement between the Company and the Holder
dated the date hereof.
17. NOTICES, ETC. All notices and other communications from the Company to
the holder of this Warrant shall be mailed by first class registered or
certified mail, postage prepaid, at such address as may have been furnished to
the Company in writing by the Holder or, until any the Holder furnishes to the
Company an address, then to, and at the address of, the last Holder of this
Warrant who has so furnished an address to the Company.
18. MISCELLANEOUS. This Warrant and any term hereof may be changed,
waived, discharged or terminated only by an instrument in writing signed by the
party against which enforcement of such change, waiver, discharge or termination
is sought. This Warrant shall be construed and enforced in accordance with and
governed by the internal laws of the State of New York, except where the
Delaware General Corporation Law applies. The headings in this Warrant are for
purposes of reference only, and shall not limit or otherwise affect any of the
terms hereof. This Warrant is being executed as an instrument under seal. The
invalidity or unenforceability of any provision hereof shall in no way affect
the validity or enforceability of any other provision.
[SIGNATURE PAGE FOLLOWS]
COMMON STOCK PURCHASE WARRANT NO. 1-PAGE 9
(VISUAL EDGE SYSTEMS INC.)
<PAGE>
DATED as of June 13, 1997.
VISUAL EDGE SYSTEMS INC.
By:_____________________________________
Name:___________________________________
Title:__________________________________
[Corporate Seal]
Attest:
By:______________________
Secretary
COMMON STOCK PURCHASE WARRANT NO. 1-PAGE 10
(VISUAL EDGE SYSTEMS INC.)
<PAGE>
EXHIBIT A
FORM OF NOTICE OF EXERCISE
--------------------------
(To be executed only upon exercise or conversion
of the Warrant in whole or in part)
To Visual Edge Systems Inc.
The undersigned registered holder of the accompanying Warrant hereby
exercises such Warrant or portion thereof for, and purchases thereunder,
______________(1) shares of Common Stock (as defined in such Warrant) and
herewith makes payment therefor of $__________. The undersigned requests that
the certificates for such shares of Common Stock be issued in the name of, and
delivered to, _________________________________ whose address is ______________
________________________________________________________.
Dated: ____________________
(Name must conform to name of holder as specified
on the face of the Warrant)
By:_____________________________________
Name:________________________________
Title:_______________________________
Address of holder:
________________________________________
________________________________________
________________________________________
1 Insert the number of shares of Common Stock as to which the accompanying
Warrant is being exercised. In the case of a partial exercise, a new Warrant or
Warrants will be issued and delivered, representing the unexercised portion of
the accompanying Warrant, to the holder surrendering the same.
<PAGE>
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE UNITED
STATES SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"). THE HOLDER HEREOF,
BY PURCHASING SUCH SECURITIES AGREES FOR THE BENEFIT OF THE COMPANY THAT SUCH
SECURITIES MAY BE OFFERED, SOLD OR OTHERWISE TRANSFERRED ONLY (A) TO THE
COMPANY, (B) PURSUANT TO THE EXEMPTION FROM REGISTRATION UNDER THE 1933 ACT
PROVIDED BY RULE 144 THEREUNDER, IF AVAILABLE, OR (C) IF REGISTERED UNDER THE
1933 ACT AND APPLICABLE STATE SECURITIES LAWS. IN ADDITION, A BRIDGE SECURITIES
PURCHASE AGREEMENT DATED AS OF JUNE 13, 1997, A COPY OF WHICH MAY BE OBTAINED
FROM THE COMPANY AT ITS PRINCIPAL EXECUTIVE OFFICE, CONTAINS CERTAIN ADDITIONAL
AGREEMENTS AMONG THE PARTIES, INCLUDING, WITHOUT LIMITATION, PROVISIONS WHICH
(A) LIMIT THE CONVERSION RIGHTS OF THE HOLDER, (B) SPECIFY VOLUNTARY AND
MANDATORY REPAYMENT, PREPAYMENT AND REDEMPTION RIGHTS AND OBLIGATIONS, (C)
SPECIFY EVENTS OF DEFAULT FOLLOWING WHICH THE REMAINING BALANCE DUE AND OWING
HEREWITH MAY BE ACCELERATED AND (D) SPECIFY CIRCUMSTANCES IN WHICH A PORTION OF
THIS CONVERTIBLE NOTE MAY BE AUTOMATICALLY EXCHANGED FOR SHARES OF SERIES A
PREFERRED STOCK OF THE COMPANY.
No. 1 $4,500,000
VISUAL EDGE SYSTEMS INC.
CONVERTIBLE NOTE
VISUAL EDGE SYSTEMS INC., a Delaware corporation (together with its
successors, the "Company"), for value received hereby promises to pay to
INFINITY INVESTORS LIMITED
(the "Holder") and registered assigns the principal sum of Four Million Five
Hundred Thousand Dollars ($4,500,000) on the Maturity Date by wire transfer of
immediately available funds to the Holder in such coin or currency of the United
States of America as at the time of payment shall be legal tender for the
payment of public and private debts, and to pay interest, quarterly in arrears,
on (i) the last day of March, June, September and December of each year until
the Maturity Date, commencing September 30, 1997 (unless such day is not a
Business Day, in which event on the next succeeding Business Day) (each an
"Interest Payment Date"), (ii) the Maturity Date, (iii) each Conversion Date, as
hereafter defined, and (iv) the date the principal amount of the Convertible
Notes shall be declared to be or shall automatically become due and payable, on
the principal sum hereof outstanding in like coin or currency, at the rates per
annum set forth below, from the most recent Interest Payment Date to which
interest has been paid on
CONVERTIBLE NOTE NO. 1 - PAGE 1
(Visual Edge Systems Inc.)
<PAGE>
this Convertible Note, or if no interest has been paid on this Convertible Note,
from the date of this Convertible Note until payment in full of the principal
sum hereof has been made.
The interest rate shall be (i) 8.25 percent per annum until the occurrence
of an Event of Default and (ii) 18 percent per annum after the occurrence of an
Event of Default (the "Interest Rate") or, in any case, if less, the maximum
rate permitted by applicable law. Past due amounts (including interest, to the
extent permitted by law) will also accrue interest at the Interest Rate and will
be payable on demand.
Interest on this Convertible Note will be calculated on the basis of a
360-day year of twelve 30 day months. Interest on this Convertible Note will,
at the option of the Company, be payable in cash or in shares of Common Stock.
If the Company elects to pay interest in shares of Common Stock, the number of
shares of Common Stock issued as interest shall be determined by dividing the
dollar amount of interest owed on each applicable date interest is payable
pursuant to the terms hereof by the (x) Market Price, if the relevant interest
payment date occurs during the Bridge Period, or (y) the Conversion Price then
in effect, if the relevant interest payment date occurs after the expiration of
the Bridge Period. The Company shall notify the Holder of its election to pay
interest in Common Stock or cash at least two (2) Business Days prior to the
applicable date interest is payable pursuant to the terms hereof.
All payments of principal and interest hereunder shall be made for the
benefit of the Holder pursuant to the terms of the Transfer Agent Agreement.
This Convertible Note is one of a duly authorized issuance of $7,500,000
aggregate principal amount of Convertible Notes of the Company (the "Convertible
Note") referred to in the Bridge Securities Purchase Agreement dated as of June
13, 1997 between the Company, Infinity Investors Limited, Infinity Emerging
Opportunities Limited, Sandera Partners, L.P. and Lion Capital Partners, L.P.
(as the same may be amended from time to time in accordance with its terms, the
"Agreement"). The Agreement contains certain additional agreements among the
parties with respect to the terms of this Convertible Note, including, without
limitation, provisions which (i) limit the conversion rights of the Holder, (ii)
specify voluntary and mandatory repayment, prepayment and redemption rights and
obligations, (iii) specify Events of Default following which the remaining
balance due and owing hereunder may be accelerated and (iv) specify
circumstances in which a portion of this Convertible Note shall be automatically
exchanged for shares of Series A Preferred Stock of the Company. All such
provisions are an integral part of this Convertible Note and are incorporated
herein by reference. This Convertible Note is transferable and assignable to
one or more purchasers (in minimum denominations of $1,000 or larger multiples
of $1,000), in accordance with the limitations set forth in the Agreement.
The Company shall keep through the Transfer Agent a register (the
"Register") in which shall be entered the names and addresses of the registered
holder of this Convertible Note and particulars of this Convertible Note held by
such holder and of all transfers of this Convertible Note. References to the
Holder or "Holders" shall mean the Person listed in the Register as the
CONVERTIBLE NOTE NO. 1 - PAGE 2
(Visual Edge Systems Inc.)
<PAGE>
registered holder of such Convertible Notes. The ownership of this Convertible
Note shall be proven by the Register.
l. CERTAIN TERMS DEFINED. All terms defined in the Agreement and not
otherwise defined herein shall have for purposes hereof the meanings provided
for therein.
2. COVENANTS. Unless the Majority Holders otherwise consent in writing,
the Company covenants and agrees to observe and perform each of its obligations
and undertakings contained in the Agreement, which obligations and undertakings
are expressly assumed herein by the Company and made for the benefit of the
Holders.
3. PREPAYMENT OF CONVERTIBLE NOTE . The Company may, and shall be
obligated to, prepay all or a portion of this Convertible Note on the terms and
conditions specified in the Agreement.
4. CONVERSION OF CONVERTIBLE NOTE.
Section 4.1 RIGHT TO CONVERT.
(a) The Holder shall have the right, at its option, at any time after the
Bridge Period to convert the principal amount of this Convertible Note, or any
portion of such principal amount that is $1,000 or an integral multiple thereof,
into that number of fully paid and nonassessable shares of Common Stock (as such
shares shall then be constituted) obtained by dividing the aggregate principal
amount of this Convertible Note or portion thereof subject to conversion by the
applicable Conversion Price. The Holder is not entitled to any rights of a
holder of Common Stock until such holder has converted its Convertible Note to
Common Stock and only to the extent such Note is deemed to have been converted
to Common Stock under this Article 4.
(b) Notwithstanding the foregoing, the conversion rights of the Holder set
forth above shall be limited to the extent set forth in Section 10.5 of the
Agreement.
Section 4.2 WHEN CONVERSION EFFECTIVE. The conversion of this Convertible
Note shall be deemed to have been effected at 8:00 a.m. on the Business Day (the
"Conversion Date") on which the Holder of this Convertible Note shall have
delivered prior to 4:00 p.m., Dallas, Texas time, to the Transfer Agent, with a
copy to the Company (including delivery via facsimile), of a written notice of
conversion substantially in the form annexed to the Agreement (each a "Notice of
Conversion"). At such time the Person or Persons in whose name or names any
certificate or certificates for shares of Common Stock shall be issuable upon
such conversion shall be deemed to have become the holder or holders of record
thereof.
Section 4.3 DELIVERY OF STOCK CERTIFICATES. ETC. As soon as practicable
after conversion of this Convertible Note, in whole or in part, the Company at
its expense (including the payment by it of any applicable issue taxes) will
cause to be issued in the name of and delivered to the holder
CONVERTIBLE NOTE NO. 1 - PAGE 3
(Visual Edge Systems Inc.)
<PAGE>
hereof or as such holder (upon payment by such holder of any applicable transfer
taxes) may direct, a certificate or certificates for the number of duly
authorized, validly issued, fully paid and nonassessable shares of Common Stock
to which such holder shall be entitled upon such conversion plus, in lieu of any
fractional share to which such holder would otherwise be entitled, cash in an
amount equal to the same fraction of the Closing Bid Price per share on the
Business Day next preceding the Conversion.
5. MODIFICATION OF CONVERTIBLE NOTE. This Convertible Note may be
modified without prior notice to any Holder but with the written consent of the
Majority Holders and the Company. However, without the consent of each Holder
affected, an amendment, supplement or waiver may not (1) reduce the principal
amount of Convertible Notes whose Holders must consent to an amendment,
supplement or waiver, (2) reduce the rate or extend the time for payment of
interest on any Convertible Note, (3) reduce the principal amount of or extend
the fixed maturity of any Convertible Note or alter the redemption or conversion
provisions with respect thereto or (4) make any Convertible Note payable in
money or property other than as stated in the Convertible Note.
6. MISCELLANEOUS. This Convertible Note shall be deemed to be a contract
made under the laws of the State of New York, and for all purposes shall be
governed by and construed in accordance with the laws of said State. The parties
hereto, including all guarantors or endorsers, hereby waive presentment, demand,
notice, protest and all other demands and notices in connection with the
delivery, acceptance, performance and enforcement of this Convertible Note,
except as specifically provided herein, and assent to extensions of the time of
payment, or forbearance or other indulgence without notice. The Company hereby
submits to the nonexclusive jurisdiction of the United States District Court for
the Southern District of New York and of any New York state court sitting in New
York City for purposes of all legal proceedings arising out of or relating to
this Convertible Note. The Company irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of the venue of any such proceeding brought in such a court and any claim that
any such proceeding brought in such a court has been brought in an inconvenient
forum. The Company hereby irrevocably waives any and all right to trial by jury
in any legal proceeding arising out of or relating to this Convertible Note.
The Holder of this Convertible Note by acceptance of this Convertible Note
agrees to be bound by the provisions of this Convertible Note which are
expressly binding on such Holder.
[SIGNATURE PAGE FOLLOWS]
CONVERTIBLE NOTE NO. 1 - PAGE 4
(Visual Edge Systems Inc.)
<PAGE>
IN WITNESS WHEREOF, the Company has caused this instrument to be duly
executed.
Dated: June 13, 1997
VISUAL EDGE SYSTEMS INC.
By:
----------------------------------
Name:
--------------------------------
Title:
-------------------------------
CONVERTIBLE NOTE NO. 1 - PAGE 5
(Visual Edge Systems Inc.)
