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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) FEBRUARY 6, 1998
----------------
VISUAL EDGE SYSTEMS INC.
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(Exact name of registrant as specified in its charter)
DELAWARE 0-20995 13-3778895
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(State or 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)
<PAGE>
Item 5. OTHER EVENTS
On February 6, 1998, Visual Edge Systems Inc. (the "Company") entered into
the First Amendment to Bridge Securities Purchase Agreement and Related
Documents, dated as of December 31, 1997 (the "First Amendment"), among the
Company, Infinity Investors Limited ("Infinity"), Infinity Emerging
Opportunities Limited ("Emerging"), Summit Capital Limited (as the transferee of
Sandera Partners, L.P. ("Sandera")) and Glacier Capital Limited (as the
transferee of Lion Capital Partners, L.P. ("Lion")) (collectively, the "Funds").
The First Amendment amends the Bridge Securities Purchase Agreement, dated as of
June 13, 1997 (the "June Bridge Agreement"), among the Company, Infinity,
Emerging, Sandera and Lion, as well as certain related documents.
Pursuant to the First Amendment, the Funds have agreed to convert, as of
December 31, 1997, $6.0 million aggregate principal amount of the Company's
Convertible Notes (the "Notes") into shares of the Company's Series A
Convertible Preferred Stock (the "Preferred Stock"). The First Amendment
eliminated all of the mandatory redemption provisions as they applied to the
Preferred Stock under the June Bridge Agreement, though such mandatory
redemption provisions are still applicable to the Notes. The Funds have also
agreed not to convert any shares of Preferred Stock into shares of the Company's
Common Stock (the "Common Stock") prior to March 24, 1998, subject to the
ability of the Funds to convert the number of shares of Preferred Stock that
would result in the issuance of 50,000 shares of Common Stock, which shares of
Common Stock may be sold prior to March 24, 1998. In addition, the "Maximum
Conversion Price" (as defined in the First Amendment) at which shares of
Preferred Stock are convertible into Common Stock is $6.00, subject to
adjustment in certain circumstances.
The remaining $1.5 million of outstanding Notes held by the Funds have
become secured debt pursuant to a Security Agreement, dated as of February 6,
1998 (the "Security Agreement"), between the Company and H.W. Partners, L.P., as
agent for and respresentative of the Funds. With respect to such $1.5 million
in outstanding Notes, the Funds have been granted a security interest in the
collateral described in the Security Agreement, which includes all of the
Company's cash deposit accounts, accounts receivable, inventory and equipment
and fixtures.
The Company has issued to the Funds an aggregate of 200,000 warrants (the
"New Warrants"), each to purchase one share of Common Stock (collectively, the
"New Warrant Shares") at an exercise price equal to $4.00. The New Warrants are
exercisable through December 9, 2002 and are redeemable at the option of the
Company, commencing January 1, 2000, based on a 20-day minimum closing bid price
of the Company's Common Stock, at a redemption price equal to $.10 per share.
The New Warrants also contain a "cashless exercise" feature.
The Company has agreed to file, on or prior to February 12, 1998, a
registration statement (the "Registration Statement") pursuant to Rule 462(b)
promulgated under the Securities Act of 1933, as amended, which will register
439,644 shares of Common Stock previously issued to the Funds or issuable upon
conversion of certain warrants owned by the Funds and certain shares of
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Common Stock that would become issuable upon full conversion of the Notes or the
Preferred Stock.
In connection with the conversion of Notes into Preferred Stock by the
Funds, the Company filed in the State of Delaware an Amended and Restated
Certificate of Designation on February 6, 1998, which sets forth the
designation, preferences and rights of the Preferred Stock.
(c) Exhibits
99.1 First Amendment to Bridge Securities Purchase Agreement and Related
Documents, dated as of December 31, 1997, among the Company, Infinity
Investors Limited, Infinity Emerging Opportunities Limited, Summit
Capital Limited (as the transferee of Sandera Partners, L.P.) and
Glacier Capital Limited (as the transferee of Lion Capital Partners,
L.P.)
99.2 Security Agreement, dated February 6, 1998, between the Company and HW
Partners, L.P., as agent for and representative of the Funds
99.3 Form of Warrant Certificate
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SIGNATURES
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: /s/ Earl Takefman
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Earl Takefman
Chief Executive Officer
Date: February 6, 1998
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EXHIBIT INDEX
NO.
99.1 First Amendment to Bridge Securities Purchase Agreement and Related
Documents, dated as of December 31, 1997 among the Company, Infinity
Investors Limited, Infinity Emerging Opportunities Limited, Summit
Capital Limited (as the transferee of Sandera Partners, L.P.) and
Glacier Capital Limited (as the transferee of Lion Capital Partners,
L.P.)
99.2 Security Agreement, dated February 6, 1998, between the Company and HW
Partners, L.P., as agent for and representative of the Funds
99.3 Form of Warrant Certificate
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EXHIBIT 99.1
FIRST AMENDMENT TO BRIDGE SECURITIES
PURCHASE AGREEMENT AND RELATED DOCUMENTS
THIS FIRST AMENDMENT TO BRIDGE SECURITIES PURCHASE AGREEMENT AND RELATED
DOCUMENTS (the "AMENDMENT") dated as of December 31, 1997 among VISUAL EDGE
SYSTEMS INC., a Delaware corporation (the "COMPANY"), and INFINITY INVESTORS
LIMITED, INFINITY EMERGING OPPORTUNITIES LIMITED, SUMMIT CAPITAL LIMITED (as the
transferee from SANDERA PARTNERS, L.P.) and GLACIER CAPITAL LIMITED (as the
transferee from LION CAPITAL PARTNERS, L.P.) (collectively, the "PURCHASERS").
R E C I T A L S:
A. The Company and the Purchasers entered into the Bridge Securities
Purchase Agreement dated as of June 13, 1997 (the "PURCHASE AGREEMENT") pursuant
to which the Company issued to the Purchasers its Convertible Notes in the
aggregate principal amount of $7,500,000.
B. The Company and the Purchasers now desire to amend the Purchase
Agreement, and certain of the related Financing Documents (as defined in the
Purchase Agreement) executed and delivered in connection therewith in order to
(i) eliminate the provisions providing for mandatory redemption of the Preferred
Stock, (ii) provide collateral security for the payment of the Convertible Notes
and the other obligations of the Company under the Purchase Agreement, (iii)
provide for the registration of the Common Stock (as hereafter defined) issuable
upon exercise by the Purchasers of warrants to acquire 200,000 shares of Common
Stock issued by the Company to the Purchasers on December 9, 1997, (iv) make
certain other amendments to the Financing Documents and (v) confirm the
continued legality, validity and binding effect of the Loan Documents, as
amended by this Amendment.
C. It is a condition precedent to the Purchasers' agreement to make such
amendments that the Company shall have executed and delivered this Amendment.
NOW, THEREFORE, in consideration of the premises herein contained and other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
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ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. Capitalized terms used in this Amendment, to
the extent not otherwise defined herein, shall have the same meanings as in the
Purchase Agreement.
ARTICLE II
AMENDMENTS
SECTION 2.1 DEFINITIONS. Effective as of the date hereof, Section 1.1
of the Purchase Agreement is amended as follows:
(a) the following definitions are amended to read in their entirety
as follows:
"Bridge Period" means the time period commencing on the Closing Date and
ending on March 24, 1998.
"Call Date" has the meaning set forth in Section 3.4
"Certificate of Designation" means an Amended and Restated Certificate of
Designation, Preferences and Rights of Series A Convertible Preferred Stock of
the Company in the form of EXHIBIT H hereto setting forth the rights,
privileges and limitations of the Preferred Stock to be issued by the Company in
connection with a Recapitalization Event.
"Closing Bid Price" shall mean the closing bid price of the Common Stock as
reported by Bloomberg L.P. ("Bloomberg") on the principal securities exchange or
trading market where such security is listed or traded or, if the foregoing does
not apply, the closing bid price of such security in the over-the-counter market
on the electronic bulletin board for such security as reported by Bloomberg, or,
if no trading price is reported for such security by Bloomberg, then the average
of the bid prices of any market-makers for such securities as reported in the
"pink sheets" by the National Quotation Bureau, Inc. If the closing bid price
cannot be calculated for such security on such date on any of the foregoing
bases, the closing bid price of such security on such date shall be the fair
market value as mutually determined by the Purchasers and the Company for which
the calculation of the closing bid price requires, and in the absence of such
mutual determination, as determined by the Board of Directors of the Company in
good faith.
"Conversion Price" shall mean the lesser of (x) the Maximum Conversion
Price and (y) the product of the Applicable Percentage multiplied by the Market
Price as of the Conversion Date; PROVIDED, HOWEVER, that in the event that the
Company consummates one or more Financings during the term of the this Agreement
and does not, within ten days after the consummation of any Financing (the
"Financing Closing Date"), other than Qualified Equity
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Financings, use all net proceeds thereof to effect a voluntary prepayment of the
Convertible Instruments pursuant to Section 3.4 hereof, the Conversion Price at
all times thereafter shall mean, if less than the Conversion Price determined
above, 50% of the lowest Closing Bid Price during the 30 Trading Days
immediately preceding the Financing Closing Date giving rise to such prepayment
obligation. As used herein, "Financings" means a financing consummated through
the issuance of debt or equity securities (or securities convertible into or
exchangeable for debt or equity securities) of the Company, other than 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 issued in
connection with employee and director stock option plans of the Company, (c)
options or warrants outstanding as of December 10, 1997, (d) 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
and (e) the issuance of securities to the Purchasers under the Purchase
Agreement, as amended.
"Financing Documents" means this Agreement, the Warrants, the Certificate
of Designation, the Transfer Agent Agreement, the Security Agreement, the
Registration Rights Agreement and the Convertible Notes.
"Maximum Conversion Price" means Six Dollars ($6.00) per share of Common
Stock (subject to adjustment as set forth herein); PROVIDED, HOWEVER, that in
the event that the Company obtains a Qualified Equity Financing in the principal
amount of at least $2,000,000 and the maximum conversion price with respect to
any convertible securities issued in connection with such Qualified Equity
Financing is less than $6.00 per share of Common Stock, the Maximum Conversion
Price shall be such lesser dollar amount. In such event, the Company and the
Purchasers shall amend the Certificate of Designation to reflect such reduction
in the Maximum Conversion Price.
"Qualified Equity Financing" means an Equity Financing consummated by the
Company which has been approved in writing by the holders of the Convertible
Instruments in their sole and absolute discretion.
"Warrants" mean the New Warrants and Existing Warrants.
(b) the following definitions are added to Section 1.1 (in
appropriate alphabetical order):
"Collateral" has the meaning set forth in Section 3.6.
"Exchange Amount" has the meaning set forth in Section 3.8.
"Existing 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 therein).
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"Maximum Number of Shares" shall mean the maximum number of shares of
Common Stock which the Company may issue pursuant to the terms of the Financing
Documents without violating NASDAQ Requirement 4460(i), if applicable (which
restricts such issuances under the Financing Documents to not more than 19.99%
of the outstanding Common Stock of the Company, as calculated pursuant thereto).
"New Warrants" means the warrants issued to the Purchasers on December 9,
1997 in the form of EXHIBIT I hereto to purchase 200,000 shares of Common Stock
in the aggregate (subject to adjustment as set forth herein).
"Security Agreement" means the Security Agreement in the form of EXHIBIT J
attached hereto executed by the Company whereby the Company grants to the
Purchasers security interests in the collateral described therein for the
payment of the Convertible Notes and the other obligations of the Company to the
Purchasers under the Financing Documents.
"Shareholder Approval" means the approval of the Company's shareholders to
the issuance of sufficient shares of Common Stock to effect the conversion in
full of the Convertible Instruments and the exercise in full of the Warrants
without violating NASDAQ Requirement 4460(i).
"Share Prepayment Date" has the meaning set forth in Section 3.5(g).
"Warrant Redemption Price" means the greater of (x) the appraised value of
the Warrants on the date they are required to be redeemed (determined with
reference to the "Black Scholes" or similar option pricing model selected by the
Purchasers) and (y) the product of (I) the difference between (if a positive
number) (i) the Market Price of the Common Stock on the Share Prepayment Date
and (ii) the exercise price of the Warrants and (II) the number of shares of
Common Stock which would be issuable if the unexercised portion of the Warrants
had been exercised in full.
SECTION 2.2 VOLUNTARY PREPAYMENTS. Effective as of the date hereof,
Section 3.4 of the Purchase Agreement is amended to read in its entirety as
follows:
SECTION 3.4. VOLUNTARY PREPAYMENTS. (a) Subject to the terms of
this Section 3.4, the Company may, at its option, following ten (10) days
prior written notice to the Purchasers (the expiration of such 10 day
period being referred to as the "Prepayment Date"; PROVIDED, HOWEVER, if
such date is not a Business Day, the Prepayment Date shall be the next
Business Day thereafter) prepay all or any portion of the Convertible
Instruments remaining unconverted on the Prepayment Date, specifying the
amount of the prepayment pursuant to the terms of this Article III.
(b) If the Prepayment Date is on or before March 24, 1998 (the "Call
Date"), the price to be paid by the Company to prepay the Convertible
Instruments shall be the Stated Redemption Price. The Stated Redemption
Price shall mean the product of the
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aggregate principal amount of the applicable Convertible Notes or
liquidation preference of the Preferred Shares, as applicable, being
redeemed multiplied by 110%, plus any accrued and unpaid interest on the
applicable Convertible Notes or dividends on the Preferred Shares, as
applicable, being redeemed, through the applicable date of consummation of
the prepayment (as specified in Section 3.6 below).
(c) If the Prepayment Date is after the Call Date, the price to be
paid by the Company to prepay the Convertible Instruments shall be the
Formula Price. The "Formula Price" shall mean the greater of (I) the
aggregate principal amount of the applicable Convertible Notes or the
liquidation preference of the Preferred Shares, as applicable, being repaid
through the date of consummation of the prepayment (as specified in Section
3.6 below) and (II) the sum of (x) the product of (i) the number of shares
of Common Stock into which the Convertible Instruments being redeemed are
then convertible at the then current Conversion Price and (ii) the average
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 (y) the applicable amount
of accrued but unpaid interest on the Convertible Notes or dividends on the
Preferred Shares, as applicable, being repaid through the date of
consummation of the prepayment (as specified in Section 3.6 below).
SECTION 2.3 MAXIMUM NUMBER OF SHARES. Effective as of the date hereof,
Section 3.5(g) is hereby added to the Purchase Agreement to read in its entirety
as follows:
(g) Following the issuance of the Maximum Number of Shares, unless
Shareholder Approval has been obtained on or prior to June 30, 1998 (the
date following the later to occur of such issuance or June 30, 1998 being
the "Share Prepayment Date"), the Company shall prepay the remaining (x)
unconverted portion of each Convertible Note in cash for the Formula Price
and (y) unexercised portion of each Warrant in cash for the Warrant
Redemption Price.
SECTION 2.4 PREPAYMENT PROCEDURES. Effective as of the date hereof,
Section 3.6(a)(I) is amended to read in its entirety as follows:
(I) a prepayment pursuant to Section 3.4(b) or (c), the Prepayment
Date specified therein;
SECTION 2.5 SHAREHOLDER APPROVAL. Effective as of the date hereof,
Section 3.6(a)(VIII) is hereby added to the Purchase Agreement to read as
follows:
(VIII) A prepayment pursuant to Section 3.5(g), within five (5)
Business Days following the Share Prepayment Date.
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SECTION 2.6 RANKING; COLLATERAL. Effective as of the date hereof
Section 3.7 of the Purchase Agreement is amended to read in its entirety as
follows:
SECTION 3.7. RANKING; COLLATERAL. The Convertible Notes will rank as
senior, secured obligations of the Company. As collateral security for the
payment and performance of the Convertible Notes and other obligations of
the Company to the Purchasers, the Purchasers shall be granted first
priority liens and security interests on, in and to the collateral
described in the Security Agreement (the "Collateral").
SECTION 2.7 PREFERRED SHARE EXCHANGE. Effective as of the date hereof,
Section 3.8 of the Purchase Agreement is amended to read in its entirety as
follows:
SECTION 3.8. PREFERRED SHARES EXCHANGE. Effective as of December
31, 1997, $6,000,000 of the principal balance of the Convertible Notes (the
"Exchange Amount") shall be 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) If not previously filed, the Company shall file with the
Secretary of State of Delaware the Certificate of Designation, providing
the Purchasers with evidence thereof.
(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) Any interest which has been paid on the Convertible Notes from
January 1, 1998 through the date of the Recapitalization Event shall be
credited towards accrued dividends owing with respect to the Preferred
Shares issued effective as of December 31, 1997 for such time period.
SECTION 2.8 NULLIFICATION OF MANDATORY REDEMPTION FEATURES WITH RESPECT
TO PREFERRED STOCK. Effective as of the date hereof, a new Section 3.10 is
added to the Purchase Agreement to read as follows:
SECTION 3.10 NULLIFICATION OF MANDATORY REDEMPTION FEATURES WITH
RESPECT TO PREFERRED STOCK. The terms of Sections 3.5 and 12.1 shall be of
no further force and
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effect with respect to the mandatory redemption of the Preferred Stock, and
such sections shall only be applicable to redemptions with respect to the
Convertible Notes.
SECTION 2.9 INFORMATION. Effective as of the date hereof, Section 8.1
of the Purchase Agreement is amended by adding a new subsection (k) at the end
thereof to read as follows:
(k) commencing March 1, 1998, a monthly income statement, in form
satisfactory to the Purchasers, for each van operated by the Company.
SECTION 2.10 COVENANTS. Effective as of the date hereof, new Sections
8.24 and 8.25 are added to the Purchase Agreement to read in their entirety as
follows:
SECTION 8.24 CHIEF FINANCIAL OFFICER. The Company shall engage a
new chief financial officer acceptable to the Purchasers in their
reasonable discretion as soon as reasonably practicable but in no event
later than April 30, 1998.
SECTION 8.25 SHAREHOLDER APPROVAL. The Company shall use its best
lawful efforts to secure the Shareholder Approval by June 30, 1998 and
covenants and agrees to submit to its stockholders as a part of its proxy
statement for its next annual meeting a proposal to obtain the Shareholder
Approval.
SECTION 2.11 POST EFFECTIVE AMENDMENT. Effective as of the date hereof,
Section 10.1 of the Purchase Agreement is amended by adding a new subsection (d)
thereto to read as follows:
(d) The Company shall as promptly as practical and in any event on or
prior to February 12, 1998 file a new registration statement pursuant to
Rule 462(b) with respect to the Second Registration Statement, which shall
include the maximum number of additional shares of Common Stock allowed
pursuant to Rule 462(b) in the order set forth below:
(i) 73,973 shares of Common Stock, issued as Additional Grant Shares
(it being acknowledged that the Second Registration Statement
currently includes only 106,323 Additional Grant Shares);
(ii) 22,462 shares of Common Stock issued as interest on the Convertible
Notes for calendar quarter ended September 30, 1997;
(iii) 43,209 shares of Common Stock issued as interest on the Convertible
Notes for calendar quarter ended December 31, 1997;
(iv) 100,000 shares of Common Stock, which, at the option of the
Company, may be issued as interest on the Convertible Notes or
dividends on the Preferred Shares, as applicable, for calendar
quarter ending March 31, 1998;
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(v) 200,000 shares of Common Stock issuable upon exercise of the New
Warrants; and
(vi) the maximum number of additional shares of Common Stock allowed
under Rule 462(b), which shall be issuable (x) pursuant to any
amended terms of the Existing Warrants and (y) upon conversion of
the Convertible Instruments (collectively, the shares listed in
clauses (i)-(vi) being referred to as the "Additional Shares").
The Company shall consider combining, pursuant to Rule 429, the First
Registration Statement and Second Registration Statement. Further, as soon as
practicable, and in all events prior to April 10, 1998, the Company shall file
an additional registration statement, and use its best lawful efforts to have
the same declared effective by the Commission as soon as possible, registering
(x) additional shares of Common Stock issuable upon conversion of the
Convertible Instruments (based on a hypothetical Conversion Price of $1.00 per
share), and (y) Additional Shares not included in the Second Registration
Statement as a result of the limitations imposed by Rule 462(b). The
effectiveness of such registration statement shall be maintained in the manner
contemplated by the Registration Rights Agreement applicable to the Second
Registration Statement. The post effective amendment to the Second Registration
Statement described above, together with the additional registration statement
described above, shall include a change from Sandera Partners, L.P. to Summit
Capital Limited, and from Lion Capital Partners, L.P. to Glacier Capital
Limited, as selling shareholders thereunder.
SECTION 2.12 LIMITATION ON CONVERSION. Effective as of the date hereof,
Section 10.5(b) of the Purchase Agreement is amended by adding the following
clause at the end thereof:
or (iv) sixty-one (61) days after the Purchasers shall have given written
notice to the Company of their intention to terminate the Limitation on
Conversion. Further, the conversion rights of the Purchasers under the
Convertible Notes (but not under the Preferred Shares) and the exercise
rights of the Purchasers under the Warrants shall be further limited such
that the Company shall not be required to issue upon receipt of a Notice of
Conversion or Notice of Exercise, as applicable, more than the Maximum
Number of Shares.
SECTION 2.13 Effective as of the date hereof, Section 10.5 of the
Purchase Agreement is amended by adding a new clause (g) thereto to read as
follows:
(g) Notwithstanding Section 4.1 of the Certificate of Designation to
the contrary, prior to March 24, 1998, the Purchasers shall be entitled to
convert only that number of Preferred Shares which results in the issuance
of 50,000 shares of Common Stock.
SECTION 2.14 EXISTING WARRANTS. The Company and the Purchasers hereby
agree to negotiate in good faith to amend the terms of the Existing Warrants on
mutually satisfactory terms
<PAGE>
(which terms are expected to include an amendment changing the exercise price
set forth therein to $3.25 per share, a waiver of the Company's call option
until January 1, 2000 and a provision providing for the potential granting of
additional warrant shares).
SECTION 2.15 EXHIBITS. Effective as of the date hereof, Exhibits H, I
and J are added to the Purchase Agreement to read in their entirety in the forms
attached hereto as Exhibits 1, 2 and 3 hereto.
SECTION 2.16 REGISTRABLE SECURITIES. Consistent with Section 2.10 above,
the Registrable Securities defined in the Registration Rights Agreement shall be
amended to include shares of Common Stock issuable upon exercise of the New
Warrants (and as the Additional Warrant Shares under the Existing Warrants) and
shares of Common Stock issuable as interest with respect to the Convertible
Notes and dividends with respect to the Preferred Shares.
SECTION 2.17 CONVERTIBLE NOTES. The Company hereby covenants and agrees
that it shall not be entitled to exercise the option set forth in the
Convertible Notes to pay interest in shares of Common Stock unless the
Corporation has previously filed, and the Commission has previously declared
effective, a registration statement permitting the public resale of such shares
from time to time by the holders thereof pursuant to Rule 415 promulgated under
the Securities Act and such registration statement remains available for use by
the holders (the "Share Registration Event") and; PROVIDED, FURTHER, that (x)
upon any liquidation or dissolution of the Company, or following any continuing
Event of Default, accrued and unpaid interest will be paid in cash only, and (y)
if the Company does not obtain the Shareholder Approval by June 30, 1998,
accrued and unpaid interest for June 30, 1998 and all periods thereafter will be
paid in cash only. If the Share Registration Event has not occurred after the
date hereof and on or before any Interest Payment Date (as defined in each
Convertible Note) prior to June 30, 1998, the Company may, at its option, defer
the payment of such interest until the earlier to occur of (x) the Share
Registration Event or (y) June 30, 1998 (which deferred interest shall bear
interest at 8.25% per annum), with such deferred sum due and payable in full on
the earlier to occur of such events.
SECTION 2.18 REIMBURSEMENT FEE. Contemporaneous herewith, the Company
shall pay to the Purchasers the sum $20,000 in readily available funds as a
partial reimbursement to the Purchasers for their expenditures in the
negotiation and preparation of this Amendment.
ARTICLE III
CONDITIONS PRECEDENT
SECTION 3.1 CONDITIONS PRECEDENT. The obligation of the Purchasers to
enter into this Amendment is subject to the conditions precedent that on or
before the date hereof the Purchasers shall have received all of the following
in form and substance acceptable to it and its counsel: (a) this Amendment
dated as of the date hereof duly executed by the Company; (b) the Security
Agreement dated as of the date hereof (the "SECURITY AGREEMENT") in the form of
attached hereto
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duly executed by the Company; (c) the New Warrants dated as of December 9, 1997
duly executed by the Company; (d) Uniform Commercial Code financing statements,
duly executed by the Company with respect to the collateral described in the
Security Agreements, for filing in all jurisdictions as may be necessary to
perfect the Security Interests created in such collateral in such jurisdictions
pursuant to the Financing Documents; (e) a certificate of the secretary of the
Company setting forth resolutions of its board of directors with respect to the
authorization, execution, delivery and performance of this Amendment, the
amended and restated Existing Warrants, the Security Agreement and the New
Warrants (collectively, the "AMENDMENT AGREEMENTS"), as the case may be, the
officers of the Company authorized to sign such agreements and instruments, and
specimen signatures of the officers so authorized; (f) an opinion of Morgan,
Lewis & Bockius LLP, counsel to the Company, covering matters customary in these
transactions and in form and substance reasonably satisfactory to the
Purchasers; (g) evidence satisfactory to the Purchasers that the Purchasers'
security interest in the Collateral is of first priority; (h) evidence that the
Company shall have issued the Preferred Shares in accordance with Section 3.8 of
the Purchase Agreement; (i) payment to the Purchasers of the amount set forth in
Section 2.17 above; (j) such other documents, opinions, certificates,
agreements, instruments and evidences as the Purchasers may reasonably request;
and (k) receipt of the irrevocable written agreement of Earl Takefman and Alan
Lubell in a form reasonably acceptable to the Company to vote all shares of
Common Stock owned or controlled by them in favor of the Shareholder Approval.
ARTICLE IV
RATIFICATIONS: REPRESENTATIONS AND WARRANTIES
SECTION 4.1 RATIFICATIONS. The terms and provisions of the Financing
Documents, as modified by this Amendment, are ratified and confirmed and shall
continue in full force and effect. The Company acknowledges and agrees that
each of the Financing Documents, as amended hereby, is and shall remain in full
force and effect and is and shall continue to be the legal, valid and binding
obligation of the Company, enforceable against it in accordance with their
respective terms.
SECTION 4.2 REPRESENTATIONS AND WARRANTIES. The Company hereby
represents and warrants to the Purchasers that (a) the Company does not own any
equity interest in any Person and does not have any Subsidiaries; (b) the
execution, delivery and performance of each of the Amendment Agreements and all
other documents executed and/or delivered in connection herewith and all
transactions and documents contemplated hereby and thereby have been authorized
by all requisite corporate action on the part of the Company; (c) each of the
Amendment Agreements and all other documents executed and/or delivered in
connection herewith constitute legal, valid and binding obligations of the
Company, enforceable against the Company in accordance with its terms, subject
to or limited by liquidation, bankruptcy, conservatorship, insolvency,
reorganization, rearrangement, moratorium, or other similar laws relating to or
affecting the rights of creditors generally and general principles of equity
(regardless of whether such enforceability is considered in a proceeding in
equity or at law); (d) there is no provision of law, in the charter or bylaws of
the Company, and no provision of any existing mortgage, contract, lease,
<PAGE>
indenture or agreement binding on any of them, which would be contravened by the
making or delivery of any of the Amendment Agreements or any other document
executed and/or delivered in connection herewith, or by the performance or
observance of any of the terms hereof or thereof; (e) the execution, delivery
and performance of the Amendment Agreements and the transactions contemplated
hereby and thereby do not require any approval or consent of, or filing or
registration with, any governmental or any other agency or authority, of
stockholders, or of any other party or, if such approval or consent is required,
the same has been obtained; (f) except as set forth on Schedule 4.2 hereto, each
of the representations and warranties of the Company contained in ARTICLE V of
the Purchase Agreement, as amended hereby, are true and correct on and as of the
date hereof as though made on such date except for those limited by their terms
to the date given or another specific date; (g) except as set forth on Schedule
4.2 hereto, as of the date hereof, no Event of Default has occurred and is
continuing; and (h) as of the date hereof, except as set forth on Schedule 4.2
hereto, there has been no material adverse change in the financial condition or
operations of the Company or any Subsidiary from the date of the most recent
financial statements of the Company (dated September 30, 1997) furnished to the
Purchasers and filed as part of the SEC Reports. Purchasers hereby waive until
June 30, 1998, compliance with the Consolidated Net Worth requirement contained
in Section 8.19 of the Purchase Agreement.
ARTICLE V
MISCELLANEOUS
SECTION 5.1 SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS. All
representations, warranties and covenants made in this Amendment or any other
document furnished in connection with this Amendment shall survive the execution
and delivery of this Amendment, and no investigation by the Purchasers or any
closing shall affect the representations, warranties and covenants or the right
of the Purchasers to rely upon them.
SECTION 5.2 REFERENCES TO LOAN DOCUMENTS. The Loan Documents and any
and all other agreements, documents or instruments now or hereafter executed and
delivered pursuant to the terms hereof or pursuant to the terms of the Loan
Documents, as amended hereby, are hereby amended so that any reference therein
to the Loan Documents shall mean a reference to the Loan Documents as amended
hereby.
SECTION 5.3 FURTHER ASSURANCES. The Company agrees that at any time and
from time to time, upon the written request of the Purchasers, it will execute
and deliver such further documents and do such further acts and things as the
Purchasers may reasonably request in order to fully effect the purposes of this
Amendment and to provide for the continued perfection and priority of the
security interests granted to the Purchasers in the Financing Documents.
SECTION 5.4 SEVERABILITY. Any provision of this Amendment held by a
court of competent jurisdiction to be invalid or unenforceable shall not impair
or invalidate the remainder of
<PAGE>
this Amendment and the effect thereof shall be confined to the provision so held
to be invalid or unenforceable.
SECTION 5.5 APPLICABLE LAW. This Amendment and all other documents
executed pursuant hereto shall be governed by and construed in accordance with
the laws of the State of New York.
SECTION 5.6 SUCCESSORS AND ASSIGNS. This Amendment is binding upon and
shall inure to the benefit of the Purchasers and the Company, and their
respective successors and assigns, except the Company may not assign or transfer
any of its rights or obligations hereunder without the prior written consent of
the Purchasers.
SECTION 5.7 EFFECT OF WAIVER. No consent or waiver, express or implied,
by the Purchasers to or for any breach of or deviation from any covenant,
condition or duty by the Company shall be deemed a consent or waiver to or of
any other breach of the same or any other covenant, condition or duty.
SECTION 5.8 ENTIRE AGREEMENT. THE PURCHASE AGREEMENT AS AMENDED HEREBY,
THE OTHER FINANCING DOCUMENTS AND ALL AGREEMENTS EXECUTED IN CONNECTION WITH
THIS AMENDMENT REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES WITH RESPECT TO
THE SUBJECT MATTER THEREOF AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR,
CONTEMPORANEOUS OR SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. THERE ARE NO
UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.
Section 5.9 Headings. The headings, captions, and arrangements used in
this Amendment are for convenience only and shall not affect the interpretation
of this Amendment.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
EXECUTED as of the date first written above.
VISUAL EDGE SYSTEMS INC.
By: /s/ Alan Lubell
------------------------------------
Alan Lubell,
Chairman of the Board and Vice President
INFINITY INVESTORS LIMITED
By: /s/ Infinity Investors Limited
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
INFINITY EMERGING OPPORTUNITIES
LIMITED
By: /s/ Infinity Emerging Opportunities Limited
--------------------------------------------
Name:
----------------------------------
Title:
---------------------------------
SUMMIT CAPITAL LIMITED
By: /s/ Summit Capital Limited
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
GLACIER CAPITAL LIMITED
By: /s/ Glacier Capital Limited
------------------------------------
Name:
----------------------------------
Title:
---------------------------------
<PAGE>
EXHIBIT 1 TO FIRST AMENDMENT
EXHIBIT H
FORM OF AMENDED AND RESTATED CERTIFICATE OF DESIGNATION
<PAGE>
EXHIBIT 2 TO FIRST AMENDMENT
EXHIBIT I
FORM OF NEW WARRANT
<PAGE>
EXHIBIT 3 TO FIRST AMENDMENT
EXHIBIT J
FORM OF SECURITY AGREEMENT
<PAGE>
SCHEDULE 4.2
<PAGE>
EXHIBIT 99.2
SECURITY AGREEMENT
THIS SECURITY AGREEMENT ("AGREEMENT") is made as of December 31, 1997, by
VISUAL EDGE SYSTEMS INC. (hereinafter called "DEBTOR", whether one or more), in
favor of HW PARTNERS, L.P., as agent for and representative of (in such
capacity, "PLEDGEE") the Purchasers (as hereinafter defined) under the
Securities Purchase Agreement (as hereinafter defined). Debtor hereby agrees
with Pledgee as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall
have the meanings indicated below:
(a) The term "BORROWER" shall mean Debtor.
(b) The term "CODE" shall mean the Uniform Commercial Code as in
effect in the State of New York on the date of this Agreement or as it may
hereafter be amended from time to time.
(c) The term "COLLATERAL" shall mean all of the property set forth
below:
(i) All present and future accounts, chattel paper,
documents, instruments, cash, deposit accounts and general intangibles
(including any right to payment for goods sold or services rendered
arising out of the sale or delivery of personal property or work done
or labor performed by Debtor), now or hereafter owned, held, or
acquired by Debtor, together with any and all books of account,
customer lists and other records relating in any way to the foregoing
(including, without limitation, computer software, whether on tape,
disk, card, strip, cartridge or any other form), and in any case where
an account arises from the sale of goods, the interest of Debtor in
such goods.
(ii) All present and hereafter acquired inventory (including
without limitation, all raw materials, work in process and finished
goods) held, possessed, owned, held on consignment, or held for sale,
lease, return or to be furnished under contracts of services, in whole
or in part, by Debtor wherever located, all records relating in any
way to the foregoing (including, without limitation, any computer
software, whether on tape, disk, card, strip, cartridge or any other
form).
(iii) All equipment and fixtures of whatsoever kind and
character now or hereafter possessed, held, acquired, leased or owned
by Debtor and used or usable in Debtor's business, together with all
replacements, accessories, additions, substitutions and accessions to
all of the foregoing, all records relating in any way to the foregoing
(including, without limitation, any computer software, whether on
tape, disk, card, strip, cartridge or any other form). To the extent
that the foregoing property is located on, attached to, annexed to,
related to, or used in connection with, or otherwise made a part of,
and is or shall become fixtures upon, real property, such real
property and the record owner thereof is described on EXHIBIT "A"
attached hereto and made a part hereof.
(iv) All right, title and interest of Debtor in all motor
vehicles and vans owned by Debtor and all replacements, accessories
and additions thereto.
(v) All rights of Debtor in all deposit accounts maintained
by Debtor.
The term Collateral, as used herein, shall also include all PRODUCTS
and PROCEEDS of all of the foregoing (including without limitation,
insurance payable by reason of loss or damage to the foregoing property)
and any property, securities, guaranties or monies of Debtor which may at
any time come into the possession of Secured Party (as hereinafter
defined). Collateral shall not include vans and equipment contained in
such vans to the extent such vans and equipment are now or hereafter leased
by Debtor as lessee, but all of Debtor's right, title and interest under
such van and equipment leases ("V&E LEASES") are included in the Collateral
except with respect to such rights under lease agreements that by their
terms prohibit the granting of a security interest by Debtor in such lease
agreements and rights. The designation of proceeds
<PAGE>
does not authorize Debtor to sell, transfer or otherwise convey any of the
foregoing property except finished goods intended for sale in the ordinary
course of Debtor's business or as otherwise provided herein.
(d) The term "INDEBTEDNESS" shall mean (i) all indebtedness,
obligations and liabilities of Borrower to Secured Party of any kind or
character, now existing or hereafter arising, under (a) the Bridge
Securities Purchase Agreement dated as of June 13, 1997 (as amended, the
"SECURITIES PURCHASE AGREEMENT") among Debtor and Infinity Investors
Limited, Infinity Emerging Opportunities Limited, Summit Capital Limited
and Glacier Capital Limited (the "PURCHASERS"), and(b) the Convertible
Notes (as defined in the Securities Purchase Agreement) issued by Borrower
pursuant to the Securities Purchase Agreement, (ii) all accrued but unpaid
interest on any of the indebtedness described in (i) above; (iii) all
obligations owing to Secured Party under any documents evidencing,
securing, governing and/or pertaining to all or any part of the
indebtedness described in (i) and (ii) above; (iv) all costs and expenses
incurred by Secured Party in connection with the collection and
administration of all or any part of the indebtedness and obligations
described in (i), (ii) and (iii) above or the protection or preservation
of, or realization upon, the collateral securing all or any part of such
indebtedness and obligations, including without limitation all reasonable
attorneys' fees; and (v) all renewals, extensions, modifications and
rearrangements of the indebtedness and obligations described in (i), (ii),
(iii) and (iv) above.
(e) The term "LOAN DOCUMENTS" shall mean all instruments and
documents evidencing, securing, governing, guaranteeing and/or pertaining
to the Indebtedness, including without limitation the Securities Purchase
Agreement.
(f) The term "OBLIGATED PARTY" shall mean any party other than
Borrower who secures, guarantees and/or is otherwise obligated to pay all
or any portion of the Indebtedness.
(g) The term "SECURED PARTY" shall mean the Purchasers, and the
Pledgee as agent for the Purchasers, their successors and assigns,
including without limitation, any party to whom any Purchaser or the
Pledgee, or any of their successors or assigns, may assign all or any part
of the Indebtedness or any of its rights and interests under this
Agreement.
All words and phrases used herein which are expressly defined in Section 1-201
or Chapter 9 of the Code shall have the meaning provided for therein. Other
words and phrases defined elsewhere in the Code shall have the meaning specified
therein except to the extent such meaning is inconsistent with a definition in
Section 1-201 or Chapter 9 of the Code.
2. SECURITY INTEREST. As security for the Indebtedness, Debtor, for
value received, hereby grants to Secured Party a continuing security interest in
the Collateral.
3. REPRESENTATIONS AND WARRANTIES. Debtor hereby represents and warrants
the following to Secured Party:
(a) DUE AUTHORIZATION. The execution, delivery and performance of
this Agreement and all of the other Loan Documents by Debtor have been duly
authorized by all necessary corporate action of Debtor.
(b) ENFORCEABILITY. This Agreement and the other Loan Documents
constitute legal, valid and binding obligations of Debtor, enforceable in
accordance with their respective terms, except as limited by bankruptcy,
insolvency or similar laws of general application relating to the
enforcement of creditors' rights and except to the extent specific remedies
may generally be limited by equitable principles.
(c) OWNERSHIP AND LIENS. Debtor has good and marketable title to the
Collateral free and clear of all liens, security interests, encumbrances or
adverse claims, except for the security interest created by this Agreement
and Liens permitted by Section 8.11 of the Securities Purchase Agreement.
No dispute, right of setoff, counterclaim or defense exists with respect to
all or any part of the Collateral. Debtor has not executed any other
security agreement currently affecting the Collateral and no effective
financing statement or other
<PAGE>
instrument similar in effect covering all or any part of the Collateral is
on file in any recording office except as may have been executed or filed
in favor of Secured Party.
(d) NO CONFLICTS OR CONSENTS. Neither the ownership, the intended
use of the Collateral by Debtor, the grant of the security interest by
Debtor to Secured Party herein nor the exercise by Secured Party of its
rights or remedies hereunder, will (i) conflict with any provision of (A)
any applicable domestic or foreign law, statute, rule or regulation, (B)
the articles or certificate of incorporation, charter, bylaws or
partnership agreement, as the case may be, of Debtor, or (C) any agreement,
judgment, license, order or permit applicable to or binding upon Debtor, or
(ii) result in or require the creation of any lien, charge or encumbrance
upon any assets or properties of Debtor or of any person except as may be
expressly contemplated in the Loan Documents. Except as expressly
contemplated in the Loan Documents, no consent, approval, authorization or
order of, and no notice to or filing with, any court, governmental
authority or third party is required in connection with the grant by Debtor
of the security interest herein or the exercise by Secured Party of its
rights and remedies hereunder.
(e) SECURITY INTEREST. Debtor has and will have at all times full
right, power and authority to grant a security interest in the Collateral
to Secured Party in the manner provided herein, free and clear of any lien,
security interest or other charge or encumbrance. This Agreement creates a
legal, valid and binding security interest in favor of Secured Party in the
Collateral securing the Indebtedness. Possession by Secured Party of all
certificates, instruments and cash constituting Collateral from time to
time and/or the filing of the financing statements delivered prior hereto
and/or concurrently herewith by Debtor to Secured Party will perfect and
establish the first priority of Secured Party's security interest hereunder
in the Collateral.
(f) LOCATION. Debtor's residence or chief executive office, as the
case may be, and the office where the records concerning the Collateral are
kept is located at its address set forth on the signature page hereof.
Except as specified elsewhere herein, all Collateral (other than vans and
associated equipment) shall be kept at such address and such other
addresses as may be listed in SCHEDULE "A" attached hereto and made a part
hereof.
(g) INVENTORY. The security interest in the inventory shall continue
through all stages of manufacture and shall, without further action, attach
to the accounts or other proceeds resulting from the sale or other
disposition thereof and to all such inventory as may be returned to Debtor
by its account debtors.
(h) ACCOUNTS. Each account represents the valid and legally binding
indebtedness of a bona fide account debtor arising from the sale or lease
by Debtor of goods or the rendition by Debtor of services and is not
subject to contra accounts, setoffs, defenses or counterclaims by or
available to account debtors obligated on the accounts except as disclosed
by Debtor to Secured Party from time to time in writing. The amount shown
as to each account on Debtor's books is the true and undisputed amount
owing and unpaid thereon, subject only to discounts, allowances, rebates,
credits and adjustments to which the account debtor has a right and which
have been disclosed to Secured Party in writing.
(i) CHATTEL PAPER, DOCUMENTS AND INSTRUMENTS. The chattel paper,
documents and instruments of Debtor pledged hereunder have only one
original counterpart and no party other than Debtor or Secured Party is in
actual or constructive possession of any such chattel paper, documents or
instruments.
4. AFFIRMATIVE COVENANTS. Debtor will comply with the covenants
contained in this Section 4 at all times during the period of time this
Agreement is effective unless Secured Party shall otherwise consent in writing.
(a) OWNERSHIP AND LIENS. Debtor will maintain good and marketable
title to all Collateral free and clear of all liens, security interests,
encumbrances or adverse claims, except for the security interest created by
this Agreement and the security interests and other encumbrances expressly
permitted by the other Loan Documents. Debtor will not permit any dispute,
right of setoff, counterclaim or defense to exist with respect to all or
any part of the Collateral. Debtor will cause any financing statement or
other security instrument with respect to the Collateral to be terminated,
except as may exist or as may have been filed in
<PAGE>
favor of Secured Party. Debtor will defend at its expense Secured Party's
right, title and security interest in and to the Collateral against the
claims of any third party.
(b) FURTHER ASSURANCES. Debtor will from time to time at its expense
promptly execute and deliver all further instruments and documents and take
all further action necessary or appropriate or that Secured Party may
request in order (i) to perfect and protect the security interest created
or purported to be created hereby and the first priority of such security
interest, (ii) to enable Secured Party to exercise and enforce its rights
and remedies hereunder in respect of the Collateral, and (iii) to otherwise
effect the purposes of this Agreement, including without limitation:
(A) executing and filing such financing or continuation statements, or
amendments thereto; and (B) furnishing to Secured Party from time to time
statements and schedules further identifying and describing the Collateral
and such other reports in connection with the Collateral, all in reasonable
detail satisfactory to Secured Party. Debtor shall cause each bank or
other depository institution at which it maintains deposit accounts to,
within 60 days after the date of this Agreement, execute and deliver to
Secured Party a blocked account agreement in form and substance
satisfactory to Secured Party.
(c) INSPECTION OF COLLATERAL. Debtor will keep adequate records
concerning the Collateral and will permit Secured Party and all
representatives and agents appointed by Secured Party to inspect any of the
Collateral and the books and records of or relating to the Collateral at
any time upon reasonable prior notice during normal business hours, to make
and take away photocopies, photographs and printouts thereof and to write
down and record any such information; provided, however, such inspections
of Collateral shall be limited to two inspections during any calendar year,
except that no such limitation shall apply after the occurrence and during
the continuance of an Event of Default.
(d) PAYMENT OF TAXES. Debtor (i) will timely pay all property and
other taxes, assessments and governmental charges or levies imposed upon
the Collateral or any part thereof, (ii) will timely pay all lawful claims
which, if unpaid, might become a lien or charge upon the Collateral or any
part thereof, and (iii) will maintain appropriate accruals and reserves for
all such liabilities in a timely fashion in accordance with generally
accepted accounting principles. Debtor may, however, delay paying or
discharging any such taxes, assessments, charges, claims or liabilities so
long as the validity thereof is contested in good faith by proper
proceedings and provided Debtor has set aside on Debtor's books adequate
reserves therefor; provided, however, Debtor understands and agrees that in
the event of any such delay in payment or discharge and upon Secured
Party's written request, Debtor will establish with Secured Party an escrow
acceptable to Secured Party adequate to cover the payment of such taxes,
assessments and governmental charges with interest, costs and penalties and
a reasonable additional sum to cover possible costs, interest and penalties
(which escrow shall be returned to Debtor upon payment of such taxes,
assessments, governmental charges, interests, costs and penalties or
disbursed in accordance with the resolution of the contest to the claimant)
or furnish Secured Party with an indemnity bond secured by a deposit in
cash or other security acceptable to Secured Party. Notwithstanding any
other provision contained in this Subsection, Secured Party may at its
discretion exercise its rights under Subsection 6(c) at any time to pay
such taxes, assessments, governmental charges, interest, costs and
penalties.
(e) MORTGAGEE'S AND LANDLORD'S WAIVERS. Debtor shall use its best
efforts to cause each landlord of real property leased by Debtor to execute
and deliver agreements satisfactory in form and substance to Secured Party,
within 60 days of the date of this Agreement, by which such landlord waives
or subordinates any rights it may have in the Collateral.
(f) CONDITION OF GOODS. Debtor will maintain, preserve, protect and
keep all Collateral which constitutes goods in good condition, repair and
working order and will cause such Collateral to be used and operated in
good and workmanlike manner, in accordance with applicable laws and in a
manner which will not make void or cancelable any insurance with respect to
such Collateral. Debtor will promptly make or cause to be made all
repairs, replacements and other improvements to or in connection with the
Collateral which Secured Party may request from time to time.
<PAGE>
(g) INSURANCE. Debtor will, at its own expense, maintain insurance
with respect to all Collateral which constitutes goods in such amounts,
against such risks, in such form and with such insurers, as shall be
satisfactory to Secured Party from time to time. Each policy for property
damage insurance shall provide for all losses to be paid directly to
Secured Party. Each policy of insurance maintained by Debtor shall (i)
name Debtor and Secured Party as insured parties thereunder (without any
representation or warranty by or obligation upon Secured Party) as their
interests may appear, (ii) contain the agreement by the insurer that any
loss thereunder shall be payable to Secured Party notwithstanding any
action, inaction or breach of representation or warranty by Debtor, (iii)
provide that there shall be no recourse against Secured Party for payment
of premiums or other amounts with respect thereto, and (iv) provide that at
least thirty (30) days prior written notice of cancellation or of lapse
shall be given to Secured Party by the insurer. Debtor will, if requested
by Secured Party, deliver to Secured Party original or duplicate policies
of such insurance and, as often as Secured Party may reasonably request, a
report of a reputable insurance broker with respect to such insurance.
Debtor will also, at the request of Secured Party, duly execute and deliver
instruments of assignment of such insurance policies and cause the
respective insurers to acknowledge notice of such assignment. All insurance
payments in respect of loss of or damage to any Collateral shall be paid to
Secured Party and applied as Secured Party in its sole discretion deems
appropriate.
(h) ACCOUNTS AND GENERAL INTANGIBLES. Debtor will, except as
otherwise provided in Subsection 6(f), collect, at Debtor's own expense,
all amounts due or to become due under each of the accounts and general
intangibles. In connection with such collections, Debtor may and, at
Secured Party's direction, will take such action not otherwise forbidden by
Subsection 5(e) as Debtor or Secured Party may deem necessary or advisable
to enforce collection or performance of each of the accounts and general
intangibles. Debtor will also duly perform and cause to be performed all
of its obligations with respect to the goods or services, the sale or lease
or rendition of which gave rise or will give rise to each account and all
of its obligations to be performed under or with respect to the general
intangibles. Debtor also covenants and agrees to take any action and/or
execute any documents that Secured Party may request in order to comply
with the Federal Assignment of Claims Act, as amended.
(i) CHATTEL PAPER, DOCUMENTS AND INSTRUMENTS. Debtor will take such
action as may be requested by Secured Party in order to cause any chattel
paper, documents or instruments to be valid and enforceable and will cause
all chattel paper to have only one original counterpart. Upon request by
Secured Party, Debtor will deliver to Secured Party all originals of
chattel paper, documents or instruments and will mark all chattel paper
with a legend indicating that such chattel paper is subject to the security
interest granted hereunder.
(j) COLLECTIONS. Debtor will cause all proceeds of and collections
with respect to all Collateral to be deposited in the bank account
described in Section 1(c) of this Agreement. Upon the giving of notice by
Pledgee at any time after the occurrence of any Event of Default (as
hereinafter defined), any such proceeds and collections shall be subject to
withdrawal by Pledgee only, and until so turned over shall be deemed to be
held in trust by Borrower for Secured Party and shall not be commingled
with Borrower's other funds or properties. Such proceeds and collections,
when deposited, shall continue to be collateral security for all of the
Indebtedness and shall not constitute payment thereof until applied as
hereinafter provided. At any time after the occurrence of any Event of
Default, Secured Party shall be entitled to apply all or a part of the
funds on deposit in said account to the principal of or interest on or both
in respect of any of the Indebtedness in accordance with the provisions of
Section 8(b) hereof.
5. NEGATIVE COVENANTS. Debtor will comply with the covenants contained
in this Section 5 at all times during the period of time this Agreement is
effective, unless Secured Party shall otherwise consent in writing.
(a) TRANSFER OR ENCUMBRANCE. Debtor will not, except to the extent
permitted in the Loan Documents, (i) sell, assign (by operation of law or
otherwise), transfer, exchange, lease or otherwise dispose of any of the
Collateral, (ii) grant a lien or security interest in or execute, file or
record any financing statement or other security instrument with respect to
the Collateral to any party other than Secured Party, or (iii) deliver
actual or constructive possession of any of the Collateral to any party
other than Secured Party, except for
<PAGE>
(A) sales and leases of inventory in the ordinary course of business, and
(B) the sale or other disposal of any item of equipment which is worn out
or obsolete and which has been replaced by an item of equal suitability and
value, owned by Debtor and made subject to the security interest under this
Agreement, but which is otherwise free and clear of any lien, security
interest, encumbrance or adverse claim; provided, however, the exceptions
permitted in clauses (A) and (B) above shall automatically terminate upon
the occurrence of an Event of Default.
(b) IMPAIRMENT OF SECURITY INTEREST. Debtor will not take or fail to
take any action which would in any manner impair the value or
enforceability of Secured Party's security interest in any Collateral.
Debtor will not enter into any amendment to any existing V&E Lease that
would have the effect of prohibiting any grant by Debtor of a security
interest in the Collateral.
(c) POSSESSION OF COLLATERAL. Debtor will not cause or permit the
removal of any Collateral from its possession, control and risk of loss,
nor will Debtor cause or permit the removal of any Collateral from the
address on the signature page hereof and the addresses specified on
SCHEDULE "A" to this Agreement other than (i) as permitted by Subsection
5(a), or (ii) in connection with the possession of any Collateral by
Secured Party or by its bailee.
(d) GOODS. Debtor will not permit any Collateral which constitutes
goods to at any time (i) be covered by any document except documents in the
possession of the Secured Party, (ii) become so related to, attached to or
used in connection with any particular real property so as to become a
fixture upon such real property, or (iii) be installed in or affixed to
other goods so as to become an accession to such other goods unless such
other goods are subject to a perfected first priority security interest
under this Agreement.
(e) COMPROMISE OF COLLATERAL. Debtor will not adjust, settle,
compromise, amend or modify any Collateral, except an adjustment,
settlement, compromise, amendment or modification in good faith and in the
ordinary course of business; provided, however, this exception shall
automatically terminate upon the occurrence of an Event of Default or upon
Secured Party's written request. Debtor shall provide to Secured Party
such information concerning (i) any adjustment, settlement, compromise,
amendment or modification of any Collateral, and (ii) any claim asserted by
any account debtor for credit, allowance, adjustment, dispute, setoff or
counterclaim, as Secured Party may request from time to time.
(f) FINANCING STATEMENT FILINGS. Debtor recognizes that financing
statements pertaining to the Collateral have been or may be filed where
Debtor maintains any Collateral, has its records concerning any Collateral
or has its residence or chief executive office, as the case may be.
Without limitation of any other covenant herein, Debtor will not cause or
permit any change in the location of (i) any Collateral, (ii) any records
concerning any Collateral, or (iii) Debtor's residence or chief executive
office, as the case may be, to a jurisdiction other than as represented in
Subsection 3(f) unless Debtor shall have notified Secured Party in writing
of such change at least thirty (30) days prior to the effective date of
such change, and shall have first taken all action required by Secured
Party for the purpose of further perfecting or protecting the security
interest in favor of Secured Party in the Collateral. In any written
notice furnished pursuant to this Subsection, Debtor will expressly state
that the notice is required by this Agreement and contains facts that may
require additional filings of financing statements or other notices for the
purpose of continuing perfection of Secured Party's security interest in
the Collateral.
6. RIGHTS OF SECURED PARTY. Secured Party shall have the rights
contained in this Section 6 at all times during the period of time this
Agreement is effective.
(a) ADDITIONAL FINANCING STATEMENTS FILINGS. Debtor hereby
authorizes Secured Party to file, without the signature of Debtor, one or
more financing or continuation statements, and amendments thereto, relating
to the Collateral. Debtor further agrees that a carbon, photographic or
other reproduction of this Security Agreement or any financing statement
describing any Collateral is sufficient as a financing statement and may be
filed in any jurisdiction Secured Party may deem appropriate.
<PAGE>
(b) POWER OF ATTORNEY. Debtor hereby irrevocably appoints Secured
Party as Debtor's attorney-in-fact, such power of attorney being coupled
with an interest, with full authority in the place and stead of Debtor and
in the name of Debtor or otherwise, from time to time in Secured Party's
discretion, to take any action and to execute any instrument which Secured
Party may deem necessary or appropriate to accomplish the purposes of this
Agreement, including without limitation: (i) to obtain and adjust
insurance required by Secured Party hereunder; (ii) to demand, collect, sue
for, recover, compound, receive and give acquittance and receipts for
moneys due and to become due under or in respect of the Collateral; (iii)
to receive, endorse and collect any drafts or other instruments, documents
and chattel paper in connection with clause (i) or (ii) above; and (iv) to
file any claims or take any action or institute any proceedings which
Secured Party may deem necessary or appropriate for the collection and/or
preservation of the Collateral or otherwise to enforce the rights of
Secured Party with respect to the Collateral.
(c) PERFORMANCE BY SECURED PARTY. If Debtor fails to perform any
agreement or obligation provided herein, Secured Party may itself perform,
or cause performance of, such agreement or obligation, and the expenses of
Secured Party incurred in connection therewith shall be a part of the
Indebtedness, secured by the Collateral and payable by Debtor on demand.
(d) DEBTOR'S RECEIPT OF PROCEEDS. All amounts and proceeds
(including instruments and writings) received by Debtor in respect of such
accounts or general intangibles shall be received in trust for the benefit
of Secured Party hereunder and, upon request of Secured Party, shall be
segregated from other property of Debtor and shall be forthwith delivered
to Secured Party in the same form as so received (with any necessary
endorsement) and applied to the Indebtedness in such manner as Secured
Party deems appropriate in its sole discretion.
(e) NOTIFICATION OF ACCOUNT DEBTORS. Secured Party may at its
discretion, after the occurrence and during the continuance of an Event of
Default, from time to time notify any or all obligors under any accounts or
general intangibles (i) of Secured Party's security interest in such
accounts or general intangibles and direct such obligors to make payment of
all amounts due or to become due to Debtor thereunder directly to Secured
Party, and (ii) to verify the accounts or general intangibles with such
obligors. Secured Party shall have the right, at the expense of Debtor, to
enforce collection of any such accounts or general intangibles and to
adjust, settle or compromise the amount or payment thereof, in the same
manner and to the same extent as Debtor.
7. EVENTS OF DEFAULT. Each of the following constitutes an "EVENT OF
DEFAULT" under this Agreement:
(a) DEFAULT UNDER SECURITIES PURCHASE AGREEMENT. The occurrence of
any Event of Default under Article XI of the Securities Purchase Agreement;
or
(b) NON-PERFORMANCE OF COVENANTS. The failure of Borrower or any
Obligated Party to timely and properly observe, keep or perform any
covenant, agreement, warranty or condition required herein and such failure
continues unremedied for ten days after Secured Party shall have given
Debtor written notice thereof; or
(c) DEFAULT UNDER OTHER LOAN DOCUMENTS. The occurrence of an event
of default under any of the other Loan Documents; or
(d) FALSE REPRESENTATION. Any representation contained herein or in
any of the other Loan Documents made by Borrower or any Obligated Party is
false or misleading in any material respect when made; or
(e) DEFAULT TO THIRD PARTY. The occurrence of any event which
permits the acceleration of the maturity of any indebtedness owing by
Borrower or any Obligated Party to any third party under any agreement or
undertaking, which event continues unremedied for five days; or
<PAGE>
(f) BANKRUPTCY OR INSOLVENCY. If Borrower or any Obligated Party:
(i) makes a transfer in fraud of creditors, or makes an assignment for the
benefit of creditors, or admits in writing its inability to pay its debts
as they become due; (ii) generally is not paying its debts as such debts
become due; (iii) has a receiver, trustee or custodian appointed for, or
take possession of, all or substantially all of the assets of such party or
any of the Collateral, either in a proceeding brought by such party or in a
proceeding brought against such party and such appointment is not
discharged or such possession is not terminated within sixty (60) days
after the effective date thereof or such party consents to or acquiesces in
such appointment or possession; (iv) files a petition for relief under the
United States Bankruptcy Code or any other present or future federal or
state insolvency, bankruptcy or similar laws (all of the foregoing
hereinafter collectively called "APPLICABLE BANKRUPTCY LAW") or an
involuntary petition for relief is filed against such party under any
Applicable Bankruptcy Law and such involuntary petition is not dismissed
within sixty (60) days after the filing thereof, or an order for relief
naming such party is entered under any Applicable Bankruptcy Law, or any
composition, rearrangement, extension, reorganization or other relief of
debtors now or hereafter existing is requested or consented to by such
party; (v) fails to have discharged within a period of sixty (60) days any
attachment, sequestration or similar writ levied upon any property of such
party; or (vi) fails to pay within thirty (30) days any final money
judgment against such party; or
(g) EXECUTION ON COLLATERAL. The Collateral or any portion thereof
is taken on execution or other process of law in any action against Debtor;
or
(h) ABANDONMENT. Debtor abandons the Collateral or any portion
thereof; or
(i) ACTION BY OTHER LIENHOLDER. The holder of any lien or security
interest on any of the assets of Debtor, including without limitation, the
Collateral (without hereby implying the consent of Secured Party to the
existence or creation of any such lien or security interest on the
Collateral), declares a default thereunder or institutes foreclosure or
other proceedings for the enforcement of its remedies thereunder; or
(j) LIQUIDATION, DEATH AND RELATED EVENTS. The liquidation,
dissolution, merger or consolidation of Borrower or any Obligated Party.
8. REMEDIES AND RELATED RIGHTS. If an Event of Default shall have
occurred which shall be continuing, and without limiting any other rights and
remedies provided herein, under any of the other Loan Documents or otherwise
available to Secured Party, Secured Party may exercise one or more of the rights
and remedies provided in this Section.
(a) REMEDIES. Secured Party may from time to time at its discretion,
without limitation and without notice except as expressly provided in any
of the Loan Documents:
(i) exercise in respect of the Collateral all the rights and
remedies of a secured party under the Code (whether or not the Code
applies to the affected Collateral);
(ii) require Debtor to, and Debtor hereby agrees that it will
at its expense and upon request of Secured Party, assemble the
Collateral as directed by Secured Party and make it available to
Secured Party at a place to be designated by Secured Party which is
reasonably convenient to both parties;
(iii) reduce its claim to judgment or foreclose or otherwise
enforce, in whole or in part, the security interest granted hereunder
by any available judicial procedure;
(iv) sell or otherwise dispose of, at its office, on the
premises of Debtor or elsewhere, the Collateral, as a unit or in
parcels, by public or private proceedings, and by way of one or more
contracts (it being agreed that the sale or other disposition of any
part of the Collateral shall not exhaust Secured Party's power of
sale, but sales or other dispositions may be made from time to time
until all of the Collateral has been sold or disposed of or until the
Indebtedness has been paid
<PAGE>
and performed in full), and at any such sale or other disposition it
shall not be necessary to exhibit any of the Collateral;
(v) buy the Collateral, or any portion thereof, at any public
sale;
(vi) buy the Collateral, or any portion thereof, at any
private sale if the Collateral is of a type customarily sold in a
recognized market or is of a type which is the subject of widely
distributed standard price quotations;
(vii) apply for the appointment of a receiver for the
Collateral, and Debtor hereby consents to any such appointment; and
(viii) at its option, retain the Collateral in satisfaction of
the Indebtedness whenever the circumstances are such that Secured
Party is entitled to do so under the Code or otherwise.
Debtor agrees that in the event Debtor is entitled to receive any notice
under the Uniform Commercial Code, as it exists in the state governing any
such notice, of the sale or other disposition of any Collateral, reasonable
notice shall be deemed given when such notice is deposited in a depository
receptacle under the care and custody of the United States Postal Service,
postage prepaid, at Debtor's address set forth on the signature page
hereof, ten (10) days prior to the date of any public sale, or after which
a private sale, of any of such Collateral is to be held. Secured Party
shall not be obligated to make any sale of Collateral regardless of notice
of sale having been given. Secured Party may adjourn any public or private
sale from time to time by announcement at the time and place fixed
therefor, and such sale may, without further notice, be made at the time
and place to which it was so adjourned.
(b) APPLICATION OF PROCEEDS. If any Event of Default shall have
occurred, Secured Party may at its discretion apply or use any cash held by
Secured Party as Collateral, and any cash proceeds received by Secured
Party in respect of any sale or other disposition of, collection from, or
other realization upon, all or any part of the Collateral as follows in
such order and manner as Secured Party may elect:
(i) to the repayment or reimbursement of the reasonable costs
and expenses (including, without limitation, reasonable attorneys'
fees and expenses) incurred by Secured Party in connection with (A)
the administration of the Loan Documents, (B) the custody,
preservation, use or operation of, or the sale of, collection from, or
other realization upon, the Collateral, and (C) the exercise or
enforcement of any of the rights and remedies of Secured Party
hereunder;
(ii) to the payment or other satisfaction of any liens and
other encumbrances upon the Collateral;
(iii) to the satisfaction of the Indebtedness until paid in
full;
(iv) by holding such cash and proceeds as Collateral;
(v) to the payment of any other amounts required by
applicable law (including without limitation, Section 9-504(1)(c) of
the Code or any other applicable statutory provision); and
(vi) by delivery of the remaining balance to Debtor or as
directed by a court of competent jurisdiction.
(c) DEFICIENCY. In the event that the proceeds of any sale of,
collection from, or other realization upon, all or any part of the
Collateral by Secured Party are insufficient to pay all amounts to which
Secured Party is legally entitled, Borrower and any party who guaranteed or
is otherwise obligated to pay all
<PAGE>
or any portion of the Indebtedness shall be liable for the deficiency,
together with interest thereon as provided in the Loan Documents.
(d) NON-JUDICIAL REMEDIES. In granting to Secured Party the power to
enforce its rights hereunder without prior judicial process or judicial
hearing, Debtor expressly waives, renounces and knowingly relinquishes any
legal right which might otherwise require Secured Party to enforce its
rights by judicial process. Debtor recognizes and concedes that
non-judicial remedies are consistent with the usage of trade, are
responsive to commercial necessity and are the result of a bargain at arm's
length. Nothing herein is intended to prevent Secured Party or Debtor from
resorting to judicial process at either party's option.
(e) OTHER RECOURSE. Debtor waives any right to require Secured Party
to proceed against any third party, exhaust any Collateral or other
security for the Indebtedness, or to have any third party joined with
Debtor in any suit arising out of the Indebtedness or any of the Loan
Documents, or pursue any other remedy available to Secured Party. Debtor
further waives any and all notice of acceptance of this Agreement and of
the creation, modification, rearrangement, renewal or extension of the
Indebtedness. Debtor further waives any defense arising by reason of any
disability or other defense of any third party or by reason of the
cessation from any cause whatsoever of the liability of any third party.
Until all of the Indebtedness shall have been paid in full, Debtor shall
have no right of subrogation and Debtor waives the right to enforce any
remedy which Secured Party has or may hereafter have against any third
party, and waives any benefit of and any right to participate in any other
security whatsoever now or hereafter held by Secured Party. Debtor
authorizes Secured Party, and without notice or demand and without any
reservation of rights against Debtor and without affecting Debtor's
liability hereunder or on the Indebtedness to (i) take or hold any other
property of any type from any third party as security for the Indebtedness,
and exchange, enforce, waive and release any or all of such other property,
(ii) apply such other property and direct the order or manner of sale
thereof as Secured Party may in its discretion determine, (iii) renew,
extend, accelerate, modify, compromise, settle or release any of the
Indebtedness or other security for the Indebtedness, (iv) waive, enforce or
modify any of the provisions of any of the Loan Documents executed by any
third party, and (v) release or substitute any third party.
9. INDEMNITY. Debtor hereby indemnifies and agrees to hold harmless
Secured Party, and its officers, directors, employees, agents and
representatives (each an "INDEMNIFIED PERSON") from and against any and all
liabilities, obligations, claims, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
(collectively, the "CLAIMS") which may be imposed on, incurred by, or asserted
against, any Indemnified Person arising in connection with the Loan Documents,
the Indebtedness or the Collateral (including without limitation, the
enforcement of the Loan Documents and the defense of any Indemnified Person's
actions and/or inactions in connection with the Loan Documents). WITHOUT
LIMITATION, THE FOREGOING INDEMNITIES SHALL APPLY TO EACH INDEMNIFIED PERSON
WITH RESPECT TO ANY CLAIMS WHICH IN WHOLE OR IN PART ARE CAUSED BY OR ARISE OUT
OF THE NEGLIGENCE OF SUCH AND/OR ANY OTHER INDEMNIFIED PERSON, except to the
limited extent the Claims against an Indemnified Person are proximately caused
by such Indemnified Person's gross negligence or willful misconduct. If Debtor
or any third party ever alleges such gross negligence or willful misconduct by
any Indemnified Person, the indemnification provided for in this Section shall
nonetheless be paid upon demand, subject to later adjustment or reimbursement,
until such time as a court of competent jurisdiction enters a final judgment as
to the extent and effect of the alleged gross negligence or willful misconduct.
The indemnification provided for in this Section shall survive the termination
of this Agreement and shall extend and continue to benefit each individual or
entity who is or has at any time been an Indemnified Person hereunder.
10. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement contains the entire agreement
of Secured Party and Debtor with respect to the Collateral. If the parties
hereto are parties to any prior agreement, either written or oral, relating
to the Collateral, the terms of this Agreement shall amend and supersede
the terms of such prior agreements as to transactions on or after the
effective date of this Agreement, but all security agreements, financing
statements, guaranties, other contracts and notices for the benefit of
Secured Party shall continue in
<PAGE>
full force and effect to secure the Indebtedness unless Secured Party
specifically releases its rights thereunder by separate release.
(b) AMENDMENT. No modification, consent or amendment of any
provision of this Agreement or any of the other Loan Documents shall be
valid or effective unless the same is in writing and signed by the party
against whom it is sought to be enforced.
(c) ACTIONS BY SECURED PARTY. The lien, security interest and other
security rights of Secured Party hereunder shall not be impaired by (i) any
renewal, extension, increase or modification with respect to the
Indebtedness, (ii) any surrender, compromise, release, renewal, extension,
exchange or substitution which Secured Party may grant with respect to the
Collateral, or (iii) any release or indulgence granted to any endorser,
guarantor or surety of the Indebtedness. The taking of additional security
by Secured Party shall not release or impair the lien, security interest or
other security rights of Secured Party hereunder or affect the obligations
of Debtor hereunder.
(d) WAIVER BY SECURED PARTY. Secured Party may waive any Event of
Default without waiving any other prior or subsequent Event of Default.
Secured Party may remedy any default without waiving the Event of Default
remedied. Neither the failure by Secured Party to exercise, nor the delay
by Secured Party in exercising, any right or remedy upon any Event of
Default shall be construed as a waiver of such Event of Default or as a
waiver of the right to exercise any such right or remedy at a later date.
No single or partial exercise by Secured Party of any right or remedy
hereunder shall exhaust the same or shall preclude any other or further
exercise thereof, and every such right or remedy hereunder may be exercised
at any time. No waiver of any provision hereof or consent to any departure
by Debtor therefrom shall be effective unless the same shall be in writing
and signed by Secured Party and then such waiver or consent shall be
effective only in the specific instances, for the purpose for which given
and to the extent therein specified. No notice to or demand on Debtor in
any case shall of itself entitle Debtor to any other or further notice or
demand in similar or other circumstances.
(e) COSTS AND EXPENSES. Debtor will upon demand pay to Secured Party
the amount of any and all costs and expenses (including without limitation,
attorneys' fees and expenses), which Secured Party may incur in connection
with (i) to the extent set forth in the Loan Documents, the transactions
which give rise to the Loan Documents, (ii) to the extent set forth in the
Loan Documents, the preparation of this Agreement and the perfection and
preservation of the security interests granted under the Loan Documents,
(iii) the administration of the Loan Documents, (iv) the custody,
preservation, use or operation of, or the sale of, collection from, or
other realization upon, the Collateral, (v) the exercise or enforcement of
any of the rights of Secured Party under the Loan Documents, or (vi) the
failure by Debtor to perform or observe any of the provisions hereof.
(F) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK AND APPLICABLE FEDERAL
LAWS, EXCEPT TO THE EXTENT PERFECTION AND THE EFFECT OF PERFECTION OR
NON-PERFECTION OF THE SECURITY INTEREST GRANTED HEREUNDER, IN RESPECT OF
ANY PARTICULAR COLLATERAL, ARE GOVERNED BY THE LAWS OF A JURISDICTION OTHER
THAN THE STATE OF NEW YORK.
(g) APPOINTMENT OF PLEDGEE AS AGENT. Pledgee has been appointed to
act as Pledgee hereunder by and for the benefit of the Purchasers.
(h) SEVERABILITY. If any provision of this Agreement is held by a
court of competent jurisdiction to be illegal, invalid or unenforceable
under present or future laws, such provision shall be fully severable,
shall not impair or invalidate the remainder of this Agreement and the
effect thereof shall be confined to the provision held to be illegal,
invalid or unenforceable.
<PAGE>
(i) NO OBLIGATION. Nothing contained herein shall be construed as an
obligation on the part of Secured Party to extend or continue to extend
credit to Borrower.
(j) NOTICES. All notices, requests, demands or other communications
required or permitted to be given pursuant to this Agreement shall be in
writing and given by (i) personal delivery, (ii) expedited delivery service
with proof of delivery, (iii) facsimile, at the facsimile number set forth
on the signature page hereof or (iv) United States mail, postage prepaid,
registered or certified mail, return receipt requested, sent to the
intended addressee at the address set forth on the signature page hereof or
to such different address as the addressee shall have designated by written
notice sent pursuant to the terms hereof and shall be deemed to have been
received either, in the case of personal delivery, at the time of personal
delivery, in the case of expedited delivery service, as of the date of
first attempted delivery at the address and in the manner provided herein,
in the case of facsimile, when sent and confirmed, or in the case of mail,
upon deposit in a depository receptacle under the care and custody of the
United States Postal Service. Either party shall have the right to change
its address for notice hereunder to any other location within the
continental United States by notice to the other party of such new address
at least thirty (30) days prior to the effective date of such new address.
(k) BINDING EFFECT AND ASSIGNMENT. This Agreement (i) creates a
continuing security interest in the Collateral, (ii) shall be binding on
Debtor and the heirs, executors, administrators, personal representatives,
successors and assigns of Debtor, and (iii) shall inure to the benefit of
Secured Party and its successors and assigns. Without limiting the
generality of the foregoing, Secured Party may pledge, assign or otherwise
transfer the Indebtedness and its rights under this Agreement and any of
the other Loan Documents to any other party. Debtor's rights and
obligations hereunder may not be assigned or otherwise transferred without
the prior written consent of Secured Party.
(l) TERMINATION. Upon (i) the satisfaction in full of the
Indebtedness and (ii) the termination or expiration of any commitment of
Secured Party to extend credit to Borrower, this Agreement and the security
interests created hereby shall terminate. Upon termination of this
Agreement and Debtor's written request, Secured Party will, at Debtor's
sole cost and expense, return to Debtor such of the Collateral as shall not
have been sold or otherwise disposed of or applied pursuant to the terms
hereof and execute and deliver to Debtor such Uniform Commercial Code
termination statements and other documents as Debtor shall reasonably
request to evidence such termination.
(m) PLEDGEE AS AGENT. Pledgee has been appointed to act as agent for
Secured Parties hereunder. Any communications and/or notices given by
Debtor to Secured Party pursuant to this Agreement shall be deemed given to
each of the Secured Parties if given to Pledgee at the address set forth on
the signature page hereto.
(n) CUMULATIVE RIGHTS. All rights and remedies of Secured Party
hereunder are cumulative of each other and of every other right or remedy
which Secured Party may otherwise have at law or in equity or under any of
the other Loan Documents, and the exercise of one or more of such rights or
remedies shall not prejudice or impair the concurrent or subsequent
exercise of any other rights or remedies.
(o) GENDER AND NUMBER. Within this Agreement, words of any gender
shall be held and construed to include the other gender, and words in the
singular number shall be held and construed to include the plural and words
in the plural number shall be held and construed to include the singular,
unless in each instance the context requires otherwise.
(p) DESCRIPTIVE HEADINGS. The headings in this Agreement are for
convenience only and shall in no way enlarge, limit or define the scope or
meaning of the various and several provisions hereof.
[SIGNATURE PAGE FOLLOWS]
<PAGE>
EXECUTED as of the date first written above.
Debtor's Address: DEBTOR:
2424 North Federal Highway VISUAL EDGE SYSTEMS INC.
Suite 100
Boca Raton, Florida 33431
Fax: (514) 937-0286
Attn: Earl Takefman By: /s/ Alan Lubell
-----------------------------------
Alan Lubell,
Chairman of the Board and Vice President
ACKNOWLEDGED, ACCEPTED AND AGREED:
HW PARTNERS, L.P., as agent for and
representative of the Purchasers
By: /s/ HW Partners, L.P.
------------------------------
Its:
------------------------------
Agent's Address:
HW Partners, L.P.
1601 Elm Street
4000 Thanksgiving Tower
Dallas, Texas 75201
Fax: 214/720-1662
Attn: Barrett Wissman
<PAGE>
SCHEDULE "A"
TO
SECURITY AGREEMENT
DATED FEBRUARY __, 1998
The other addresses referenced in Subsection 3(f) are as follows:
<PAGE>
EXHIBIT "A"
TO
SECURITY AGREEMENT
DATED FEBRUARY __, 1998
Location:
Owner of Record:
Legal Description:
<PAGE>
EXHIBIT 99.3
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 JUNE 13, 1997 AS AMENDED FROM TIME TO TIME (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: December 9, 1997
Number of Common Shares: (Subject to vesting as provided below)
Purchase Price: $4.00
Expiration Date: December 9, 2002
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, 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, 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 the Purchase Agreement.
Page 1
<PAGE>
The purchase price per share of Common Stock issuable upon exercise of this
Warrant (the "PURCHASE PRICE") shall initially be $4.00; PROVIDED, HOWEVER, that
the Purchase Price shall be adjusted from time to time as provided herein.
Capitalized terms used herein and not otherwise defined shall have the
meanings ascribed thereto in the Purchase Agreement. 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, at the option of the Holder, (i) by check or bank draft
payable to the order of the Company, (ii)
Page 2
<PAGE>
by wire transfer to the account of the Company, (iii) in shares of Common
Stock having a Market Price on the Exercise Date (as hereinafter defined)
equal to the aggregate Exercise Price or (iv) by presentation and surrender
of this Warrant to the Company for cashless exercise (a "CASHLESS
EXERCISE"), with such surrender being deemed a waiver of the Holder's
obligation to pay all or any portion of the Exercise Price. In the event
the Holder elects a Cashless Exercise (which such election shall be
irrevocable) the Holder shall exchange this Warrant for that number of
shares of Common Stock determined by multiplying the number of shares of
Common Stock being exercised by a fraction, the numerator of which shall be
the difference between the then current Market Price of the Common Stock
and the Purchase Price, and the denominator of which shall be the then
current Market Price of the Common Stock. 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 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 of Common Stock 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 in full 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; PROVIDED that the disposition of such
shares of Common Stock shall at all times be and remain within the control
of the Holder. 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
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were specifically set forth herein. The rights of the Holder to exercise
all or a portion of this Warrant as described herein, such exercise rights
shall be limited to the Vested Shares. As used herein, the term "Vested
Shares" means (i) 25% of the shares of Common Stock set forth on the cover
page of this Warrant on the date hereof (the "Initial Vested Shares"), and
(ii) 75% of the shares of Common Stock set forth on the cover page of this
Warrant on February 1, 1998 (the "Second Vested Shares"); provided the
Second Vested Shares shall not vest, and this Warrant shall be solely
exercisable for the Initial Vested Shares, if on or before January 31,
1998, the Company repays in full the entire $7,500,000 principal balance
due and owing on the Convertible Notes issued pursuant to the Purchase
Agreement, together with all accrued and unpaid interest thereon.
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.
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.
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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 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
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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. [RESERVED]
7. REDEMPTION.
7.1. VOLUNTARY REDEMPTION. Provided no Event of Default then exists,
the Company may, at any time on or after January 1, 2000 if a Redemption
Event (as hereinafter defined) has occurred at its option and following at
least thirty (30) days prior written notice to the Holder, redeem (each, a
"Redemption") for cash, all or any portion of this Warrant remaining
unexercised on the Redemption Date (as hereafter defined) for a redemption
price per share (the "Redemption Price") equal to $.10 per share of Common
Stock (or Other Securities) which would be issuable upon exercise of this
Warrant (the "Warrant Shares"); 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 January 1, 2000 and June 30, 2000, then the Company may
redeem up to (but not more than) 33a% 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 July 1,
2000 and December 31, 2000, then the Company may redeem up to (but not more
than) 66b% 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 January 1, 2001, then the
Company may redeem up to 100% of the total number of Warrant Shares
underlying this Warrant. As used herein, "Redemption Event" shall mean
that the Threshold Price preceding any Reference Date equals or exceeds
$17.50 per share. As used herein "Threshold Price" shall mean the lowest
Closing Bid Price for the Common Stock 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 the third (3rd) day preceding the
date on which the Redemption Notice is received by the Holder.
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
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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 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.
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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
(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,
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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:
(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;
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(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 pursuant to the "Second
Registration Statement" as defined in a Registration Rights Agreement between
the Company and the Holder dated the date of the Purchase Agreement.
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]
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DATED as of December 9, 1997.
VISUAL EDGE SYSTEMS INC.
By: /s/ Alan Lubell
---------------------------------------
Alan Lubell,
Chairman of the Board and Vice President
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EXHIBIT A
FORM OF NOTICE OF EXERCISE - WARRANT
(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 in the amount and manner set forth below, as of
the date written below. The undersigned requests that the certificates for such
shares of Common Stock be issued in the name of, and delivered to,
_________________________________ whose address is ______________
________________________________________________________.
The Exercise Price is paid as follows:
- Bank draft payable to the Company in the amount of $ ________________.
- Wire transfer to the account of the Company in the amount of $
___________.
- Delivery of _________ previously held shares of Common Stock having an
aggregate Market Price of $ ___________.
- Cashless exercise. Surrender of ___________ shares purchasable under
this Warrant for such shares of Common Stock issuable in exchange
therefor pursuant to the Cashless Exercise provisions of the Warrant,
as provided in Section 1.1 (iv) thereto.
Upon exercise pursuant to this Notice of Exercise, the holder will be in
compliance with the Limitation on Exercise (as defined in the Securities
Purchase Agreement pursuant to which this Warrant was issued).
Dated: ____________________
-------------------------------------------------
(Name must conform to name of holder as specified
on the face of the Warrant)
______________________
(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.
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By:
---------------------------------------------
Name:
Title:
Address:
Date of Exercise: _________________________
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