SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
DATE OF REPORT (Date of earliest event reported): September 14, 1999
RESEARCH ENGINEERS, INC.
(Exact name of registrant as specified in its charter)
Delaware 0-28560 22-2356861
(State or Other (Commission File Number) (IRS Employer
Jurisdiction of Identification No.)
Incorporation)
22700 SAVI RANCH PARKWAY
YORBA LINDA, CALIFORNIA 92887
(Address of Principal Executive Offices)
(714) 974-2500
(Registrant's telephone number, including area code)
Not Applicable
(Former Name or Former Address, if Changed Since Last Report.)
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ITEM 2. ACQUISITION OR DISPOSITION OF ASSETS
On September 14, 1999, Research Engineers, Inc. ("the Company")
acquired 70% of the outstanding stock of NetGuru Systems, Inc. and
NetGuru Consulting, Inc. (collectively, "NetGuru"). The terms of
the agreement provide for the acquisition of the remaining 30%
interest on December 15, 1999. The stock was acquired from Bharat
Manglani.
NetGuru is a provider of Information Technology ("IT") Services
headquartered in Waltham, Massachusetts.
The acquisition is expected to be accounted for using the purchase
method of accounting. The aggregate purchase, including acquisition
costs, will be approximately $5.6 million. Approximately $3.9 million
of this was paid upon the closing of the initial 70% interest in a
combination of cash and shares of the Company's common stock. The cash
portion of the purchase price was obtained through the issuance of
shares of the Company's newly created Series B 5% Convertible Preferred
Stock. The remainder of the purchase price will be payable upon closing
the remaining 30% interest (scheduled to occur on December 15, 1999) in
a combination of cash and a promissory note. In determining the
purchase price for NetGuru, the Company took into account the value of
companies of similar industry and size to NetGuru, comparable
transactions and the market for such companies generally.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Financial statements of businesses acquired
It is impracticable to provide the required financial statements for
the acquired business at the time this Form 8-K is filed. The
registrant shall file the required financial statements under cover
of Form 8-K/A on or before November 28, 1999.
(b) Pro forma financial information.
To be provided on or before November 28, 1999.
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(c) Exhibits
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2.1 Amended and Restated Stock Purchase Agreement, without
exhibits and schedules, dated as of September 14, 1999 among
the Company, NetGuru Systems, Inc., NetGuru Consulting, Inc.
and Bharat Manglani
2.2 Earn-Out Agreement dated as of September 14, 1999, between the
Company and Bharat Manglani
2.3 Registration Rights Agreement dated as of September 14, 1999
between the Company and Bharat Manglani
2.4 Securities Purchase Agreement, without exhibits and schedules,
dated as of September 14, 1999 between the Company and The
Shaar Fund Ltd.
2.5 Registration Rights Agreement, dated as of September 14, 1999
between the Company and The Shaar Fund Ltd.
2.6 Securities Purchase Agreement, without exhibits and schedules,
dated as of September 14, 1999 between the Company and Triton
Private Equities Fund, L.P.
2.7 Registration Rights Agreement dated as of September 14, 1999
between the Company and Triton Private Equities Fund, L.P.
4.1 Certificate of Designation of Series B 5% Convertible Preferred
Stock of Research Engineers, Inc. dated September 14, 1999.
4.2 Common Stock Purchase Warrant dated as of September 14, 1999
issued by the Company to The Shaar Fund Ltd.
4.3 Common Stock Purchase Warrant dated as of September 14, 1999
issued by the Company to Triton Private Equities Fund, L.P.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
Date: September 28, 1999
RESEARCH ENGINEERS, INC.
By: /S/ WAYNE BLAIR
Wayne Blair
Chief Financial Officer,
Secretary
and Treasurer
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Exhibit Index
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Exhibit 2.1 Amended and Restated Stock Purchase Agreement, without
exhibits and schedules, dated as of September 14, 1999 among the
Company, NetGuru Systems, Inc. and Bharat Manglani
Exhibit 2.2 Earn-Out Agreement dated as of September 14, 1999, between
the Company and Bharat Manglani
Exhibit 2.3 Registration Rights Agreement dated as of September 14,
1999 between the Company and Bharat Manglani
Exhibit 2.4 Securities Purchase Agreement, without exhibits and schedules,
dated as of September 14, 1999 between the Company and The
Shaar Fund Ltd.
Exhibit 2.5 Registration Rights Agreement, dated as of September 14, 1999
between the Company and The Shaar Fund Ltd.
Exhibit 2.6 Securities Purchase Agreement, without exhibits and schedules,
dated as of September 14, 1999 between the Company and
Triton Private Equities Fund, L.P.
Exhibit 2.7 Registration Rights Agreement, dated as of September 14, 1999
between the Company and Triton Private Equities Fund, L.P.
Exhibit 4.1 Certificate of Designation of Series B 5% Convertible Preferred
Stock of Research Engineers, Inc. dated September 14, 1999.
Exhibit 4.2 Common Stock Purchase Warrant dated as of September 14, 1999
issued by the Company to The Shaar Fund Ltd.
Exhibit 4.3 Common Stock Purchase Warrant dated as of September 14, 1999
issued by the Company to Triton Private Equities Fund, L.P.
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Exhibit 2.1
AMENDED AND RESTATED
STOCK PURCHASE AGREEMENT
by and among
RESEARCH ENGINEERS, INC.
NETGURU SYSTEMS, INC.
NETGURU CONSULTING, INC.
and
BHARAT MANGLANI
September 14, 1999
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TABLE OF CONTENTS
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Page
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1. PURCHASE AND SALE OF SHARES......................................1
1.1 Purchase and Sale....................................1
1.2 Purchase Price.......................................1
1.3 Adjustments to Purchase Price........................2
1.4 Payment of Purchase Price. ..........................2
1.5 Review of Final Balance Sheet. ......................3
1.6 Pledge Agreement ....................................3
1.7 Cash Withdrawal. ....................................3
2. REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND SELLER.......3
2.1 Organization; Good Standing; Qualification
and Power.............................................4
2.2 Capital Structure....................................4
2.2.1 Stock. ..................................4
2.2.2 No Other Commitments. ...................4
2.3 Authority............................................5
2.3.1 Corporate Action. .......................5
2.3.2 Seller's Authority. .....................5
2.3.3 No Conflict. ............................5
2.3.4 Governmental Consents. ..................5
2.4 Financial Statements.................................5
2.5 Compliance with Applicable Laws. ....................6
2.6 Insurance. ..........................................6
2.7 Litigation. .........................................6
2.8 ERISA and Other Compliance...........................6
2.9 Absence of Undisclosed Liabilities. .................8
2.10 Absence of Certain Changes or Events. ...............8
2.11 No Defaults. .......................................10
2.12 Certain Agreements. ................................10
2.13 Taxes...............................................10
2.14 Intellectual Property. .............................11
2.15 Fees and Expenses. .................................11
2.16 Environmental Matters...............................11
2.17 Interested Party Transactions. .....................12
2.18 Disclosure. ........................................12
2.19 Restrictions on Business Activities. ...............12
2.20 Accounts Receivable. ...............................12
2.21 Personal Property. .................................13
2.22 Real Property. .....................................13
2.23 Warranties. ........................................13
2.24 Contracts. .........................................13
2.25 No Goods or Products. ..............................13
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2.26 Year 2000 Compliance................................13
2.27 Investment Representation. .........................14
3. REPRESENTATIONS AND WARRANTIES OF REI...........................14
3.1 Organization; Good Standing; Qualification
and Power..........................................14
3.2 Capital Structure...................................15
3.2.1 Stock, Options and Warrants. ...........15
3.2.2 No Other Commitments. ..................15
3.3 Authority...........................................15
3.3.1 Corporate Action. ......................15
3.3.2 No Conflict. ...........................15
3.3.3 Governmental Consents. .................16
3.4 SEC Documents.......................................16
3.4.1 SEC Reports. ...........................16
3.4.2 Financial Statements. ..................16
3.5 Litigation. ........................................16
3.6 Fees and Expenses. .................................17
3.7 Disclosure. ........................................17
3.8 Financial Capacity..................................17
3.9 Form S-3 Eligibility. ..............................17
4. THE COMPANIES' AND SELLER'S COVENANTS...........................17
4.1 Confidentiality. ...................................17
4.2 Cooperation in Review of Financial Statements. .....17
5. REI COVENANTS...................................................17
5.1 Confidentiality. ...................................17
5.2 Stock Repurchase....................................18
5.3 Conduct of Business of the Companies. .............18
6. EMPLOYEE MATTERS................................................18
7. INDEMNIFICATION OF THE PARTIES..................................18
7.1 Indemnification by Seller...........................18
7.2 Indemnification by REI..............................19
7.3 Manner of Indemnification. .........................19
8. CLOSINGS........................................................20
8.1 Closing Dates. .....................................20
8.2 Deliveries by the Companies and Seller at
the Closings.......................................20
8.3 Delivery by REI at the Closings. ...................21
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9. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
AT THE SECOND CLOSING..........................................21
9.1 Accuracy of Representations and Warranties. ........21
9.2 Compliance with Law. ...............................22
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF REI
AT THE SECOND CLOSING..........................................22
10.1 Accuracy of Representations and Warranties. ........22
10.2 Compliance with Law. ...............................22
11. NON-COMPETITION.................................................22
11.1 Definitions. .......................................22
11.2 Non-Solicitation of Employees. .....................23
11.3 Non-Solicitation of Customers. .....................23
11.4 Additional Agreements...............................23
11.5 Remedies; Enforceability............................24
12. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND
COVENANTS.......................................................24
13. SHARE REPURCHASE OPTION.........................................24
14. MISCELLANEOUS...................................................25
14.1 Governing Law. .....................................25
14.2 Assignment; Binding Upon Successors and Assigns.....25
14.3 Severability. ......................................26
14.4 Counterparts. ......................................26
14.5 Other Remedies. ....................................26
14.6 Amendment and Waivers. .............................26
14.7 Expenses. ..........................................26
14.8 Attorneys' Fees. ...................................26
14.9 Notices. ...........................................26
14.10 Construction of Agreement. .........................27
14.11 No Joint Venture. ..................................27
14.12 Further Assurances. ................................27
14.13 Absence of Third Party Rights. .....................28
14.14 Entire Agreement. ..................................28
EXHIBIT 1.3 - Earn-Out Agreement EXHIBIT 1.4(d) - Secured Promissory Note
EXHIBIT 1.6 - Pledge Agreement EXHIBIT 8.3(a)(vii) SCHEDULES
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AMENDED AND RESTATED
STOCK PURCHASE AGREEMENT
THIS AMENDED AND RESTATED STOCK PURCHASE AGREEMENT (this "Agreement") is
entered into this 14th day of September, 1999, by and among NetGuru Systems,
Inc., a New Hampshire corporation ("NSI"), and NetGuru Consulting, Inc. ("NCI"),
a Massachusetts corporation (NSI and NCI are sometimes individually referred to
as a "Company" and collectively referred to as the "Companies"), Bharat Manglani
("Seller"), and Research Engineers, Inc., a Delaware corporation ("REI").
RECITALS
A. The parties hereto are parties to that certain Stock Purchase Agreement
dated July 1, 1999, as amended by that certain First Amendment to Stock Purchase
Agreement dated July 30, 1999 (as amended, the "Purchase Agreement"), which
provides for the purchase by REI of all of the issued and outstanding shares
(the "Shares") of capital stock of each Company, which Shares are owned by
Seller.
B. Pursuant to the terms of the Purchase Agreement, the closing of the
transactions contemplated therein was to occur no later than August 16, 1999.
C. Because of delays in obtaining the financing necessary for REI to fully
perform under the Purchase Agreement, the closing of the transactions
contemplated in the Purchase Agreement has not occurred as of the date hereof.
D. This Agreement replaces, amends and restates the Purchase Agreement.
AGREEMENT
In consideration of the foregoing recitals and the respective covenants,
agreements, representations and warranties contained herein, the parties hereto
agree as follows:
1. PURCHASE AND SALE OF SHARES.
1.1 Purchase and Sale. Subject to the terms and conditions of this
Agreement, at each of the Closings (as defined in Section 8.1) Seller shall
sell, transfer, assign and deliver to REI, and REI shall purchase from Seller
that number of Shares from Seller as provided herein such that upon the Second
Closing (as defined in Section 8.1) Seller shall have sold all of the Shares to
REI.
1.2 Purchase Price. Subject to the adjustments to be made in
accordance with the provisions of Section 1.3, the consideration for the sale,
transfer, assignment and delivery of the Shares is $4,500,000 ("Purchase
Price"). The parties hereto agree and acknowledge that $30,000 of the Purchase
Price represents payment for the shares of NCI, and the balance of the Purchase
Price represents payment for the shares of NSI.
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1.3 Adjustments to Purchase Price.
(a) At the First Closing (as defined in Section 8.1), Seller
shall deliver to REI an unaudited consolidated balance sheet, prepared in
accordance with generally accepted accounting principles applied on a basis
consistent with the Companies' audited consolidated balance sheet as at December
31, 1998, of the Companies as at the First Closing Date ("Final Balance Sheet").
The Purchase Price shall be increased by 50% of the amount by which accounts
receivable exceed the sum of (i) accounts payable and (ii) accrued expenses
("Net Asset Price") as shown on the Final Balance Sheet, up to a maximum of
$300,000. The Purchase Price may also be increased if certain performance goals
are met, as set forth in the Earn-Out Agreement attached hereto as Exhibit 1.3
("Earn-Out Agreement").
(b) At the Second Closing, REI shall deliver to Seller
statements of operations of each Company for the period beginning on the First
Closing Date and ending on the day preceding the Second Closing Date, prepared
in accordance with generally accepted accounting principles ("Interim
Statements"). The Purchase Price shall be increased by an amount equal to thirty
percent (30%) of the net income of each Company, if any, as reported on the
Interim Statements (collectively, the "Net Income Amount").
1.4 Payment of Purchase Price. Subject to the terms hereof,
the Purchase Price shall be paid by REI to Seller as follows:
(a) At the First Closing, REI shall deliver to Seller a
certified or bank cashier's check, payable to Seller, or wire transfer to
Seller's account, in the amount of $2,500,000, less amounts paid pursuant to
paragraph (c) below;
(b) At the First Closing, REI shall deliver to Seller 170,635
shares of REI Common Stock ("Stock") at a price per share equal to $6.4465
("Stock Price");
(c) At the First Closing, REI shall deliver to those persons
named on Schedule 2.2.2, REI checks in the amounts set forth opposite the
respective names of such persons as payment in full of amounts due to each of
them under outstanding, vested options granted under the NetGuru Systems, Inc.
1998 Stock Option Plan;
(d) At the Second Closing, REI shall deliver to Seller, REI's
8.5% promissory note, dated as of the Second Closing Date and due on the first
anniversary of the First Closing Date, in the principal amount of $600,000, in
the form of Exhibit 1.4(d) ("Note"); provided, however, that the amounts payable
under the Note are subject to offset pursuant to the provisions of Section 7.3;
(e) At the Second Closing, REI shall deliver to Seller a
certified or bank cashier's check, payable to Seller, or wire transfer to
Seller's account, in the amount of $300,000;
(f) Subject to Section 1.5, at the Second Closing, REI shall
pay to Seller, via a wire transfer to Seller's account, the amount of the Net
Asset Price;
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(g) At the Second Closing, REI shall deliver to Seller a
certified or bank cashier's check, payable to Seller, or wire transfer to
Seller's account, the Net Income Amount, if any; and
(h) At the time and on the terms set forth in the Earn-Out
Agreement, REI shall pay to Seller the Earn-Out (as that term is defined in the
Earn-Out Agreement).
1.5 Review of Final Balance Sheet. REI and its representatives
shall have 15 days to review the Final Balance Sheet. If REI disagrees with
Seller's calculation of the Net Asset Price, REI shall, within 15 days after the
First Closing Date, give written notice to Seller of such disagreement
specifying in reasonable detail, insofar as possible, the nature and extent of
the disagreement. If REI and Seller are unable to resolve any such disagreement
within 15 days after REI gives Seller notice, the disagreement shall be referred
for final determination to any accounting firm of national reputation as may be
reasonably acceptable to REI and Seller. REI and Seller may submit to the
accounting firm any facts that they deem relevant to the determination, and the
determination of the accounting firm shall be conclusive, non-appealable and
binding upon REI and Seller for all purposes. Any necessary upward adjustment
determined by the accounting firm shall be payable, via wire transfer to
Seller's account, by REI within three days after REI and has been notified of
such determination; provided, however, that REI shall not be required to make
any such payment prior to the Second Closing Date. REI and Seller agree that the
procedures established by Sections 1.2 through 1.5 shall constitute the
exclusive procedures for determining the consideration to be paid by REI to
Seller for the Shares. Costs incurred pursuant to this Section 1.5 shall be
borne equally by REI and Seller.
1.6 Pledge Agreement. The obligations of REI under the Note shall be
secured by a pledge agreement in the form of Exhibit 1.6 ("Pledge Agreement"),
executed by REI in favor of Seller granting a security interest in all of the
Shares. The Companies shall also execute, and record or file where appropriate,
such Uniform Commercial Code ("UCC") financing statements, UCC continuation
statements, and such other documents and instruments as may be reasonably
requested by Seller for the purpose of perfecting Seller's security interest in
the Shares.
1.7 Cash Withdrawal. Immediately preceding the First Closing, Seller
may cause each Company to withdraw all cash amounts contained in each Company's
respective bank account and to pay over to Seller such amounts.
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2. REPRESENTATIONS AND WARRANTIES OF THE COMPANIES AND SELLER.
Except as set forth in a schedule dated the date of this Agreement
and delivered by the Companies and Seller to REI concurrently herewith
("Disclosure Schedule") specifically identifying the Section of this Agreement
requiring the delivery of such disclosure, the Companies and Seller jointly and
severally represent and warrant to REI as set forth below. In this Agreement,
any reference to any event, change or effect being "material" with respect to
any entity or group of entities means any material event, change or effect
related to the condition (financial or otherwise), properties, assets,
liabilities, businesses, operations, results of operations or prospects of such
entity or group of entities taken as a whole. In this Agreement, the term
"Material Adverse Effect" used in connection with a party or any of that party's
subsidiaries means any event, change or effect that is materially adverse to the
condition (financial or otherwise), properties, assets, liabilities, businesses,
operations or results of operations of that party and its subsidiaries, taken as
a whole; provided, however, that a Material Adverse Effect shall not include:
(a) any adverse effect resulting from conditions affecting the engineering
software industry as a whole or the United States economy as a whole; (b) a
failure by the Companies to meet internal earnings or revenue projections; or
(c) any disruption of customer or supplier relationships arising primarily out
of or resulting primarily from actions contemplated by the parties in connection
with, or which is primarily attributable to the announcement of this Agreement
and the transactions contemplated hereby, to the extent attributable thereto.
2.1 Organization; Good Standing; Qualification and Power. Each
Company is a corporation duly organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation, has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as now being conducted, and is duly qualified and in good
standing to do business in each jurisdiction in which the nature of its business
or the ownership or leasing of its properties makes qualification necessary,
other than in jurisdictions where the failure to qualify would not have a
Material Adverse Effect. Neither Company owns, directly or indirectly, shares of
capital stock of any other corporation or any equity interest in any other
entity, nor does either Company control, directly or indirectly, any other
corporation, association or business organization. The Companies and Seller have
made available to REI complete and correct copies of the articles of
incorporation and bylaws of each Company, in each case as amended to the date of
this Agreement, and copies of all minutes of meetings and actions by written
consent of shareholders, directors and board committees of each Company.
2.2 Capital Structure.
2.2.1 Stock. The authorized capital stock of NSI consists of
10,000,000 shares of common stock, no par value per share, including 1,000,000
shares designated Class A Common Stock and 9,000,000 shares designated Class B
Common Stock, (together, "NSI Common Stock"). The authorized capital stock of
NCI consists of 200,000 shares of Common Stock, no par value per share ("NCI
Common Stock"). As of the date of this Agreement, 7,000,000 shares of NSI Common
Stock and 200,000 shares of NCI Common Stock are issued and outstanding. All
outstanding shares of the capital stock of the Companies are validly issued,
fully paid and nonassessable, are not subject to preemptive rights and as of the
First Closing Date are owned by Seller free and clear of any liens, security
interests, pledges, agreements, claims, charges or encumbrances. The Shares to
be sold to REI at the Second Closing are owned by Seller free and clear of any
liens, security interests, pledges, agreements, claims, changes or encumbrances.
2.2.2 No Other Commitments. Except as set forth on Schedule
2.2.2, there are no options, warrants, calls, rights, commitments, conversion
rights or agreements of any character to which either Company is a party or by
which either Company is bound obligating either Company to issue, deliver or
sell, or cause to be issued, delivered or sold, any shares of capital stock of
either Company or securities convertible into or exchangeable for shares of
capital stock of either Company, or obligating either Company to grant, extend
or enter into any option, warrant, call, right, commitment, conversion right or
agreement. There are no voting trusts or other agreements or understandings to
which either Company or Seller is a party with respect to the voting of the
capital stock of either Company.
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2.3 Authority.
2.3.1 Corporate Action. The Companies have all requisite
corporate power and authority to enter into this Agreement and to perform their
obligations hereunder and to consummate the transactions contemplated by this
Agreement. The execution and delivery of this Agreement by the Companies and the
consummation by the Companies of the transactions contemplated hereby have been
duly authorized by all necessary corporate action on the part of the Companies.
This Agreement has been duly executed and delivered by NSI and NCI, and this
Agreement is the valid and binding obligation of the Companies enforceable in
accordance with its terms, except that such enforceability may be subject to (i)
bankruptcy, insolvency, reorganization or other similar laws affecting or
relating to enforcement of creditors' rights generally and (ii) general
equitable principles.
2.3.2 Seller's Authority. Seller has full power and capacity
to enter into this Agreement. This Agreement has been duly executed and
delivered by Seller and this Agreement is the valid and binding obligation of
Seller, enforceable in accordance with its terms, except that enforceability may
be subject to (i) bankruptcy, insolvency, reorganization or other similar laws
affecting or relating to enforcement of creditors' rights generally and (ii)
general equitable principles.
2.3.3 No Conflict. Neither the execution, delivery and
performance of this Agreement, nor the consummation of the transactions
contemplated hereby nor compliance with the provisions hereof will conflict
with, or result in any violations of, or cause a default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination,
amendment, cancellation or acceleration of any obligation contained in, or the
loss of any material benefit under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the material properties or
assets of either Company under, any term, condition or provision of (x) the
articles of incorporation or bylaws of either Company or (y) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other material agreement,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to either Company or its properties or assets, other than any such conflicts,
violations, defaults, losses, liens, security interests, charges, or
encumbrances which, individually or in the aggregate, would not have a Material
Adverse Effect.
2.3.4 Governmental Consents. No consent, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign (each a "Governmental Entity"), is required
to be obtained by either Company in connection with the execution and delivery
of this Agreement or the consummation of the transactions contemplated hereby.
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2.4 Financial Statements. Seller has heretofore furnished to REI
copies of: (a) the Companies' unaudited consolidated balance sheets at December
31, 1997, and the related statement of income and changes in financial position
for the period then ended, together with the related notes thereto, (b) the
Companies' audited consolidated balance sheet at December 31, 1998, and the
related statement of income and changes in financial position for the period
then ended, together with the related notes thereto and the auditors' report
thereon of Deloitte & Touche, independent certified public accountants, and (c)
the Companies' unaudited consolidated balance sheet ("Balance Sheet") at July
31, 1999 ("Balance Sheet Date"), and the related statement of income and cash
flow for the period then ended, together with the related notes thereto. All
financial statements referred to in this Section 2.4 ("Financial Statements")
are complete and correct, have been prepared in accordance with generally
accepted accounting principles applied on a consistent basis during the
respective periods, and fairly present the consolidated financial condition of
the Companies as at the respective dates thereof and the consolidated results of
operations of the Companies for the respective periods covered by the statements
of income contained therein. Neither Company has any material obligations or
liabilities, contingent or otherwise, not fully disclosed by the Financial
Statements.
2.5 Compliance with Applicable Laws. The Business is not being
conducted in violation of any law, ordinance, regulation, rule or order of any
Governmental Entity where the violation would have a Material Adverse Effect.
Neither Company has been notified by any Governmental Entity that any
investigation or review with respect to either Company is pending or threatened,
nor has any Governmental Entity notified either Company of its intention to
conduct an investigation or review. The Companies have all permits, licenses and
franchises from Governmental Entities required to conduct the Business as now
being conducted, except for those whose absence would not have a Material
Adverse Effect.
2.6 Insurance. The Companies maintain and at all times since January
1, 1997 have maintained general liability insurance that the Companies believe
to be reasonably prudent for the Business. Schedule 2.6 contains a complete and
correct list of all insurance policies maintained by either Company. The
Companies have delivered or made available to REI complete and correct copies of
all such policies, together with all riders and amendments thereto. These
policies are in full force and effect, and all premiums due thereon have been
paid. The Companies have complied in all material respects with the terms and
provisions of the policies. In the opinion of Seller and the Companies
reasonably formed and held, there is no reasonable basis on which a claim should
or could be made under any such policy.
2.7 Litigation. There is no suit, action, arbitration, demand, claim
or proceeding pending or, to the best knowledge of the Companies and Seller,
threatened against either Company, nor is there any judgment, decree,
injunction, rule or order of any Governmental Entity or arbitrator outstanding
against either Company that, individually or in the aggregate, could reasonably
be expected to have a Material Adverse Effect. The Companies have made available
to REI correct and complete copies of all correspondence prepared by its counsel
for the Companies' accountants in connection with the last completed audit of
the Companies' financial statements and any correspondence since the date of the
last audit.
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2.8 ERISA and Other Compliance.
(a) The Companies have made available to REI a list of all
employees of either Company and their salaries as of the date of this Agreement.
The Companies have made available to REI copies of (i) each "employee benefit
plan," as defined in Section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), and (ii) all other written or formal plans or
agreements involving direct or indirect compensation or benefits (including any
employment agreements entered into between either Company and any employee of
either Company but excluding workers' compensation, unemployment compensation
and other government-mandated programs) currently or previously maintained,
contributed to or entered into by either Company under which either Company or
an ERISA Affiliate (as defined below) of either Company has any present or
future obligation or liability (collectively, "Employee Plans"). "ERISA
Affiliates" means any entity which is a member of (A) a "controlled group of
corporations," as defined in Section 414(b) of the Internal Revenue Code of 1986
(the "Code"), (B) a group of entities under "common control," as defined in
Section 414(c) of the Code, or (C) an "affiliated service group," as defined in
Section 414(m) of the Code, or treasury regulations promulgated under Section
414(o) of the Code, any of which includes either Company. Copies of all Employee
Plans (and, if applicable, related trust agreements) and all amendments thereto
and written interpretations thereof (including summary plan descriptions) have
been made available to REI. Neither Company has yet been required to prepare or
file an annual report (Form 5500, including, if applicable, Schedule B thereto)
in connection with any Employee Plan. Copies of all Employee Plans which
individually or collectively would constitute an "employee pension benefit
plan," as defined in Section 3(2) of ERISA (collectively, "Pension Plans"), have
been made available to REI. No contributions are due or past due from either NSI
or NCI with respect to any of the Employee Plans. Each of the Employee Plans has
been maintained in compliance with its terms and with the requirements
prescribed by any and all statutes, orders, rules and regulations, including,
without limitation, ERISA and the Code, which are applicable to the Employee
Plans except for noncompliance which would not have a Material Adverse Effect.
(b) None of the Pension Plans constitutes, or has since the
enactment of ERISA constituted, a "multiemployer plan," as defined in Section
3(37) of ERISA. No Pension Plans are subject to Title IV of ERISA. No
"prohibited transaction," as defined in Section 406 of ERISA or Section 4975 of
the Code, has occurred with respect to any of the Employee Plans that is covered
by Title I of ERISA which would result in a material liability to the Companies,
taken as a whole, excluding transactions effected pursuant to a statutory or
administrative exemption. Nothing done or omitted to be done and no transaction
or holding of any asset under or in connection with any of the Employee Plans
has or will make either NSI or NCI or any officer or director of either NSI or
NCI subject to any material liability under Title I of ERISA or liable for any
material tax or penalty pursuant to Sections 4972, 4975, 4976 or 4979 of the
Code or Section 502 of ERISA.
(c) Any of the Pension Plans that is intended to be qualified
under Section 401(a) of the Code (a "401(a) Plan") is so qualified and has been
so qualified during the period from its adoption to date, and the trust forming
a part thereof is exempt from tax pursuant to Section 501(a) of the Code.
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(d) The Companies have made available to REI a list of each
employment, severance or other similar contract, arrangement or policy and each
plan or arrangement providing for insurance coverage (including any self-insured
arrangements), workers' benefits, vacation benefits, severance benefits,
disability benefits, death benefits, hospitalization benefits, retirement
benefits, deferred compensation, profit-sharing, bonuses, stock options, stock
purchase, phantom stock, stock appreciation or other forms of incentive
compensation or post-retirement insurance, compensation or benefits for
employees, consultants or directors which (i) is not one of the Employee Plans,
(ii) is entered into, maintained or contributed to, as the case may be, by
either Company and (iii) covers any employee or former employee of either
Company. The contracts, plans and arrangements described in this paragraph
2.8(d) are referred to collectively as the "Benefit Arrangements." Each of the
Benefit Arrangements has been maintained in substantial compliance with its
terms and with the requirements prescribed by any and all statutes, orders,
rules and regulations which are applicable to Benefit Arrangements. The
Companies have made available to REI a complete and correct copy or description
of each of the Benefit Arrangements.
(e) There has been no amendment to, written interpretation or
announcement by either Company relating to, or change in employee participation
or coverage under, any of the Employee Plans or Benefit Arrangements that would
increase materially the expense of maintaining the Employee Plans or Benefit
Arrangements above the level of the expense incurred in respect thereof for the
fiscal year ended December 31, 1998.
(f) The Companies have provided, or will have provided prior
to the First Closing, to individuals entitled thereto all required notices and
coverage pursuant to Section 4980B of the Code and the Consolidated Omnibus
Budget Reconciliation Act of 1985, as amended ("COBRA"), with respect to any
"qualifying event" (as defined in Section 4980B(f)(3) of the Code) occurring
prior to and including the First Closing Date, and no material tax payable on
account of Section 4980B of the Code has been incurred with respect to any
current or former employees (or their beneficiaries) of either Company.
(g) No benefit or compensation payable or which may become
payable by either Company pursuant to any of the Employee Plans or any Benefit
Arrangements or as a result of or arising under this Agreement shall (i)
constitute an "excess parachute payment" (as defined in Section 280G(b)(1) of
the Code) which is subject to the imposition of an excise tax under Section 4999
of the Code or which would not be deductible by reason of Section 280G of the
Code or (ii) be nondeductible by reason of Section 162(m) of the Code.
(h) The Companies are in compliance in all material respects
with all applicable laws, agreements and contracts relating to employment,
employment practices, wages, hours, and terms and conditions of employment,
including, but not limited to, employee compensation matters, but not including
ERISA.
(i) The Companies have good labor relations and have no
knowledge of any facts indicating that the consummation of the transactions
contemplated hereby will have a material adverse effect on labor relations, and
have no knowledge that any of their key employees intends to leave their employ.
2.9 Absence of Undisclosed Liabilities. Except as disclosed on
Schedule 2.9, at the Balance Sheet Date, (i) the Companies had no liabilities or
obligations of any nature (matured or unmatured, fixed or contingent) which were
material to the Companies, taken as a whole, and were not provided for in the
Balance Sheet and (ii) all reserves established by the Companies and set forth
in the Balance Sheet were reasonably adequate.
2.10 Absence of Certain Changes or Events. Since the Balance
Sheet Date there has not occurred:
(a) any change in the condition (financial or otherwise),
properties, assets, liabilities, businesses, operations, results of operations
or prospects of the Companies taken as a whole that could reasonably constitute
a Material Adverse Effect;
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(b) any amendments or changes in the articles of incorporation
or bylaws of either Company;
(c) any damage, destruction or loss, whether covered by
insurance or not, that could reasonably constitute a Material Adverse Effect;
(d) any material increase in or modification of the
compensation or benefits payable or to become payable by either Company to any
of its directors or employees, except in the ordinary course of business
consistent with past practice;
(e) any material increase in or modification of any bonus,
pension, insurance or any of the Employee Plans or Benefit Arrangements
(including, but not limited to, the granting of stock options, restricted stock
awards or stock appreciation rights) made to, for or with any of either
Company's employees, other than in the ordinary course of business consistent
with past practice;
(f) any acquisition or sale of a material amount of property
or assets of either Company, other than in the ordinary course of business
consistent with past practices;
(g) any (A) incurrence, assumption or guarantee by either
Company of any debt for borrowed money; (B) issuance or sale of any securities
convertible into or exchangeable for debt securities of either Company; or (C)
issuance or sale of options or other rights to acquire from either Company
directly or indirectly, debt securities of either Company or any securities
convertible into or exchangeable for any such debt securities;
(h) any creation or assumption by either Company of any
mortgage, pledge, security interest or lien or other encumbrance on any asset;
(i) any making of any loan, advance or capital contribution to
or investment in any person other than (i) travel loans or advances made in the
ordinary course of business of either Company, (ii) other loans and advances in
an aggregate amount which does not exceed $25,000 outstanding at any time and
(iii) purchases on the open market of liquid, publicly traded securities;
(j) any entering into, amendment of, relinquishment,
termination or non-renewal by either Company of any contract, lease transaction,
commitment or other right or obligation other than in the ordinary course of
business;
(k) any transfer or grant of any material intellectual
property right of either Company, other than those transferred or granted in the
ordinary course of business;
(l) any labor dispute or charge of unfair labor practice
(other than routine individual grievances) or, to the Companies' and Seller's
knowledge, any activity or proceeding by a labor union or representative thereof
to organize any employees of either Company or any campaign being conducted to
solicit authorization from employees to be represented by the labor union; or
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(m) any agreement or arrangement made by either Company to
take any action which, if taken prior to the date hereof, would have made any
representation or warranty set forth in this Agreement materially untrue or
incorrect unless otherwise disclosed.
2.11 No Defaults. Neither Company is in default under, and there
exists no event, condition or occurrence which, after notice or lapse of time,
or both, would constitute a default by either Company under, any contract or
agreement to which either Company is a party and which would, if terminated or
modified, have a Material Adverse Effect.
2.12 Certain Agreements. Neither the execution and delivery of this
Agreement nor the consummation of the transactions contemplated hereby will (i)
result in any payment (including, without limitation, severance, unemployment
compensation, golden parachute, bonus or otherwise) becoming due to any director
or employee of either Company from either Company, under any of the Employee
Plans, Benefit Arrangements or otherwise, (ii) materially increase any benefits
otherwise payable under any of the Employee Plans, the Benefit Arrangements or
otherwise or (iii) result in the acceleration of the time of payment or vesting
of any benefits.
2.13 Taxes.
(a) For purposes of this Agreement, "Tax" or collectively
"Taxes" means any and all federal, state, local and foreign taxes, assessments
and other governmental charges, duties, impositions and liabilities, including
taxes based upon or measured by gross receipts, income, profits, sales, use and
occupation, and value added, ad valorem, transfer, franchise, withholding,
payroll, recapture, employment, estimated, excise and property taxes, together
with all interest, penalties and additions imposed with respect to those amounts
and any obligations under any agreements or arrangements with any other person
with respect to those amounts and including any liability for taxes of a
predecessor entity.
(b) Except as set forth in Schedule 2.13:
(i) As of the First Closing, the Companies will
have prepared and filed all required federal, state, local, and foreign returns,
estimates, information statements, and reports relating to any and all Taxes
("Returns") concerning or attributable to the Companies that are required to be
filed by or with respect to the Companies on or prior to the First Closing, and
each of the Returns shall be, to the knowledge of the Companies and Seller,
true, correct, and complete in all material respects and shall have been
completed in accordance with applicable law;
(ii) As of the First Closing, the Companies: (A)
will have paid or accrued in accordance with generally accepted accounting
principles all Taxes concerning or attributable to the Companies relating to
periods ending on or before the First Closing regardless of whether reflected on
Returns and (B) will have withheld with respect to their employees all federal
and state income taxes, FICA, FUTA, and other Taxes required to be withheld;
(iii) The Companies have not been delinquent in the
payment of any Tax nor is there any Tax deficiency outstanding, proposed or
assessed against the Companies, nor have the Companies executed any waiver of
the statute of limitations on or extending the period for the assessment or
collection of any Taxes;
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(iv) The Companies have no liabilities for unpaid
federal, state, local and foreign Taxes which have not been accrued or reserved
in accordance with generally accepted accounting principles on the Companies'
Balance Sheet;
(v) There are (and as of immediately following the
First Closing there will be) no liens, pledges, charges, claims, security
interests, or other encumbrances of any sort ("Liens") on the assets of the
Companies relating or attributable to Taxes other than liens for sales and
payroll taxes not yet due and payable;
(vi) The Companies have no knowledge of any
reasonable basis for the assertion of any claim relating or attributable to
Taxes which, if adversely determined, would result in any Lien on the assets of
the Companies;
(vii) Neither Company is a party to a tax sharing,
allocation, indemnification or similar agreement or arrangement, and the
Companies do not owe any amount under any agreement or arrangement;
(viii) The Companies have not taken any action
not in accordance with past practice that would have the effect of deferring any
Tax liability of the Companies from any period ending on before the First
Closing Date to any taxable period ending after such First Closing Date;
(ix) Neither Company was acquired in a "qualified
stock purchase" under Code Section 338(d)(3), and no elections under Code
Section 338(g), protective carryover basis elections, or offset prohibition
elections are applicable to either NSI or NCI or any predecessor corporations;
and
(x) The tax bases of the assets of NetGuru for
purposes of determining future amortization, depreciation, and other federal
income tax deductions are accurately reflected on the tax books and records of
NetGuru.
2.14 Intellectual Property. Except as set forth in Schedule 2.14,
there are no patents, patent applications, trademarks, service marks, trademark
and service mark applications, trade names and copyrights material to the lawful
and efficient operation of the business of the Companies as presently conducted
and as presently proposed to be conducted.
2.15 Fees and Expenses. Except as set forth in Schedule 2.15,
neither the Companies nor Seller has have paid or become obligated to pay any
fee or commission to any broker, finder or intermediary in connection with the
transactions contemplated by this Agreement. the Companies and Seller agree that
any such fees or commissions described in the preceding sentence shall be the
sole responsibility of Seller, whether or not either of the Closings occurs.
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2.16 Environmental Matters.
(a) To the Companies' and Seller's knowledge, none of the
properties or facilities of either Company is in violation of any federal, state
or local law, ordinance, regulation or order relating to industrial hygiene or
to the environmental conditions on, under or about the properties or facilities,
including, but not limited to, soil and ground water condition except where the
violations would not constitute a Material Adverse Effect. During the time that
the Companies have owned or leased their properties and facilities, neither the
Companies nor, to the Companies' and Seller's knowledge, any third party, has
released, used, generated, manufactured or stored on, under or about the
properties or facilities or transported to or from the properties or facilities
any hazardous materials.
(b) During the time that the Companies have owned or leased
their properties and facilities, there has been no litigation brought or
threatened against either Company by, or any settlement reached by either
Company with, any party or parties alleging the presence, disposal, release or
threatened release of any hazardous materials on, from or under any of the
properties or facilities.
2.17 Interested Party Transactions. No officer or director of either
Company or any "affiliate" or "associate" (as those terms are defined in Rule
405 promulgated under the Securities Act of 1933, as amended ("Securities Act"))
of any such person has had, either directly or indirectly, a material interest
in: (i) any person or entity which purchases from or sells, licenses or
furnishes to either Company any material amount of goods, property, technology
or intellectual or other property rights or services; or (ii) any material
contract or agreement to which either Company is a party or by which it may be
bound or affected.
2.18 Disclosure. No representation or warranty made by the Companies
or Seller in this Agreement, nor any document, written information, written
statement, financial statement, certificate or exhibit prepared and furnished or
to be prepared and furnished by the Companies, Seller or their representatives
pursuant to this Agreement or in connection with the transactions contemplated
hereby or thereby, when taken together, contains any untrue statement of a
material fact, or omits to state a material fact necessary to make the
statements or facts contained herein or therein not misleading in light of the
circumstances under which they were furnished.
2.19 Restrictions on Business Activities. There is no material
agreement, judgment, injunction, order or decree binding upon either Company
that has or could reasonably be expected to have the effect of prohibiting or
materially impairing any business practice of either Company, any acquisition of
property by either Company or the conduct of business by either Company as
currently conducted.
2.20 Accounts Receivable. Attached hereto as Schedule 2.20 is a true
and complete list of all Accounts Receivable owed to the Companies at the
Balance Sheet Date, including all Accounts Receivable from affiliated parties.
Except to the extent collected since the Balance Sheet Date, all Accounts
Receivable are reflected on the Financial Statements and Schedule 2.20 are, and
all Accounts Receivable of the Companies accruing or created between the Balance
Sheet Date and the First Closing Date are and will be, (a) valid bona fide
claims against debtors for sales or other charges, and (b) subject to no
defenses, set-offs, or counterclaims. No loss reserves are required with respect
to such notes and accounts receivable. The Companies have no reason to believe
that the Accounts Receivable are not collectible in accordance with their terms.
The Companies will provide to REI at the First Closing a list of all Accounts
Receivable owed to the Companies at the First Closing Date.
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2.21 Personal Property. The Companies have good title, free and
clear of all title defects, objections and liens, including without limitation,
leases, chattel mortgages, conditional sales contracts, collateral security
arrangements and other title or interest-retaining arrangements, to all of its
machinery, equipment, furniture, inventory and other personal property. All
personal property used in the Business is in good operating condition. All of
the leases to personal property utilized in the Business are valid and
enforceable against the Companies and are not in default by the Companies, or,
to the knowledge of the Companies and Seller, are any of the other parties
thereto in default thereof.
2.22 Real Property. The Companies do not own any real property.
Schedule 2.22 contains a list of all leases for real property to which either
Company is a party, the square footage leased with respect to each lease and the
expiration date of each lease. These leases are valid and enforceable and are
not in default. To the knowledge of the Companies and Seller, the real property
leased or occupied by either Company, the improvements located thereon, and the
furniture, fixtures and equipment relating thereto (including plumbing, heating,
air conditioning and electrical systems), conform to any and all applicable
health, fire, safety, zoning, land use and building laws, ordinances and
regulations. There are no outstanding contracts made by either Company for any
improvements made to the real property leased or occupied by either Company that
have not been paid for.
2.23 Warranties. The Companies have made no written or, to Seller's
knowledge, oral warranties or guarantees relating to their services other than
as implied or required by law. The Companies have no warranty or indemnification
obligations relating to patents or other proprietary rights.
2.24 Contracts. Schedule 2.24 lists all oral or written agreements,
notes, instruments or contracts to which either Company is a party or by which
its assets or properties may be bound which involve the payment or receipt of
more than $25,000 (on an annual basis), or which have a term of more than one
year, or which involve intellectual property, or which are employment or
consulting agreements ("Contracts"). Neither Company is in default in
performance of its obligations under any material provisions of the Contracts.
Neither the Companies nor Seller have any knowledge of any violation of or
default under any Contract by any other party thereto or any knowledge of any
intent by any other party to an Contract not to perform its obligations under
any Contract.
2.25 No Goods or Products. The Companies do not and have not
developed, sold, marketed or distributed any goods or products.
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2.26 Year 2000 Compliance.
(a) The Companies have identified mission-critical systems
related to the Year 2000 and believe that their systems, equipment and processes
are substantially Year 2000 ready. This identification and assessment also
involved identification of vendors that may have a significant impact on the
Companies' operations and their expected completion of any conversions. Although
the Companies are addressing such issues in what they consider to be sufficient
time prior to the century rollover, there can be no assurance that there will be
no interruption of operations or other limitations of system functionality, or
that the Companies will not incur substantial costs to avoid such occurrences.
The Companies have not sold any software products and have not made any warranty
or guarantee regarding Year 2000 compliance on any consulting services provided
by them to their customers.
(b) The Companies have initiated communications with their
significant suppliers and large customers to determine the extent to which the
Companies' internal applications and other interface systems are vulnerable to
those third parties' failure to remedy their own Year 2000 issues. There can be
no assurance that other companies' systems on which the Companies' systems rely
will be timely converted and would not have an adverse effect on the Companies'
systems. The most reasonably likely worst case scenario would be that the
Companies' significant customers' inability to remedy their own Year 2000 issues
would prevent them from purchasing the Companies' services.
2.27 Investment Representation. Seller acknowledges that, upon
issuance, the Stock will not have been "registered" and will therefore be
"restricted securities" as these terms are used under the Securities Act and the
rules and regulations thereunder. By his execution of this Agreement, Seller
agrees, represents and warrants that (i) his acquisition of the Stock is for
investment only, for his own account and not with a view to "distribution" as
that term is used under the Securities Act, (ii) he is an "accredited investor"
as that term is used in Regulation D under the Securities Act, and (iii) he has
received a copy of REI's Form 10-KSB for the fiscal year ended March 31, 1999.
Seller agrees that he shall not at any time make any sale, pledge,
hypothecation, gift or other transfer of Stock except pursuant to an effective
registration statement under the Securities Act or pursuant to the provisions of
Rule 144 under the Securities Act or another exemption from the registration
requirements of the Securities Act, and in accordance with any applicable state
"blue sky" or other securities laws, and that prior to making any sale or other
disposition of Stock pursuant to any such exemption, he shall, if requested by
REI, obtain an opinion of counsel, satisfactory to REI's counsel, that such sale
complies with applicable federal and state securities laws. Seller agrees that
he has been informed that the Stock must be held indefinitely unless
subsequently registered under the Securities Act or an exemption from such
registration is available and he understands that any sale of the Stock made in
reliance upon Rule 144, or any other like rule, can be made only in limited
amounts in accordance with the terms and conditions of those rules and, if those
rules are not applicable, any resale may require compliance with another
available exemption under the Securities Act or, in the alternative, may require
registration of the Stock. Seller acknowledges that, except as expressly set
forth in Section 5.6, REI is under no obligation to repurchase the Stock. Seller
acknowledges that REI shall cause a legend to be placed on the certificates
representing the Stock to reflect the foregoing.
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3. REPRESENTATIONS AND WARRANTIES OF REI.
REI hereby represents and warrants to Seller as follows:
3.1 Organization; Good Standing; Qualification and Power. REI is a
corporation duly incorporated, organized, validly existing and in good standing
under the laws of the jurisdiction of its incorporation, has all requisite
corporate power and authority to own, lease and operate its properties and to
carry on its business as now being conducted, and is duly qualified and in good
standing to do business in each jurisdiction in which the nature of its business
or the ownership or leasing of its properties makes qualification necessary,
other than in jurisdictions where the failure to qualify would not have a
Material Adverse Effect. REI has made available to Seller or his counsel
complete and correct copies of the certificate of incorporation and bylaws of
REI, in each case as amended to the date of this Agreement, and copies of all
minutes of meetings and actions by written consent of shareholders, directors
and board committees of REI.
3.2 Capital Structure.
3.2.1 Stock, Options and Warrants. The authorized capital
stock of REI consists of 20,000,000 shares of common stock, $.01 par value per
share ("REI Common Stock"), 357,143 shares of Series A 5% Convertible Preferred
Stock, $.01 par value per share (the "Series A Preferred Stock"), 371,429 shares
of Series B 5% Convertible Preferred Stock, $.01 par value per share (the
"Series B Preferred Stock") and 4,271,428 shares of undesignated preferred
stock, $.01 par value per share ("REI Preferred Stock"). As of the date hereof,
5,738,210 shares of REI Common Stock are issued and outstanding, 1,000,364
shares of REI Common Stock are reserved for issuance upon the exercise of
outstanding options ("REI Options") and warrants ("REI Warrants") to purchase
REI Common Stock, no shares of Series A Preferred Stock are issued and
outstanding, 371,429 shares of Series B Preferred Stock are issued and
outstanding and no shares of REI Preferred Stock are issued or outstanding. All
outstanding shares of REI Common Stock and Series B Preferred Stock are validly
issued, fully paid and nonassessable and not subject to preemptive rights. REI
has made available to Seller true and correct copies of its 1996, 1997 and 1998
Stock Option Plans (each an "REI Plan" and collectively, the "REI Plans").
3.2.2 No Other Commitments. Except for the REI Options, REI
Warrants and Series B Preferred Stock disclosed in or pursuant to Section 3.2.1,
there are no options, warrants, calls, rights, commitments, conversion rights or
agreements of any character to which REI is a party or by which REI is bound
obligating REI to issue, deliver or sell, or cause to be issued, delivered or
sold, any shares of capital stock of REI or securities convertible into or
exchangeable for shares of capital stock of REI, or obligating REI to grant,
extend or enter into any such option, warrant, call, right, commitment,
conversion right or agreement. There are no voting trusts or other agreements or
understandings to which REI is a party with respect to the voting of the capital
stock of REI.
3.3 Authority.
3.3.1 Corporate Action. REI has all requisite corporate power
and authority to enter into this Agreement and to perform its obligations
hereunder and to consummate the transactions contemplated by this Agreement. The
execution and delivery of this Agreement by REI and the consummation by REI of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of REI. This Agreement has been duly executed and
delivered by REI, and this Agreement is the valid and binding obligation of REI,
enforceable in accordance with its terms, except that enforceability may be
subject to (i) bankruptcy, insolvency, reorganization or other similar laws
affecting or relating to enforcement of creditors' rights generally and (ii)
general equitable principles.
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3.3.2 No Conflict. Neither the execution, delivery and
performance of this Agreement, nor the consummation of the transactions
contemplated hereby nor compliance with the provisions hereof will conflict
with, or result in any violations of, or cause a default (with or without notice
or lapse of time, or both) under, or give rise to a right of termination,
amendment, cancellation or acceleration of any obligation contained in, or the
loss of any material benefit under, or result in the creation of any lien,
security interest, charge or encumbrance upon any of the material properties or
assets of REI under, any term, condition or provision of (x) the certificate of
incorporation or bylaws of REI or (y) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other material agreement, judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to REI or its respective
properties or assets, other than any such conflicts, violations, defaults,
losses, liens, security interests, charges or encumbrances which, individually
or in the aggregate, would not have a Material Adverse Effect.
3.3.3 Governmental Consents. No consent, approval, order or
authorization of, or registration, declaration or filing with, any Governmental
Entity is required to be obtained by REI in connection with the execution and
delivery of this Agreement or the consummation of the transactions contemplated
hereby.
3.4 SEC Documents.
3.4.1 SEC Reports. REI has made available to Seller or his
counsel correct and complete copies of each report, schedule, registration
statement and definitive proxy statement filed by REI with the Securities and
Exchange Commission ("SEC") on or after January 1, 1997 ("REI SEC Documents"),
which are all the documents (other than preliminary material) that REI was
required to file with the SEC on or after that date. As of their respective
dates or, in the case of registration statements, their effective dates (or if
amended or superseded by a filing prior to the date of this Agreement, then on
the date of such filing), none of the REI SEC Documents (including all exhibits
and schedules thereto and documents incorporated by reference therein) contained
any untrue statement of a material fact or omitted to state a material fact
required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they were made, not
misleading, and the REI SEC Documents complied when filed in all material
respects with the then applicable requirements of the Securities Act or the
Securities Exchange Act of 1934, as amended, as the case may be, and the rules
and regulations promulgated by the SEC thereunder. REI has filed all documents
and agreements which were required to be filed as exhibits to the REI SEC
Documents.
3.4.2 Financial Statements. The financial statements of REI
included in the REI SEC Documents complied as to form in all material respects
with the then applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, were prepared in accordance with
generally accepted accounting principles applied on a consistent basis during
the periods involved (except as may have been indicated in the notes thereto or,
in the case of the unaudited statements, as permitted by Form 10-QSB promulgated
by the SEC) and fairly present the financial position of REI as at the
respective dates thereof and the results of its operations and cash flows for
the respective periods then ended.
3.5 Litigation. There is no suit, action, arbitration, demand, claim
or proceeding pending or, to the best knowledge of REI, threatened against REI
in connection with or relating to the transactions contemplated by this
Agreement or of any action taken or to be taken in connection herewith or the
consummation of the transactions contemplated hereby.
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3.6 Fees and Expenses. REI has not paid or become obligated to pay
any fee or commission to any broker, finder or intermediary in connection with
the transactions contemplated by this Agreement.
3.7 Disclosure. No representation or warranty made by REI in this
Agreement, nor any document, written information, written statement, financial
statement, certificate or exhibits prepared and furnished or to be prepared and
furnished by REI or its representatives pursuant hereto or in connection with
the transactions contemplated hereby, when taken together, contains any untrue
statement of a material fact, or omits to state a material fact necessary to
make the statements or facts contained herein or therein not misleading in light
of the circumstances under which they were furnished.
3.8 Financial Capacity. REI has the financial capacity to pay the
Purchase Price when due.
3.9 Form S-3 Eligibility. As of the date of this Agreement, REI
meets the eligibility requirements for use of Form S-3 to register for resale
the Stock under the Securities Act of 1933, as amended.
4. THE COMPANIES' AND SELLER'S COVENANTS.
4.1 Confidentiality. All information concerning REI or any of its
subsidiaries ("REI Subsidiaries") received by the Companies or Seller (other
than that information which is a matter of public knowledge or which has been
published for public distribution or filed as public information with any
governmental authority) shall not at any time, except in connection with this
Agreement and the transactions contemplated hereby, be used for the advantage
of, or disclosed by, the Companies or Seller to any third person without the
prior written consent of REI. the Companies and Seller may disclose the
information on a confidential basis to their affiliates, employees, officers,
agents, auditors, investment bankers, consultants, counsel, directors, present
and prospective lenders, and state and federal regulatory agencies. This
covenant shall expire on completion of the Second Closing; provided, however,
that if the Second Closing does not occur, it shall expire three years after the
date of this Agreement.
4.2 Cooperation in Review of Financial Statements. The Companies and
Seller shall cooperate fully with REI and its representatives in their review of
the Financial Statements and the Final Balance Sheet, including providing access
to any information necessary in order to complete their review.
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5. REI COVENANTS
5.1 Confidentiality. All information concerning the Companies
received by REI (other than that information which is a matter of public
knowledge or which has been published for public distribution or filed as public
information with any governmental authority) shall not at any time, except in
connection with this Agreement and the transactions contemplated hereby, be used
for the advantage of, or disclosed by, REI to any third person without the prior
written consent of Seller or either Company. REI may disclose the information on
a confidential basis to its affiliates, employees, officers, agents, auditors,
investment bankers, consultants, counsel, directors, present and prospective
lenders, and state and federal regulatory agencies and, as provided elsewhere in
this Agreement, may disclose such information in press releases and like
disclosures, filings with the SEC or other governmental or self-regulatory
agencies or as otherwise required. This covenant shall expire on completion of
the Second Closing; provided, however, that if the Second Closing does not
occur, it shall expire three years after the date of this Agreement.
5.2 Stock Repurchase. If at any time between September 13, 2000 and
December 13, 2000, the last sales price of a share of REI Common Stock as
reported on the Nasdaq National Market is less than 108.5% of the Stock Price,
and Seller desires to sell all or a portion of his Stock, upon five days written
notice from Seller to REI, REI shall, at its election, either (i) repurchase,
for cash, all of the Stock then held by Seller at a price per share equal to
108.5% of the Stock Price or (ii) instruct Seller to sell shares of Stock then
held by Seller, and within three (3) business days of such resale, pay to
Seller, in cash, an amount equal to the difference between the Seller's resale
price per share of the Stock and 108.5% of the Stock Price multiplied by the
number of shares of Stock sold; provided, however, that REI's repurchase
obligations hereunder shall not apply to any proposed sale of Stock by Seller
which sale, when aggregated with all prior sales of Stock by Seller (whether by
operation of this Section 5.2, pursuant to the provisions contained in the
Registration Rights Agreement, pursuant to the provisions of Rule 144 or
pursuant to private resales), results in Seller obtaining aggregate gross sale
proceeds in excess of $1,193,500.
5.3 Conduct of Business of the Companies. During the time Seller
owns a thirty percent (30%) equity interest in each Company after the First
Closing Date, REI shall not make any substantial change in the business of
either Company without the prior written consent of Seller.
6. EMPLOYEE MATTERS.
Following the First Closing, all employees of either Company will
continue to be employees of that Company. Employees will be provided employment
benefits that are at least comparable to those they currently receive from the
Companies and, if necessary, the Companies shall continue to sponsor those
employees for the purpose of maintaining such employees' United States resident
alien status. After the Second Closing, any employee may be offered employment
by REI. Notwithstanding the foregoing, REI makes no representation, warranty or
promise as to the length of time that any such employee will remain in the
employ of the Companies following the First Closing or REI following the Second
Closing.
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7. INDEMNIFICATION OF THE PARTIES.
7.1 Indemnification by Seller.
(a) Seller shall indemnify, defend, protect and hold harmless
REI, the Companies, each of the REI Subsidiaries, each of their respective
successors and assigns and each of their respective directors, officers,
employees, agents and affiliates (each an "REI Indemnified Party"), against all
losses, claims, damages, actions, suits, proceedings, demands, assessments,
adjustments, costs and expenses (including specifically, but without limitation,
reasonable attorneys' fees and expenses of investigation ("Losses")) based upon,
resulting from or arising out of (i) any inaccuracy or breach of any
representation or warranty of either Company or Seller contained in or made in
connection with this Agreement, and (ii) the breach by either Company or Seller
of, or the failure by either Company or Seller to observe, any of their
respective covenants or other agreements contained in or made in connection with
this Agreement. The indemnification provided for in this Section 7.1 shall
terminate on the earlier of (x) twelve months after the Second Closing Date (and
no claims shall be made by REI under this Section 7.1 thereafter) or (y) the
closing of Seller's exercise of the share repurchase option pursuant to Section
13; provided, however, that Seller shall indemnify the REI Indemnified Parties
for any and all Taxes incurred by or attributable to the Companies prior to the
First Closing, and the indemnification period relating to any Taxes shall
terminate on the tenth day after the expiration of the applicable period of
limitations on assessments and collections applicable to such taxes under the
Code.
(b) Notwithstanding the foregoing, the aggregate amount to be
paid by Seller under Section 7.1(a) shall not exceed 50% of the Purchase Price
as adjusted pursuant to Section 1.3 and net of any insurance proceeds received
by the REI Indemnified Parties, and Seller shall not be required to indemnify,
defend, protect and hold harmless an REI Indemnified Party pursuant to Section
7.1(a) for Losses incurred by an REI Indemnified Party with respect to any
inaccuracy or breach of any representation or warranty of the Companies or
Seller contained in Section 2 of this Agreement unless and until the aggregate
amount of such Losses exceeds $25,000, at which time the REI Indemnified Parties
shall be entitled to indemnification hereunder with respect to all such
aggregate amount of Losses (including the first $25,000 of Losses) and any
Losses incurred or suffered by them thereafter.
7.2 Indemnification by REI.
(a) REI shall indemnify, defend, protect and hold harmless
Seller against all Losses based upon, resulting from or arising out of (i) any
inaccuracy or breach of any representation, or warranty of REI contained in or
made in connection with this Agreement, and (ii) the breach by REI of, or the
failure by REI to observe, any of its covenants or other agreements contained in
or made in connection with this Agreement. The indemnification provided for in
this Section 7.2 shall terminate twelve months after the Second Closing Date
(and no claims shall be made by Seller under this Section 7.2 thereafter).
(b) Notwithstanding the foregoing, the aggregate amount to be
paid by REI under Section 7.2(a) shall not exceed 50% of the Purchase Price as
adjusted per Section 1.3 and net of any insurance proceeds received by Seller,
and REI shall not be required to indemnify, defend, protect and hold harmless
Seller pursuant to Section 7.2(a) for Losses incurred by Seller with respect to
any inaccuracy or breach of any representation or warranty of REI contained in
this Agreement unless and until the aggregate amount of such Losses exceeds
$25,000, at which time Seller shall be entitled to indemnification hereunder
with respect to all such aggregate amount of Losses (including the first $25,000
of Losses) and any Losses incurred or suffered by them thereafter.
7.3 Manner of Indemnification. All indemnification under this
Section 7 shall be effected by the payment of cash or delivery of a bank
cashier's check, or by a combination of the foregoing; provided, however, that
REI may, at its election, effect indemnification by Seller by a holdback or
set-off against monies otherwise payable to Seller under the Note.
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8. CLOSINGS.
8.1 Closing Dates. The transactions contemplated by this Agreement
shall be consummated in two separate closings with the first closing (the "First
Closing") occurring on the date hereof (the "First Closing Date") and the second
closing (the "Second Closing") occurring on December 15, 1999 (the "Second
Closing Date"). The First Closing and Second Closing (collectively, the
"Closings") will take place at the offices of Rutan & Tucker LLP, 611 Anton,
Suite 1400, Costa Mesa, California 92626.
8.2 Deliveries by the Companies and Seller at the Closings.
(a) At the First Closing, the Companies and Seller shall
deliver to REI:
(i) Certificates representing seventy percent (70%)
of the Shares of each Company, free of liens or encumbrances, accompanied by
duly executed stock powers by Seller in favor of REI with all necessary transfer
stamps affixed thereto or other evidence of payment of applicable stock transfer
taxes, if any;
(ii) The Final Balance Sheet;
(iii) The opinion of the Companies' corporate legal
counsel based upon reasonably requested certifications as to factual matters and
dated the First Closing Date regarding the status and authority of the
Companies, the authorization of this Agreement and the transactions contemplated
hereby by the Companies, and the binding effect of this Agreement on the
Companies and Seller;
(iv) The Earn-Out Agreement executed by Seller; and
(v) The Registration Rights Agreement referred to in
Section 8.3(a)(vii) executed by Seller.
(b) At the Second Closing, Seller shall deliver to REI:
(i) Certificates representing the remaining thirty
percent (30%) of the Shares of each Company, free of liens or encumbrances,
accompanied by duly executed stock powers by Seller in favor of REI with all
necessary transfer stamps affixed thereto or other evidence of payment of
applicable stock transfer taxes, if any;
(ii) Seller's certificate referred to in Section
10.1; and
(iii) Evidence satisfactory to REI that Seller has
executed and delivered to Imperial Bank a Subordination Agreement satisfactory
to Imperial Bank.
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8.3 Delivery by REI at the Closings.
(a) At the First Closing, REI shall deliver to Seller:
(i) A certified or bank cashier's check, payable to
Seller, or wire transfer to Seller's account, in the amount of $2,500,000 (less
amounts paid pursuant to paragraph 1.4(c)) as required by Section 1.4(a);
(ii) REI checks in the amounts set forth opposite the
respective names of the person listed on Schedule 2.2.2 as payment in full of
amounts due to each such person under outstanding, vested options granted under
the NetGuru Systems, Inc. 1998 Stock Option Plan as required by paragraph
1.4(c);
(iii) The Stock, as required by Section 1.4(b); (iv) The
Earn-Out Agreement executed by REI; and (v) The Registration Rights Agreement
(the "Registration Rights Agreement") in the form of Exhibit 8.3(a)(vii),
executed by REI.
(b) At the Second Closing, REI shall deliver to Seller:
(i) A certified or bank cashier's check, payable to
Seller, or wire transfer to Seller's account, in the amount of $300,000;
(ii) The Note in the principal amount of $600,000, as
required by Section 1.4(d);
(iii) The Pledge Agreement as required by Section 1.6;
(iv) A certified or bank cashier's check, payable
to Seller, or wire transfer to Seller's account, the amount of the Net Asset
Price, if any;
(v) A certified or bank cashier's check, payable to
Seller, or wire transfer to Seller's account, an amount equal to the Net Income
Amount, if any; and
(vi) The officer's certificate referred to in Section
9.1.
9. CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER AT THE SECOND CLOSING.
The obligations of Seller at the Second Closing are subject to the
fulfillment or satisfaction on or before the Second Closing of each of the
following conditions (any one of which may be waived by Seller, but only in a
writing signed by Seller):
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9.1 Accuracy of Representations and Warranties. The representations
and warranties of REI set forth in Section 3 shall be true and accurate in every
material respect on the Second Closing Date with the same force and effect as if
they had been made at the Second Closing except to the extent the failure of the
representations and warranties to be true and accurate in such respects has not
had and could not reasonably be expected to have a Material Adverse Effect, and
Seller shall receive a certificate to that effect executed by REI's President
and Chief Financial Officer.
9.2 Compliance with Law. There shall be no order, decree or ruling
of any governmental agency or written threat thereof, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
transactions contemplated by this Agreement, which would prohibit or render
illegal the transactions contemplated by this Agreement.
10. CONDITIONS PRECEDENT TO OBLIGATIONS OF REI AT THE SECOND CLOSING.
The obligations of REI hereunder are subject to the fulfillment or
satisfaction on or before the Second Closing, of each of the following
conditions (any one or more of which may be waived by REI, but only in a writing
signed by REI).
10.1 Accuracy of Representations and Warranties. The representations
and warranties of the Seller set forth in the last sentence of Section 2.2.1,
Sections 2.3.2, 2.15, 2.18 and 2.27 shall be true and accurate on the Second
Closing Date and REI shall receive a certificate to that effect executed by
Seller.
10.2 Compliance with Law. There shall be no order, decree or ruling
by any governmental agency or written threat thereof, or any statute, rule,
regulation or order enacted, entered, enforced or deemed applicable to the
transactions contemplated by this Agreement, which would prohibit or render
illegal the transactions contemplated by this Agreement.
11. NON-COMPETITION.
11.1 Definitions. For purposes of this Section 11, the following
terms shall have the following meanings:
(a) "Customer Non-Solicitation Period" shall mean, with
respect to Seller, the period commencing on the First Closing Date and
continuing for a period of two years after the Second Closing Date; provided,
however, that the Customer Non-Solicitation Period with respect to Seller shall
be extended by the number of days in which Seller is or was engaged in
activities constituting a breach of Section 11.3.
(b) The term "Customers" shall mean, with respect to Seller,
any manager, group or division located in a specific building that, during the
year preceding the date of this Agreement, as of the date of this Agreement,
during the period from the date of this Agreement to the First Closing Date or
during the Employee Non-Solicitation Period or the Customer Non-Solicitation
Period is or was a client or customer of either Company.
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(c) The words "directly or indirectly" shall mean: (i) being
personally involved in providing or seeking to provide services to an Employee,
Customer or Prospective Customer; (ii) participating in any person or enterprise
as an owner, partner, limited partner, joint venturer, controlling member or
controlling shareholder; or (iii) communicating to any such person or enterprise
any confidential information of the business conducted by either Company during
the relevant period.
(d) "Employees" shall mean any employee of either Company as
of, or immediately prior to the date of this Agreement, during the period from
the date of this Agreement to the First Closing Date or during the Employee
Non-Solicitation Period or the Customer Non-Solicitation Period.
(e) "Employee Non-Solicitation Period" shall mean, with
respect to Seller, the period commencing on the First Closing Date and
continuing for a period of two years after the Second Closing Date; provided,
however, that the Employee Non-Solicitation Period with respect to Seller shall
be extended by the number of days in which such Seller is or was engaged in
activities constituting a breach of Section 11.2.
(f) The term "person" shall mean any natural person, firm,
partnership, association, corporation, company, limited liability company,
limited partnership, trust, business trust, Governmental Entity or other entity.
(g) The term "Prospective Customer" shall mean any manager,
group or division located in a specific building that either Company has
contacted, or has developed a strategy or plan to contact, for the purpose of
acquiring manager, group or division as a customer or client.
11.2 Non-Solicitation of Employees. Seller recognizes that the
Employees are a valuable resource of the Companies. Accordingly, during the
Employee Non-Solicitation Period, Seller shall not, either alone or in
conjunction with any other person or entity, directly or indirectly go into
business with any Employee or solicit, induce or recruit any Employee to leave
the employ of either Company or REI.
11.3 Non-Solicitation of Customers. Seller recognizes that customers
are a valuable resource of the Companies. Accordingly, during the Employee
Non-Solicitation Period, Seller shall not, either alone or in conjunction with
any other person or entity, directly or indirectly call on, solicit, take away,
accept as a client, customer or prospective client or customer, or attempt to
call on, solicit, take away, accept as a client, customer or prospective client
or customer a Customer or Prospective Customer.
11.4 Additional Agreements. Seller hereby expressly agrees and
acknowledges that:
(a) the Companies have protectable business interests with
respect to its Employees, Customers and Prospective Customers, and that
competition with and against such business interests would be harmful to the
Companies;
(b) the covenants contained in this Section 11 are
reasonable as to time and geographical area and do not place any unreasonable
burden upon Seller's ability to earn a livelihood;
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(c) the public will not be harmed as a result of enforcement
of the covenants contained in this Section 11;
(d) the personal legal counsel for Seller has reviewed the
covenants contained in this Section 11;
(e) the parties have entered into the covenants contained
herein in connection with and as a condition precedent to the consummation of
the Agreement, pursuant to which REI shall acquire the Companies; the
agreements, actions, covenants, and promises contained herein are intended to
protect and ensure the value of the Companies, including their goodwill, which
actions, covenants, and promises are a material consideration to REI in
connection with this Agreement; and, to the extent that the laws of any
jurisdiction in which this Agreement shall be interpreted, construed, and/or
enforced distinguish between covenants given in connection with the sale of a
business and its goodwill and covenants given in connection with employment,
this covenant will be given the broader interpretation customarily given to
covenants in connection with the sale of a business and the transfer of goodwill
to REI; and
(f) Seller understands and agrees to each and every term and
condition contained Section 11 of this Agreement.
11.5 Remedies; Enforceability. Seller recognizes and acknowledges
that irreparable damage will result to REI in the event of a breach by Seller or
any of Seller's affiliates of the provisions of this Section 11, and,
accordingly, in the event of such a breach, REI will be entitled, in addition to
any other legal or equitable damages and remedies to which it may be entitled or
which may be available, to an injunction to restrain the violation thereof. If
any provision of this Section 11 shall be adjudicated by a court of competent
jurisdiction to be invalid or unenforceable because of the scope, duration, area
of its applicability, or any other reason, the court making such determination
will have the power to modify such scope, duration, or area, or all of them, or
to strike an invalid or unenforceable provision, in whole or in part, to the
extent necessary to make such scope, duration, area, or provision valid and
enforceable.
12. SURVIVAL OF REPRESENTATIONS, WARRANTIES AND COVENANTS.
All representations, warranties and covenants of the parties
contained in this Agreement will remain operative and in full force and effect,
regardless of any investigation made by or on behalf of the parties to this
Agreement, until one year after the Second Closing Date, whereupon the
representations, warranties and covenants will expire (except for covenants,
such as those contained in Sections 4.1, 5.1, 7 and 11, that by their terms
survive for a longer period).
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13. SHARE REPURCHASE OPTION.
(a) If at the Second Closing REI fails to deliver to Seller the cash
consideration required by Sections 8.3(b)(i) and/or 8.3(b)(v) after Seller has
indicated his willingness and ability to deliver the remaining Shares as
required by Section 8.2(b), Seller shall have the right to repurchase the Shares
sold to REI at the First Closing for an aggregate purchase price equal to
$3,168,000 (the "Repurchase Price"). Seller shall provide REI written notice of
his intention to exercise this repurchase option (the "Repurchase Option") by no
later than the close of business on December 16, 1999. Upon the receipt of such
notice, REI shall have until the close of business on December 30, 1999 to pay
to Seller the cash consideration required by Sections 8.3(b)(i) and 8.3(b)(v).
If REI fails to pay to Seller such cash consideration and otherwise fails to
meet all other closing obligations as described in Section 8.3(b), on December
31, 1999, Seller shall repurchase the Shares for consideration equal to the
Repurchase Price. The Repurchase Price shall be payable to REI in the form of
cash, shares of Stock or a combination of cash and shares of Stock; provided,
however, that for purposes of this Section 13 each share of Stock shall be
valued at the Stock Price.
(b) If at the Second Closing REI fails to deliver to Seller the
consideration required by Sections 8.3(b)(i) and/or 8.3(b)(v) and Seller elects
not to exercise Seller's Repurchase Option, Seller and REI agree as follows:
(i) subject to subparagraph (iii) below, at such time that REI
is in the position to deliver all the consideration required by Section 8.3(b),
REI shall deliver such consideration to Seller in exchange for Seller's delivery
of the remaining Shares at a closing (the "Final Closing") to occur at such time
and place which is mutually acceptable to REI and Seller (the "Final Closing
Date");
(ii) at the Final Closing, if any, REI shall also deliver to
Seller (x) the Net Income Amount, if any, to the extent not otherwise paid to
Seller and (y) an amount equal to thirty percent (30%) of the net income of each
Company, if any, calculated in accordance with generally accepted accounting
principles for the period commencing on December 15, 1999 and ending on the day
preceding the Final Closing Date; and
(iii) if a Final Closing Date does not occur on or prior to
March 31, 2000, and the reason for such nonoccurrence is the failure of REI to
deliver all the consideration required by Section 8.3(b), then (x) Seller shall
not be obligated to sell the remaining Shares to REI, (y) the Companies will
continue to be operated as majority-owned subsidiaries of REI and (z) commencing
on June 30, 2001 and continuing on each successive June 30, REI shall cause each
Company to make a distribution to Seller, to the extent it is legally able to do
so, in an amount equal to thirty percent (30%) of the net income of each
Company, if any, calculated in accordance with generally accepted accounting
principles with respect to REI's immediately preceding fiscal year ending on
March 31 of each year; provided, however, that the distribution made on June 30,
2001, if any, shall include (1) the Net Income Amount, if any, to the extent not
otherwise paid to Seller and (2) an amount equal to thirty percent (30%) of the
net income of each Company, if any, calculated in accordance with generally
accepted accounting principles for the period commencing on December 15, 1999
and ending on March 31, 2000.
14. MISCELLANEOUS.
14.1 Governing Law. The internal laws of the State of California
(irrespective of its choice of law principles) will govern the validity of this
Agreement, the construction of its terms and the interpretation and enforcement
of the rights and duties of the parties hereto.
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14.2 Assignment; Binding Upon Successors and Assigns. No party
hereto may assign any of its rights or obligations hereunder without the prior
written consent of the other parties hereto. This Agreement will be binding upon
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns.
14.3 Severability. If any provision of this Agreement, or the
application thereof, will for any reason and to any extent be invalid or
unenforceable, the remainder of this Agreement and application of such provision
to other persons or circumstances will be interpreted so as reasonably to effect
the interest of the parties hereto. The parties further agree to replace such
void or unenforceable provision of this Agreement with a valid and enforceable
provision that will achieve, to the greatest extent possible, the economic,
business and other purpose of the void unenforceable provision.
14.4 Counterparts. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original as regards any party
whose signature appears thereon and all of which together will constitute one
and the same instrument. This Agreement will become binding when one or more
counterparts hereof, individually or taken together, will bear the signatures of
all the parties reflected hereon as signatories.
14.5 Other Remedies. Except as otherwise provided herein, any and
all remedies herein expressly conferred upon a party will be deemed cumulative
with and not exclusive of any other remedy conferred hereby or by law on such
party, and the exercise of any one remedy will not preclude the exercise of any
other.
14.6 Amendment and Waivers. Any term or provision of this Agreement
may be amended, and the observance of any term of this Agreement may be waived
(either generally or in a particular instance and either retroactively or
prospectively) only by a writing signed by the party to be bound thereby. The
waiver by a party of any breach hereof or default in the performance hereof will
not be deemed to constitute a waiver of any other default or any succeeding
breach or default.
14.7 Expenses. REI, on the one hand, and Seller, on the other, will
each bear their own expenses and legal fees incurred with respect to this
Agreement and the transactions contemplated hereby; provided, however, that REI
shall pay to Seller at or prior to the First Closing the sum of $25,000 to cover
Seller's legal fees related to the transactions contemplated hereby.
14.8 Attorneys' Fees. Should suit be brought to enforce or interpret
any part of this Agreement, the prevailing party will be entitled to recover, as
an element of the costs of suit and not as damages, reasonable attorneys' fees
to be fixed by the court (including, without limitation, costs, expenses and
fees on any appeal).
14.9 Notices. All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to the
parties at the following address (at such other address for a party as shall be
specified by like notice):
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<TABLE>
<S> <C> <C>
If to Seller or the Companies to: NetGuru Systems, Inc.
240 Bear Hill Road, Suite 1400
Waltham, Massachusetts 02451
Attention: Bharat Manglani
Telecopier: (781) 890-5990
With a copy to: Gray Cary Ware & Friedenrich LLP
4365 Executive Drive, Suite 1600
San Diego, California 92121-2189
Attention: Scott M. Stanton,Esq.
Telecopier: (619) 677-1477
If to REI to: Research Engineers, Inc.
22700 Savi Ranch Parkway
Yorba Linda, California 92887
Attention: Chief Executive Officer
Telecopier: (714) 974-4771
With a copy to: Rutan & Tucker, LLP
611 Anton Boulevard, Suite 1400
Costa Mesa, California 92626
Attention: Gregg Amber, Esq.
Telecopier: (714) 546-9035
</TABLE>
All notices and other communications shall be deemed to have been
received (a) in the case of personal delivery, on the date of delivery, (b) in
the case of a telecopy, when the party receiving the copy shall have confirmed
receipt of the communication, (c) in the case of delivery by
nationally-recognized overnight courier, on the business day following dispatch,
and (d) in the case of mailing, on the third business day following such
mailing.
14.10 Construction of Agreement. This Agreement has been negotiated
by the respective parties hereto and their attorneys and the language hereof
will not be construed for or against either party. A reference to a Section or
an Exhibit will mean a Section in, or Exhibit to, this Agreement unless
otherwise explicitly set forth. The titles and headings herein are for reference
purposes only and will not in any manner limit the construction of this
Agreement which will be considered as a whole.
14.11 No Joint Venture. Nothing contained in this Agreement will be
deemed or construed as creating a joint venture or partnership between any of
the parties to this Agreement. No party is by virtue of this Agreement
authorized as an agent, employee or legal representative of any other party. No
party will have the power to control the activities and operations of any other.
The status of the parties hereto is, and at all times will continue to be, that
of independent contractors with respect to each other. No party will have any
power or authority to bind or commit any other. No party will hold itself out as
having any authority or relationship in contravention of this Section.
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14.12 Further Assurances. Each party agrees to cooperate fully with
the other parties and to execute such further instruments, documents and
agreements and to give such further written assurances as may be reasonably
requested by any other party to evidence and reflect the transactions described
herein and contemplated hereby and to carry into effect the intents and purposes
of this Agreement.
14.13 Absence of Third Party Rights. No provisions of this Agreement
are intended, nor will be interpreted, to provide or create any third party
beneficiary rights or any other rights of any kind in any client, customer,
affiliate, shareholder or partner of any party hereto or any other person or
entity unless specifically provided otherwise herein, and, except as so
provided, all provisions hereof will be personal solely between the parties to
this Agreement.
14.14 Entire Agreement. This Agreement and the schedules and
exhibits hereto constitute the entire understanding and agreement of the parties
hereto with respect to the subject matter hereof and supersede all prior and
contemporaneous agreements or understandings, inducements or conditions, express
or implied, written or oral, between the parties with respect hereto. The
express terms hereof control and supersede any course of performance or usage of
trade inconsistent with any of the terms hereof.
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IN WITNESS WHEREOF, each of the parties has executed this Agreement as of
the date first set forth above.
COMPANIES: REI:
NetGuru Systems, Inc. Research Engineers, Inc.
By:_______________________ By:________________________
Bharat Manglani, President Jyoti Chatterjee, President
By:_______________________ By:________________________
Bharat Manglani, Secretary Wayne Blair, Secretary
NetGuru Consulting, Inc.
By:_______________________
Bharat Manglani, President
By:_______________________
Bharat Manglani, Secretary
SELLER:
Bharat Manglani
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Exhibit 2.2
EARN-OUT AGREEMENT
THIS EARN-OUT AGREEMENT is entered into this 14th day of September, 1999,
between BHARAT MANGLANI ("Manglani") and RESEARCH ENGINEERS, INC., a Delaware
corporation ("REI").
RECITALS
A. Pursuant to an Amended and Restated Stock Purchase Agreement dated
September 14, 1999 ("Purchase Agreement"), among Manglani, REI, NetGuru Systems,
Inc., a New Hampshire corporation ("NSI"), and NetGuru Consulting, Inc., a
Massachusetts corporation ("NCI"), it is a condition to closing under the
Purchase Agreement ("Closing") that Manglani and REI execute and deliver this
Agreement to each other.
B. Pursuant to the Purchase Agreement, REI will acquire all of the
outstanding capital stock of NSI and NCI.
C. The parties intend to provide for the payment of additional Purchase
Price (as that term is defined in the Purchase Agreement) to Manglani based on
the financial performance of NSI and NCI following the Closing ("Earn-Out").
AGREEMENT
1. Calculation of Earn-Out. Manglani's Earn-Out shall be based on the
combined revenues and gross profit percentage of NSI and NCI, determined as
follows:
(a) During April 2000, REI's chief financial officer will determine
the total combined revenues of NSI and NCI for the period April 1, 1999, through
March 31, 2000 ("NetGuru Revenues") and the combined gross profit percentage
(total gross profit divided by total revenues, each determined in a manner
consistent with the manner in which they were determined for purposes of audited
consolidated financial statements of NSI and NCI for the fiscal year ended
December 31, 1998, of those entities for the same period ("NetGuru Gross Profit
Percentage").
(b) If the NetGuru Revenues exceed $7,500,000 and the NetGuru Gross
Profit Percentage equals or exceeds 29%, then the Earn-Out shall be $300,000.
(c) If either the NetGuru Revenues are less than $6,750,000 or the
NetGuru Gross Profit Percentage is less than 26%, then no Earn-Out shall be due.
(d) If the NetGuru Revenues equal or exceed $6,750,000 and the
NetGuru Gross Profit Percentage equals or exceeds 26%, but one or both is less
than the figures set forth in clause (b) above, then the Earn-Out shall be
$300,000 multiplied by the percentage of the figures set forth in clause (b)
that was actually achieved (using the lower percentage). For example, if NetGuru
Revenues are $7,000,000 (which is 93.33% of $7,500,000) and the Net Guru Gross
Profit Percentage is 27% (which is 93.10% of 29%), then the Earn-Out shall be
93.10% of $300,000, or $279,300.
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2. Payment of Earn-Out. On or before April 30, 2000, REI's chief financial
officer shall deliver to Manglani a written calculation of the Earn-Out earned
(if any), together with a check representing the amount of the Earn-Out (if
any).
3. Resolution of Dispute. If Manglani disputes REI's calculation of the
Earn-Out, he shall so notify REI in writing within ten days after receipt of the
written calculation referred to in Section 2. REI and Manglani shall then submit
the matter to KPMG LLP ("KPMG"), who shall calculate the Earn-Out as described
in Section 1. KPMG shall submit its written calculation of the Earn-Out to the
parties simultaneously with its completion of its audit of REI's financial
statements for the fiscal year ended March 31, 2000. If KPMG's calculation shows
the Earn-Out to be equal to or less than the amount determined by REI, then
Manglani shall pay KPMG's fees and expenses. If KPMG's calculation shows the
Earn-Out to be greater than the amount determined by REI, then REI shall pay
KPMG's fees and expenses.
4. Conditions to Receipt of Earn-Out. In order to receive the Earn-Out,
Manglani must be continuously employed by REI or a subsidiary of REI from the
date of this Agreement through March 31, 2000, unless terminated without cause
by REI. For purposes hereof, "cause" shall mean:
(a) Manglani's conviction by, or entry of a plea of guilty or nolo
contendere in, a court of competent and final jurisdiction for any crime
involving moral turpitude or punishable by imprisonment in the jurisdiction
involved;
(b) Manglani's commission of an act of fraud, whether prior to or
subsequent to the date hereof upon REI;
(c) Manglani's continuing repeated willful failure or refusal to
perform his duties as required by this Agreement, provided, that termination of
Manglani's employment pursuant to this paragraph (c) shall not constitute valid
termination for cause unless Manglani shall have first received written notice
from the Board of Directors of REI stating with specificity the nature of such
failure or refusal and affording Manglani at least thirty (30) days to correct
the act or omission complained of; or
(d) Gross negligence, insubordination, material violation by
Manglani of any duty of loyalty to REI or any other material misconduct on the
part of Manglani, provided that termination of Manglani's employment pursuant to
this paragraph (d) shall not constitute valid termination for cause unless
Manglani shall have first received written notice from the Board of Directors of
REI stating with specificity the nature of such failure or refusal and affording
Manglani at least thirty (30) days to correct the act or omission complained of.
5. Miscellaneous.
5.1 Modification and Waiver of Breach. No waiver or modification of
this Agreement shall be binding unless it is in writing signed by the parties
hereto. No waiver of a breach hereof shall be deemed to constitute a waiver of a
future breach, whether of a similar or dissimilar nature.
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5.2 Assignment. The rights of REI under this Agreement may, without
the consent of Manglani, be assigned by REI, in its sole and unfettered
discretion (a) to any person, firm, corporation, or other business entity which
at any time, whether by purchase, merger, or otherwise, directly or indirectly,
acquires all or substantially all of the assets or business of REI, or (b) to
any subsidiary or affiliate of REI, or any transferee, whether by purchase,
merger or otherwise, which directly or indirectly acquires all or substantially
all of the assets of REI or such subsidiary or affiliate.
5.3 Notices. All notices and other communications required or
permitted under this Agreement shall be in writing, served personally on, or
mailed by certified or registered United States mail to, the party to be charged
with receipt thereof. Notices and other communications served by mail shall be
deemed given hereunder 72 hours after deposit of such notice or communication in
the United States Post Office as certified or registered mail with postage
prepaid and duly addressed to whom such notice or communication is to be given,
in the case of (a) REI, 22700 Savi Ranch Parkway, Yorba Linda, California 92887,
Attention: President, or (b) Manglani, 82 Lexington Street, Weston,
Massachusetts 02493. Any such party may change said party's address for purposes
of this Section by giving to the party intended to be bound thereby, in the
manner provided herein, a written notice of such change.
5.4 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same Agreement.
5.5 Construction of Agreement. This Agreement shall be construed
in accordance with, and governed by, the laws of the State of California
applicable to agreements executed and to be performed in California.
5.6 Complete Agreement. This Agreement contains the entire
agreement between the parties hereto with respect to the transactions
contemplated by this Agreement and supersedes all previous oral and written and
all contemporaneous oral negotiations, commitments, writings, and
understandings.
5.7 Non-Transferability of Interest. None of the rights of Manglani
to receive any form of compensation payable pursuant to this Agreement shall be
assignable or transferable except through a testamentary disposition or by the
laws of descent and distribution upon the death of Manglani. Any attempted
assignment, transfer, conveyance, or other disposition (other than as aforesaid)
of any interest in the rights of Manglani to receive any form of compensation to
be made by REI pursuant to this Agreement shall be void.
5.8 Severability. If any provision of this Agreement or
application thereof to anyone or under any circumstances is adjudicated to be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect any other provisions or applications of this
Agreement that can be given effect without the invalid or unenforceable
provision or application and shall not invalidate or render unenforceable such
provision in any other jurisdiction or under any other circumstance.
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5.9 Legal Fees. If any legal action, arbitration or other
proceeding is brought for the enforcement of this Agreement, or because of any
alleged dispute, breach, default or misrepresentation in connection with this
Agreement, the successful or prevailing party shall be entitled to recover
reasonable attorneys' fees and other costs it incurred in that action or
proceeding, in addition to any other relief to which it may be entitled.
Research Engineers, Inc.
By:______________________________
Jyoti Chatterjee, President
By:______________________________
Wayne Blair, Secretary
______________________________
Bharat Manglani
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Exhibit 2.3
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement, dated as of September 14, 1999
(this "Agreement"), between Research Engineers, Inc., a Delaware corporation,
with principal executive offices located at 22700 Savi Ranch Parkway, Yorba
Linda, CA 92887 (the "Company"), and Bharat Manglani, an individual (the
"Initial Holder").
Whereas, upon the terms and subject to the conditions of the Amended
and Restated Stock Purchase Agreement dated September 14, 1999, among the
Company, Holder, NetGuru Systems, Inc. and NetGuru Consulting, Inc. (the "Stock
Purchase Agreement"), the Company shall issue to Holder 170,635 shares (the
"Shares") of the Company's Common Stock, $.01 par value per share (the "Common
Stock"); and
Whereas, to induce the Initial Holder to execute and deliver the
Stock Purchase Agreement, the Company has agreed to provide with respect to the
Common Stock issued thereunder certain registration rights under the Securities
Act.
Now, Therefore, in consideration of the premises and the mutual
covenants contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Definitions.
(a) As used in this Agreement, the following terms shall have the
meanings:
(i) "Affiliate," of any specified Person means any other
Person who directly, or indirectly through one or more intermediaries, is
in control of, is controlled by, or is under common control with, such
specified Person. For purposes of this definition, control of a Person
means the power, directly or indirectly, to direct or cause the direction
of the management and policies of such Person whether by contract,
securities, ownership or otherwise; and the terms "controlling" and
"controlled" have the respective meanings correlative to the foregoing.
(ii) "Commission" means the Securities and Exchange
Commission.
(iii) "Current Market Price" on any date of determination
means the closing bid price of a share of the Common Stock on such day as
reported on the Nasdaq National Market ("Nasdaq"), or, if such security is
not listed or admitted to trading on the Nasdaq, on the principal national
security exchange or quotation system on which such security is quoted or
listed or admitted to trading, or, if not quoted or listed or admitted to
trading on any national securities exchange or quotation system, the
closing bid price of such security on the over-the-counter market on the
day in question as reported by the National Quotation Bureau Incorporated,
or a similar generally accepted reporting service, or if not so available,
in such manner as furnished by any Nasdaq member firm of the National
Association of Securities Dealers, Inc. selected from time to time by the
Board of Directors of the Company for that purpose, or a price determined
in good faith by the Board of Directors of the Company as being equal to
the fair market value thereof, as the case may be.
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(iv) "Exchange Act" means the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission thereunder, or
any similar successor statute.
(v) "Holders" means Bharat Manglani and any transferee or
assignee of Registrable Securities who agrees to become bound by all of
the terms and provisions of this Agreement in accordance with Section 8
hereof.
(vi) "Person" means any individual, partnership, corporation,
limited liability company, joint stock company, association, trust,
unincorporated organization, or a government or agency or political
subdivision thereof.
(vii) "Prospectus" means the prospectus (including, without
limitation, any preliminary prospectus and any final prospectus filed
pursuant to Rule 424(b) under the Securities Act, including any prospectus
that discloses information previously omitted from a prospectus filed as
part of an effective registration statement in reliance on Rule 430A under
the Securities Act) included in the Registration Statement, as amended or
supplemented by any prospectus supplement with respect to the terms of the
offering of any portion of the Registrable Securities covered by the
Registration Statement and by all other amendments and supplements to such
prospectus, including all material incorporated by reference in such
prospectus and all documents filed after the date of such prospectus by
the Company under the Exchange Act and incorporated by reference therein.
(viii) "Public Offering" means an offer registered with the
Commission and the appropriate state securities commissions by the Company
of its Common Stock and made pursuant to the Securities Act.
(ix) "Registrable Securities" means the Shares; provided,
however, that a share of Common Stock shall cease to be a Registrable
Security for purposes of this Agreement when it no longer is a Restricted
Security.
(x) "Registration Statement" means a registration statement of
the Company filed on an appropriate form under the Securities Act
providing for the registration of, and the sale on a continuous or delayed
basis by the holders of, all of the Registrable Securities pursuant to
Rule 415 under the Securities Act, including the Prospectus contained
therein and forming a part thereof, any amendments to such registration
statement and supplements to such Prospectus, and all exhibits and other
material incorporated by reference in such registration statement and
Prospectus.
(xi) "Restricted Security" means the Shares except any such
share that (i) has been registered pursuant to an effective registration
statement under the Securities Act and sold in a manner contemplated by
the prospectus included in such registration statement, (ii) has been
transferred in compliance with the resale provisions of Rule 144 under the
Securities Act (or any successor provision thereto) or is transferable
pursuant to paragraph (k) of Rule 144 under the Securities Act (or any
successor provision thereto), or (iii) otherwise has been transferred and
a new share of Common Stock not subject to transfer restrictions under the
Securities Act has been delivered by or on behalf of the Company.
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(xii) "Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations of the Commission thereunder, or
any similar successor statute.
(b) All capitalized terms used and not defined herein have the
respective meaning assigned to them in the Securities Purchase Agreement.
2. Registration.
(a) Filing and Effectiveness of Registration Statement. The Company
shall prepare and file with the Commission not later than 30 days after the date
hereof, a Registration Statement relating to the offer and sale of the
Registrable Securities. The Company shall use its best efforts to cause the
Commission to declare such Registration Statement effective under the Securities
Act as promptly as practicable but not later than 150 days after the date
hereof. At such time after the filing of the Registration Statement pursuant to
this Section 2(a) as the Commission indicates, either orally or in writing, that
it has no further comments with respect to such Registration Statement or that
it is willing to entertain appropriate requests for acceleration of
effectiveness of such Registration Statement, the Company shall promptly, and in
no event later than two business days after receipt of such indication from the
Commission, request that the effectiveness of such Registration Statement be
accelerated within 48 hours of the Commission's receipt of such request. The
Holders acknowledge and agree that the Company may include in the Registration
Statement shares of Common Stock to be registered by the Company pursuant to (i)
that certain Registration Rights Agreement of even date herewith between the
Company and The Shaar Fund, L.P. (the "Shaar Fund"), (ii) that certain
Registration Rights Agreement of even date herewith between the Company and The
Triton Private Equities Fund, L.P. (the "Triton Fund") and (iii) that certain
Representative's Warrant Agreement dated as of July 31, 1996 between the Company
and Cruttenden Roth Incorporated ("Cruttenden Roth") (collectively, the
"Third-Party Registration Rights Agreements"). The Company shall notify the
Holders by written notice that such Registration Statement has been declared
effective by the Commission within 24 hours of such declaration by the
Commission.
(b) Eligibility for Use of Form S-3. The Company agrees that at such
time as it meets all the requirements for the use of Securities Act Registration
Statement on Form S-3 it shall file all reports and information required to be
filed by it with the Commission in a timely manner and take all such other
action so as to maintain such eligibility for the use of such form.
(c) (i) If the Company proposes to register any of its warrants,
Common Stock or any other shares of common stock of the Company under the
Securities Act (other than a registration (A) on Form S-8 or S-4 or any
successor or similar forms, (B) relating to Common Stock or any other shares of
common stock of the Company issuable upon exercise of employee share options or
in connection with any employee benefit or similar plan of the Company or (C) in
connection with a direct or indirect acquisition by the Company of another
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Person or any transaction with respect to which Rule 145 (or any successor
provision) under the Securities Act applies), whether or not for sale for its
own account, it will each such time, give prompt written notice at least 20 days
prior to the anticipated filing date of the registration statement relating to
such registration to the Holders, which notice shall set forth each such
Holder's rights under this Section 2(c) and shall offer the Holders the
opportunity to include in such registration statement such number of Registrable
Securities as the Holders may request. Upon the written request of a Holder made
within 10 days after the receipt of notice from the Company (which request shall
specify the number of Registrable Securities intended to be disposed of by such
Holder), the Company will use its best efforts to effect the registration under
the Securities Act of all Registrable Securities that the Company has been so
requested to register by such Holder, to the extent requisite to permit the
disposition of the Registrable Securities so to be registered; provided,
however, that if, at any time after giving written notice of its intention to
register any Registrable Securities pursuant to this Section 2 and prior to the
effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register such
Registrable Securities, the Company shall give written notice to the Holders
and, thereupon, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration. The Company's obligations under
this Section 2(c) shall terminate on the date that the registration statement to
be filed in accordance with Section 2(a) is declared effective by the
Commission.
(ii) If a registration pursuant to this Section 2(c) involves a
Public Offering and the managing underwriter thereof advises the Company that,
in its view, the number of shares of Common Stock that the Company and the
Holders intend to include in such registration exceeds the largest number of
shares of Common Stock that can be sold without having an adverse effect on such
Public Offering (the "Maximum Offering Size"), the Company will include in such
registration, only that number of shares of Common Stock such that the number of
shares of Registrable Securities registered does not exceed the Maximum Offering
Size, with the difference between the number of shares in the Maximum Offering
Size and the number of shares to be issued by the Company to be allocated (after
including all shares to be issued and sold by the Company, the Shaar Fund, the
Triton Fund and Cruttenden Roth), first, among the Company, the Shaar Fund, the
Triton Fund and Cruttenden Roth pro rata on the basis of the relative number of
shares of Common Stock or Warrants (as defined in each of the Third-Party
Registration Rights Agreements) offered for sale under such registration by each
of the Company, the Shaar Fund, the Triton Fund and Cruttenden Roth, and second,
to the Holders pro rata on the basis of the relative number of shares of Common
Stock offered for sale under such registration by the Holders.
If as a result of the proration provisions of this Section 2(c)(ii),
any Holder is not entitled to include all such Registrable Securities in such
registration, such Holder may elect to withdraw its request to include any
Registrable Securities in such registration. With respect to registrations
pursuant to this Section 2(c), the number of securities required to satisfy any
underwriters' over-allotment option shall be allocated on the basis set forth in
the first sentence of this Section 2(c)(ii).
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3. Obligations of the Company.
In connection with the registration of the Registrable Securities,
the Company shall:
(a) Promptly (i) prepare and file with the Commission such
amendments (including post-effective amendments) to the Registration Statement
and supplements to the Prospectus as may be necessary to keep the Registration
Statement continuously effective and in compliance with the provisions of the
Securities Act applicable thereto so as to permit the Prospectus forming part
thereof to be current and useable by Holders for resales of the Registrable
Securities for a period of two years from the date on which the Registration
Statement is first declared effective by the Commission (the "Effective Time")
or such shorter period that will terminate when all the Registrable Securities
covered by the Registration Statement have been sold pursuant thereto in
accordance with the plan of distribution provided in the Prospectus, transferred
pursuant to Rule 144 under the Securities Act or otherwise transferred in a
manner that results in the delivery of new securities not subject to transfer
restrictions under the Securities Act (the "Registration Period") and (ii) take
all lawful action such that each of (A) the Registration Statement and any
amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, not misleading and
(B) the Prospectus forming part of the Registration Statement, and any amendment
or supplement thereto, does not at any time during the Registration Period
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Notwithstanding the foregoing provisions of this Section 3(a), the Company may,
during the Registration Period, suspend the use of the Prospectus for a period
not to exceed 60 days (whether or not consecutive) in any 12-month period if the
Board of Directors of the Company determines in good faith that because of valid
business reasons, including pending mergers or other business combination
transactions, the planned acquisition or divestiture of assets, pending material
corporate developments and similar events, it is in the best interests of the
Company to suspend such use, and prior to or contemporaneously with suspending
such use the Company provides the Holders with written notice of such
suspension, which notice need not specify the nature of the event giving rise to
such suspension. At the end of any such suspension period, the Company shall
provide the Holders with written notice of the termination of such suspension;
(b) During the Registration Period, comply with the provisions of
the Securities Act with respect to the Registrable Securities of the Company
covered by the Registration Statement until such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of
disposition by any Holder as set forth in the Prospectus forming part of the
Registration Statement;
(c) (i) Prior to the filing with the Commission of any Registration
Statement (including any amendments thereto) and the distribution or delivery of
any Prospectus (including any supplements thereto), provide (A) draft copies
thereof to the Holders and reflect in such documents all such comments as the
Holders (and their counsel) reasonably may propose and (B) to the Holders a copy
of the accountant's consent letter to be included in the filing and (ii) furnish
to each of the Holders whose Registrable Securities are included in the
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Registration Statement and its legal counsel identified to the Company, (A)
promptly after the same is prepared and publicly distributed, filed with the
Commission, or received by the Company, one copy of the Registration Statement,
each Prospectus, and each amendment or supplement thereto, and (B) such number
of copies of the Prospectus and all amendments and supplements thereto and such
other documents, as such Holder may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Holder;
(d) (i) Register or qualify the Registrable Securities covered by
the Registration Statement under such securities or "blue sky" laws of such
jurisdictions as the Holders who hold a majority-in-interest of the Registrable
Securities being offered reasonably request, (ii) prepare and file in such
jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof at all times during the Registration Period,
(iii) take all such other lawful actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the Registration
Period, and (iv) take all such other lawful actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (A) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (B) subject itself to general taxation in any such jurisdiction or
(C) file a general consent to service of process in any such jurisdiction;
(e) As promptly as practicable after becoming aware of such event,
notify each of the Holders of the occurrence of any event, as a result of which
the Prospectus included in the Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made, not misleading, and
promptly prepare an amendment to the Registration Statement and supplement to
the Prospectus to correct such untrue statement or omission, and deliver a
number of copies of such supplement and amendment to each of the Holders as such
Holder may reasonably request;
(f) As promptly as practicable after becoming aware of such event,
notify each of the Holders who holds Registrable Securities being sold (or, in
the event of an underwritten offering, the managing underwriters) of the
issuance by the Commission of any stop order or other suspension of the
effectiveness of the Registration Statement at the earliest possible time and
take all lawful action to effect the withdrawal, recession or removal of such
stop order or other suspension;
(g) Cause all the Registrable Securities covered by the Registration
Statement to be listed on the principal national securities exchange, and
included in an inter-dealer quotation system of a registered national securities
association, on or in which securities of the same class or series issued by the
Company are then listed or included;
(h) Maintain a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date of the
Registration Statement;
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(i) Cooperate with the Holders who hold Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates for
the Registrable Securities to be offered pursuant to the registration statement
and enable such certificates for the Registrable Securities to be in such
denominations or amounts, as the case may be, as the Holders reasonably may
request and registered in such names as the Holder may request; and, within
three business days after a registration statement which includes Registrable
Securities is declared effective by the Commission, deliver and cause legal
counsel selected by the Company to deliver to the transfer agent for the
Registrable Securities (with copies to the Holders whose Registrable Securities
are included in such registration statement) an appropriate instruction and, to
the extent necessary, an opinion of such counsel;
(j) Take all such other lawful actions reasonably necessary to
expedite and facilitate the disposition by the Holders of their Registrable
Securities in accordance with the intended methods therefor provided in the
Prospectus which are customary under the circumstances;
(k) Make generally available to its security holders as soon as
practicable, but in any event not later than three (3) months after (i) the
effective date (as defined in Rule 158(c) under the Securities Act) of the
Registration Statement, and (ii) the effective date of each post-effective
amendment to the Registration Statement, as the case may be, an earnings
statement of the Company and its subsidiaries complying with Section 11(a) of
the Securities Act and the rules and regulations of the Commission thereunder
(including, at the option of the Company, Rule 158);
(1) In the event of an underwritten offering, promptly include or
incorporate in a Prospectus supplement or post-effective amendment to the
Registration Statement such information as the managers reasonably agree should
be included therein and to which the Company does not reasonably object and make
all required filings of such Prospectus supplement or post-effective amendment
as soon as practicable after it is notified of the matters to be included or
incorporated in such Prospectus supplement or post-effective amendment;
(m) (i) Make reasonably available for inspection by Holders, any
underwriter participating in any disposition pursuant to the Registration
Statement, and any attorney, accountant or other agent retained by such Holders
or any such underwriter all relevant financial and other records, pertinent
corporate documents and properties of the Company and its subsidiaries, and (ii)
cause the Company's officers, directors and employees to supply all information
reasonably requested by such Holders or any such underwriter, attorney,
accountant or agent in connection with the Registration Statement, in each case,
as is customary for similar due diligence examinations; provided, however, that
all records, information and documents that are designated in writing by the
Company, in good faith, as confidential, proprietary or containing any material
nonpublic information shall be kept confidential by such Holders and any such
underwriter, attorney, accountant or agent (pursuant to an appropriate
confidentiality agreement in the case of any such holder or agent), unless such
disclosure is made pursuant to judicial process in a court proceeding (after
first giving the Company an opportunity promptly to seek a protective order or
otherwise limit the scope of the information sought to be disclosed) or is
required by law, or such records, information or documents become available to
the public generally or through a third party not in violation of an
accompanying obligation of confidentiality; and provided, further, that, if the
foregoing inspection and information gathering would otherwise disrupt the
Company's conduct of its business, such inspection and information gathering
shall, to the maximum extent possible, be coordinated on behalf of the Holders
and the other parties entitled thereto by one firm of counsel designed by and on
behalf of the majority in interest of Holders and other parties;
7
<PAGE>
(n) In connection with any underwritten offering, make such
representations and warranties to the Holders participating in such underwritten
offering and to the managers, in form, substance and scope as are customarily
made by the Company to underwriters in secondary underwritten offerings;
(o) In connection with any underwritten offering, obtain opinions of
counsel to the Company (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the managers) addressed to the
underwriters, covering such matters as are customarily covered in opinions
requested in secondary underwritten offerings (it being agreed that the matters
to be covered by such opinions shall include, without limitation, as of the date
of the opinion and as of the Effective Time of the Registration Statement or
most recent post-effective amendment thereto, as the case may be, the absence
from the Registration Statement and the Prospectus, including any documents
incorporated by reference therein, of an untrue statement of a material fact or
the omission of a material fact required to be stated therein or necessary to
make the statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading, subject to customary
limitations);
(p) In connection with any underwritten offering, obtain "cold
comfort" letters and updates thereof from the independent public accountants of
the Company (and, if necessary, from the independent public accountants of any
subsidiary of the Company or of any business acquired by the Company, in each
case for which financial statements and financial data are, or are required to
be, included in the Registration Statement), addressed to each underwriter
participating in such underwritten offering (if such underwriter has provided
such letter, representations or documentation, if any, required for such cold
comfort letter to be so addressed), in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
secondary underwritten offerings;
(q) In connection with any underwritten offering, deliver such
documents and certificates as may be reasonably required by the managers, if
any; and
(r) In the event that any broker-dealer registered under the
Exchange Act shall be an "Affiliate" (as defined in Rule 2729(b)(1) of the rules
and regulations of the National Association of Securities Dealers, Inc. (the
"NASD Rules") (or any successor provision thereto)) of the Company or has a
"conflict of interest" (as defined in Rule 2720(b)(7) of the NASD Rules (or any
successor provision thereto)) and such broker-dealer shall underwrite,
participate as a member of an underwriting syndicate or selling group or assist
in the distribution of any Registrable Securities covered by the Registration
Statement, whether as a holder of such Registrable Securities or as an
underwriter, a placement or sales agent or a broker or dealer in respect
thereof, or otherwise, the Company shall assist such broker-dealer in complying
with the requirements of the NASD Rules, including, without limitation, by (A)
engaging a "qualified independent underwriter" (as defined in Rule 2720(b)(15)
of the NASD Rules (or any successor provision thereto)) to participate in the
preparation of the Registration Statement relating to such Registrable
Securities, to exercise usual standards of due diligence in respect thereof and
to recommend the public offering price of such Registrable Securities, (B)
indemnifying such qualified independent underwriter to the extent of the
indemnification of underwriters provided in Section 5 hereof, and (C) providing
such information to such broker-dealer as may be required in order for such
broker-dealer to comply with the requirements of the NASD Rules.
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<PAGE>
4. Obligations of the Holders.
In connection with the registration of the Registrable Securities,
the Holders shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Holder that such Holder shall furnish
to the Company such information regarding itself, the Registrable Securities
held by it and the intended method of disposition of the Registrable Securities
held by it as shall be reasonably required to effect the registration of such
Registrable Securities and shall execute such documents in connection with such
registration as the Company may reasonably request. As least seven days prior to
the first anticipated filing date of the Registration Statement, the Company
shall notify each Holder of the information the Company requires from each such
Holder (the "Requested Information") if such Holder elects to have any of its
Registrable Securities included in the Registration Statement. If at least two
business days prior to the anticipated filing date the Company has not received
the Requested Information from a Holder (a "Non-Responsive Holder"), then the
Company may file the Registration Statement without including Registrable
Securities of such Non-Responsive Holder and have no further obligations to the
Non-Responsive Holder;
(b) Each Holder by its acceptance of the Registrable Securities
agrees to cooperate with the Company in connection with the preparation and
filing of the Registration Statement hereunder, unless such Holder has notified
the Company in writing of its election to exclude all of its Registrable
Securities from the Registration Statement; and
(c) Each Holder agrees that, upon receipt of any notice from the
Company of the occurrence of any event of the kind described in Section 3(e) or
3(f), it shall immediately discontinue its disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such Holder's receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 3(e) and, if so directed by the Company, such
Holder shall deliver to the Company (at the expense of the Company) or destroy
(and deliver to the Company a certificate of destruction) all copies in such
Holder's possession, of the Prospectus covering such Registrable Securities
current at the time of receipt of such notice.
5. Expenses of Registration.
All expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Section 3, but including, without limitation, all registration, listing, and
qualifications fees, printing and engraving fees, accounting fees, and the fees
and disbursements of counsel for the Company, and the reasonable fees of one
firm of counsel to the holders of a majority in interest of the Registrable
Securities shall be borne by the Company.
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<PAGE>
6. Indemnification and Contribution.
(a) The Company shall indemnify and hold harmless each Holder and
each underwriter, if any, which facilitates the disposition of Registrable
Securities, and each of their respective officers and directors and each person
who controls such Holder or underwriter within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act (each such person being
sometimes hereinafter referred to as an "Indemnified Person") from and against
any losses, claims, damages or liabilities, joint or several, to which such
Indemnified Person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement or an
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, not misleading, or
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any Prospectus or an omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and the Company hereby agrees to
reimburse such Indemnified Person for all reasonable legal and other expenses
incurred by them in connection with investigating or defending any such action
or claim as and when such expenses are incurred; provided, however, that the
Company shall not be liable to any such Indemnified Person in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon (i) an untrue statement or alleged untrue statement made in, or an
omission or alleged omission from, such Registration Statement or Prospectus in
reliance upon and in conformity with written information furnished to the
Company by such Indemnified Person expressly for use therein or (ii) in the case
of the occurrence of an event of the type specified in Section 3(e), the use by
the Indemnified Person of an outdated or defective Prospectus after the Company
has provided to such Indemnified Person an updated Prospectus correcting the
untrue statement or alleged untrue statement or omission or alleged omission
giving rise to such loss, claim, damage or liability.
(b) Indemnification by the Holders and Underwriters. Each Holder
agrees, as a consequence of the inclusion of any of its Registrable Securities
in a Registration Statement, and each underwriter, if any, which facilitates the
disposition of Registrable Securities shall agree, as a consequence of
facilitating such disposition of Registrable Securities, severally and not
jointly, to (i) indemnify and hold harmless the Company, its directors
(including any person who, with his or her consent, is named in the Registration
Statement as a director nominee of the Company), its officers who sign any
Registration Statement and each person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, against any losses, claims, damages or liabilities to which the
Company or such other persons may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in such Registration Statement or
Prospectus or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein (in light of the circumstances under which they were
made, in the case of the Prospectus), not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such holder or
underwriter expressly for use therein; provided, however, that no Holder or
underwriter shall be liable under this Section 6(b) for any amount in excess of
the net proceeds paid to such Holder or underwriter in respect of shares sold by
it, and (ii) reimburse the Company for any legal or other expenses incurred by
the Company in connection with investigating or defending any such action or
claim as such expenses are incurred.
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<PAGE>
(c) Notice of Claims, etc. Promptly after receipt by a party seeking
indemnification pursuant to this Section 6 (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Section 6 is being sought (the "Indemnifying Party") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party,
except to the extent that the Indemnifying Party is materially prejudiced and
forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim as to which both the Indemnifying Party and the
Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees, costs
and expenses, (y) the Indemnified Party and the Indemnifying Party shall
reasonably have concluded that representation of the Indemnified Party by the
Indemnifying Party by the same legal counsel would not be appropriate due to
actual or, as reasonably determined by legal counsel to the Indemnified Party,
potentially differing interests between such parties in the conduct of the
defense of such Claim, or if there may be legal defenses available to the
Indemnified Party that are in addition to or disparate from those available to
the Indemnifying Party, or (z) the Indemnifying Party shall have failed to
employ legal counsel reasonably satisfactory to the Indemnified Party within a
reasonable period of time after notice of the commencement of such Claim. If the
Indemnified Party employs separate legal counsel in circumstances other than as
described in clauses (x), (y) or (z) above, the fees, costs and expenses of such
legal counsel shall be borne exclusively by the Indemnified Party. Except as
provided above, the Indemnifying Party shall not, in connection with any Claim
in the same jurisdiction, be liable for the fees and expenses of more than one
firm of counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnified Party shall not, without the prior written consent of
the Indemnifying Party (which consent shall not unreasonably be withheld),
settle or compromise any Claim or consent to the entry of any judgment that does
not include an unconditional release of the Indemnifying Party from all
liabilities with respect to such Claim or judgment.
(d) Contribution. If the indemnification provided for in this
Section 6 is unavailable to or insufficient to hold harmless an Indemnified
Person under subsection (a) or (b) above in respect of any losses, claims,
damages or liabilities (or actions in respect thereof) referred to therein, then
each Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and the Indemnified Party in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative fault of such Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
such Indemnifying Party or by such Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 6(d) were determined by
pro rata allocation (even if the Holders or any underwriters were treated as one
entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in this Section 6(d).
11
<PAGE>
The amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
shall be deemed to include any legal or other fees or expenses reasonably
incurred by such Indemnified Party in connection with investigating or defending
any such action or claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The obligations of the Holders and any underwriters in this
Section 6(d) to contribute shall be several in proportion to the percentage of
Registrable Securities registered or underwritten, as the case may be, by them
and not joint.
(e) Notwithstanding any other provision of this Section 6, in no
event shall any (i) Holder be required to undertake liability to any person
under this Section 6 for any amounts in excess of the dollar amount of the
proceeds to be received by such Holder from the sale of such Holder's
Registrable Securities (after deducting any fees, discounts and commissions
applicable thereto) pursuant to any Registration Statement under which such
Registrable Securities are to be registered under the Securities Act and (ii)
underwriter be required to undertake liability to any Person hereunder for any
amounts in excess of the aggregate discount, commission or other compensation
payable to such underwriter with respect to the Registrable Securities
underwritten by it and distributed pursuant to the Registration Statement.
(f) The obligations of the Company under this Section 6 shall be in
addition to any liability which the Company may otherwise have to any
Indemnified Person and the obligations of any Indemnified Person under this
Section 6 shall be in addition to any liability which such Indemnified Person
may otherwise have to the Company. The remedies provided in this Section 6 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to an indemnified party at law or in equity.
7. Rule 144.
With a view to making available to the Holders the benefits of Rule
144 under the Securities Act or any other similar rule or regulation of the
Commission that may at any time permit the Holders to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to
use its best efforts to:
(a) comply with the provisions of paragraph (c) (1) of Rule
144; and
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<PAGE>
(b) file with the Commission in a timely manner all reports and
other documents required to be filed by the Company pursuant to Section 13 or
15(d) under the Exchange Act; and, if at any time it is not required to file
such reports but in the past had been required to or did file such reports, it
will, upon the request of any Holder, make available other information as
required by, and so long as necessary to permit sales of, its Registrable
Securities pursuant to Rule 144.
8. Assignment.
The rights to have the Company register Registrable Securities
pursuant to this Agreement shall be automatically assigned by the Holders to any
permitted transferee of all or any portion of such securities only if: (a) the
Holder agrees in writing with the transferee or assignee to assign such rights,
and a copy of such agreement is furnished to the Company within a reasonable
time after such assignment, (b) the Company is, within a reasonable time after
such transfer or assignment, furnished with written notice of (i) the name and
address of such transferee or assignee and (ii) the securities with respect to
which such registration rights are being transferred or assigned, (c)
immediately following such transfer or assignment, the securities so transferred
or assigned to the transferee or assignee constitute Restricted Securities, and
(d) at or before the time the Company received the written notice contemplated
by clause (b) of this sentence the transferee or assignee agrees in writing with
the Company to be bound by all of the provisions contained herein.
9. Amendment and Waiver.
Any provision of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Holders who hold a majority-in-interest of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 9 shall be binding
upon each Holder and the Company.
10. Miscellaneous.
(a) A person or entity shall be deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) If, after the date hereof and prior to the Commission declaring
the Registration Statement to be filed pursuant to Section 2(a) effective under
the Securities Act, the Company grants to any Person any registration rights
with respect to any Company securities which are more favorable to such other
Person than those provided in this Agreement, then the Company forthwith shall
grant (by means of an amendment to this Agreement or otherwise) identical
registration rights to all Holders hereunder.
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<PAGE>
(c) Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or, if mailed,
three days after the date of deposit in the United States mails, as follows:
<TABLE>
<S> <C>
(i) if to the Company, to:
Research Engineers, Inc.
22700 Savi Ranch Parkway
Yorba Linda, CA 92887
Attention: Chief Executive Officer
(714) 974-2500
(714) 974-4881 (Fax)
with a copy to:
Rutan & Tucker, LLP
611 Anton Boulevard
Suite 1400
Costa Mesa, CA 92626
Attention: Gregg Amber, Esq.
(714) 641-3425
(714) 546-9035 (Fax)
(ii) if to the Initial Holder, to:
Bharat Manglani
82 Lexington Street
Weston, MA 02493
(781) 890-5990 (Fax)
with a copy to:
Gray Cary Ware & Friedenrich LLP
4365 Executive Drive
Suite 1600
San Diego, CA 92121-2189
Attention: Scott M. Stanton, Esq.
(619) 699-2700 x1493
(619) 677-1477 (Fax)
</TABLE>
(iii) if to any other Holder, at such address as such Holder
shall have provided in writing to the Company.
14
<PAGE>
The Company, the Initial Holder or any Holder may change the foregoing address
by notice given pursuant to this Section 10(c).
(d) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(e) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of California. Each of the parties
consents to the jurisdiction of the federal courts whose districts encompass any
part of Orange County, California or the state courts of the State of California
sitting in Orange County, California in connection with any dispute arising
under this Agreement and hereby waives, to the maximum extent permitted by law,
any objection including any objection based on forum non conveniens, to the
bringing of any such proceeding in such jurisdictions.
(f) The remedies provided in this Agreement are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(g) This Agreement supersedes all prior agreements and undertakings
among the parties hereto with respect to the subject matter hereof.
(h) Subject to the requirements of Section 8 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
(i) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(j) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning thereof.
(k) The Company acknowledges that any failure by the Company to
perform its obligations under Section 3, or any delay in such performance could
result in direct damages to the Holders and the Company agrees that, in addition
to any other liability the Company may have by reason of any such failure or
delay, the Company shall be liable for all direct damages caused by such failure
or delay.
(l) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. A facsimile transmission of this signed Agreement shall be
legal and binding on all parties hereto.
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<PAGE>
In Witness Whereof, the parties have caused this Agreement to be
duly executed and delivered as of the date first above written.
Research Engineers, Inc.
By:
Name: Jyoti Chatterjee
Title: President
Bharat Manglani
16
<PAGE>
Exhibit 2.4
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement, dated as of September 14, 1999,
between Research Engineers, Inc., a Delaware corporation with principal
executive offices located at 22700 Savi Ranch Parkway, Yorba Linda, California
92887 (the "Company"), and The Shaar Fund Ltd. ("Buyer").
Whereas, Buyer desires to purchase from the Company, and the Company
desires to issue and sell to the Buyer, upon the terms and subject to the
conditions of this Agreement, (i) 300,000 shares of the Company's Series B 5%
Convertible Preferred Stock, par value $0.01 per share (collectively, the
"Preferred Shares"), and (ii) Common Stock Purchase Warrants in the form
attached hereto as Exhibit A (collectively, the "Warrants");
Whereas, upon the terms and subject to the designations, preferences
and rights set forth in the Company's Certificate of Designation of Series B 5%
Convertible Preferred Stock in the form attached hereto as Exhibit B (the
"Certificate of Designation"), the Preferred Shares are convertible into shares
of the Company's common stock, par value $0.01 per share (the "Common Stock");
Whereas, the Warrants, upon the terms and subject to the conditions
in the Warrants, will for a period of five years be exercisable to purchase
40,000 shares of Common Stock;
Now, Therefore, in consideration of the premises and the mutual
covenants contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
I. Purchase and Sale of Preferred Shares and Warrants
A. Transaction. Buyer hereby agrees to purchase from the Company,
and the Company has offered and hereby agrees to issue and sell to the Buyer in
a transaction exempt from the registration and prospectus delivery requirements
of the Securities Act of 1933, as amended (the "Securities Act"), the Preferred
Shares and the Warrants to purchase 40,000 shares of Common Stock.
B. Purchase Price; Form of Payment. The purchase price for the
Preferred Shares and the Warrants to be purchased by Buyer hereunder shall be
$2,100,000 (the "Purchase Price"). Buyer shall pay the Purchase Price by wire
transfer of immediately available funds to the escrow agent (the "Escrow Agent")
identified in those certain Escrow Instructions of even date herewith, a copy of
which is attached hereto as Exhibit C (the "Escrow Instructions").
Simultaneously with the execution of this Agreement and against receipt by the
Escrow Agent of the Purchase Price, the Company shall deliver one or more duly
authorized, issued and executed certificates (I/N/O Buyer or, if the Company
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<PAGE>
otherwise has been notified, I/N/O Buyer's nominee) evidencing the Preferred
Shares and the Warrants which the Buyer is purchasing, to the Escrow Agent or
its designated depository. By executing and delivering this Agreement, Buyer and
the Company each hereby agrees to observe the terms and conditions of the Escrow
Instructions, all of which are incorporated herein by reference as if fully set
forth herein.
C. Method of Payment. Payment into escrow of the Purchase
Price shall be made by wire transfer of immediately available funds to:
The Bank of New York
48 Wall Street
New York, NY 10038
ABA No.: 021000018
For the Account of: Cadwalader, Wickersham & Taft
Trust Account IOLA Fund
Account No.: 0902061070
Simultaneously with the execution of this Agreement, the Buyer shall deposit
with the Escrow Agent the Purchase Price and the Company shall deposit with the
Escrow Agent the Preferred Shares and the Warrants.
II. Buyer's Representations, Warranties; Access to
Information; Independent Investigation
Buyer represents and warrants to and covenants and agrees with the
Company as follows:
A. Buyer is purchasing the Preferred Shares, the Warrants, the
Common Stock issuable upon exercise of the Warrants (the "Warrant Shares") and
the shares of Common Stock issuable upon conversion of the Preferred Shares (the
"Conversion Shares" and, collectively with the Preferred Shares, the Warrants
and the Warrant Shares, the "Securities") for its own account, for investment
purposes only and not with a view towards or in connection with the public sale
or distribution thereof in violation of the Securities Act.
B. Buyer is (i) an "accredited investor" within the meaning of Rule
501 of Regulation D under the Securities Act, (ii) experienced in making
investments of the kind contemplated by this Agreement, (iii) capable, by reason
of its business and financial experience, of evaluating the relative merits and
risks of an investment in the Securities, and (iv) able to afford the loss of
its investment in the Securities.
C. Buyer understands that the Securities are being offered and sold
by the Company in reliance on an exemption from the registration requirements of
the Securities Act and equivalent state securities and "blue sky" laws, and that
the Company is relying upon the accuracy of, and Buyer's compliance with,
Buyer's representations, warranties and covenants set forth in this Agreement to
determine the availability of such exemption and the eligibility of Buyer to
purchase the Securities;
2
<PAGE>
D. Buyer understands that the Securities have not been approved or
disapproved by the Securities and Exchange Commission (the "Commission") or any
state securities commission and that the foregoing authorities have not reviewed
any documents or instruments in connection with the offer and sale to it of the
Securities and have not confirmed or determined the adequacy or accuracy of any
such documents or instruments.
E. This Agreement has been duly and validly authorized, executed and
delivered by Buyer and is a valid and binding agreement of Buyer enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and except as rights to
indemnity and contribution may be limited by federal or state securities laws or
the public policy underlying such laws.
F. Neither Buyer nor its affiliates nor any person acting on its or
their behalf has the intention of entering, or will enter into, prior to the
closing or at any time during which it or they own any of the Securities, any
put option, short position or other similar instrument or position with respect
to the Common Stock and neither Buyer nor any of its affiliates nor any person
acting on its or their behalf will use at any time shares of Common Stock
acquired pursuant to this Agreement to settle any put option, short position or
other similar instrument or position that may have been entered into prior to
the execution of this Agreement; provided, however, that nothing in this Section
II.F shall operate to forbid Buyer or any of its affiliates or any person acting
on its or their behalf from selling, or entering into any other transaction with
respect to, the Common Stock contemporaneously with or following such date and
time as the Person or Persons in whose name or names the Common Stock Delivered
at Conversion shall be issuable shall be deemed to have become the holder or
holders of record of the Common Shares represented thereby and all voting and
other rights associated with the beneficial ownership of such Common Shares
shall have vested with such Person or Persons.
III. The Company's Representations
The Company represents and warrants to Buyer that:
A. Capitalization.
1. The authorized capital stock of the Company consists of:
(i) 20,000,000 shares of Common Stock, of which 5,764,396 shares are
issued and outstanding on the date hereof; and (ii) 5,000,000 shares of
"blank check" preferred stock, of which no shares are issued and
outstanding on the date hereof. All of the issued and outstanding shares
of Common Stock and preferred stock, if any, have been duly authorized and
validly issued and are fully paid and nonassessable. As of the date
hereof, the Company has outstanding 950,364 stock options and warrants to
purchase shares of Common Stock. The Conversion Shares and Warrant Shares
have been duly and validly authorized and reserved for issuance by the
Company, and when issued by the Company upon conversion of, or in lieu of
accrued dividends on, the Preferred Shares and on exercise of the Warrants
will be duly and validly issued, fully paid and nonassessable and will not
subject the holder thereof to personal liability by reason of being such
holder. There are no preemptive, subscription, "call" or other similar
rights to acquire the Common Stock (including the Conversion Shares and
Warrant Shares) that have been issued or granted to any person, except as
disclosed on Schedule III.A.1. hereto or otherwise previously disclosed in
writing to Buyer.
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2. Except as disclosed on Schedule III.A.2. hereto, the
Company does not own or control, directly or indirectly, any interest in
any other corporation, partnership, limited liability company,
unincorporated business organization, association, trust or other business
entity.
B. Organization; Reporting Company Status.
1. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and
is duly qualified as a foreign corporation in all jurisdictions in which
the failure to so qualify would have a material adverse effect on the
business, properties, prospects, condition (financial or otherwise) or
results of operations of the Company or on the consummation of any of the
transactions contemplated by this Agreement (a "Material Adverse Effect").
2. The Company has registered the Common Stock pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and has timely filed with the Commission all reports and
information required to be filed by it pursuant to all reporting
obligations under Section 13(a) or 15(d), as applicable, of the Exchange
Act for the 12-month period immediately preceding the date hereof. The
Common Stock is listed and traded on the Nasdaq National Market ("Nasdaq")
and the Company has not received any notice regarding, and to its
knowledge there is no threat of, the termination or discontinuance of the
eligibility of the Common Stock for such listing.
C. Authorized Shares. The Company has duly and validly authorized
and reserved for issuance shares of Common Stock sufficient in number for the
conversion, of the Preferred Shares (assuming for purposes of this Section
III.C. a Conversion Price (as defined in the Certificate of Designation) of
$1.00 per share) and the exercise of the Warrants. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock of the issuance
of the Preferred Shares and Warrant Shares upon conversion of the Preferred
Shares and exercise of the Warrants, respectively. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Preferred Shares and Warrant Shares upon exercise of the Warrants in
accordance with this Agreement, the Preferred Shares and the Warrants is
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the Company and
notwithstanding the commencement of any case under 11 U.S.C. ss. 101 et seq.
(the "Bankruptcy Code"). In the event the Company is a debtor under the
Bankruptcy Code, the Company hereby waives to the fullest extent permitted any
rights to relief it may have under 11 U.S.C. ss. 362 in respect of the
conversion of the Preferred Shares and the exercise of the Warrants. The Company
agrees, without cost or expense to Buyer, to take or consent to any and all
action necessary to effectuate relief under 11 U.S.C. ss. 362. Schedule III.C.
hereto sets forth (i) all issuances and sales by the Company since July 1, 1999
of its capital stock, and other securities convertible, exercisable or
exchangeable for capital stock of the Company, (ii) the amount of such
securities sold, including any underlying shares of capital stock, (iii) the
purchaser thereof, and (iv) the amount paid therefor.
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D. Authority; Validity and Enforceability. The Company has the
requisite corporate power and authority to file and perform its obligations
under the Certificate of Designation and to enter into the Documents (as
hereinafter defined), and to perform all of its obligations hereunder and
thereunder (including the issuance, sale and delivery to Buyer of the
Securities). The execution, delivery and performance by the Company of the
Documents, and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the filing of the Certificate
of Designation with the Delaware Secretary of State's office, the issuance of
the Preferred Shares, the Warrants and the issuance and reservation for issuance
of the Conversion Shares and Warrant Shares), has been duly authorized by all
necessary corporate action on the part of the Company. Each of the Documents has
been duly and validly executed and delivered by the Company and the Certificate
of Designation has been duly filed with the Delaware Secretary of State's office
by the Company and each instrument constitutes a valid and binding obligation of
the Company enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally
and except as rights to indemnity and contribution may be limited by federal or
state securities laws or the public policy underlying such laws. The Securities
have been duly and validly authorized for issuance by the Company and, when
executed and delivered by the Company, will be valid and binding obligations of
the Company enforceable against it in accordance with their terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally.
For purposes of this Agreement, the term "Documents" means (i) this Agreement;
(ii) the Registration Rights Agreement of even date herewith between the Company
and Buyer, a copy of which is annexed hereto as Exhibit D (the "Registration
Rights Agreement"); (iii) the Certificate of Designation; (iv) the Warrants; and
(v) the Escrow Instructions.
E. Authorization of the Securities. The authorization, issuance,
sale and delivery of the Preferred Shares and Warrants has been duly authorized
by all requisite corporate action on the part of the Company. As of the Closing
Date, the Preferred Shares and the Warrants, and the Conversion Shares and the
Warrant Shares upon their issuance in accordance with the Certificate of
Designation and the Warrants, respectively, will be validly issued and
outstanding, fully paid and nonassessable, and not subject to any preemptive
rights, rights of first refusal or other similar rights.
F. Non-contravention. The execution and delivery by the Company of
the Documents, the issuance of the Securities, and the consummation by the
Company of the other transactions contemplated hereby and thereby, including,
without limitation, the filing of the Certificate of Designation with the
Delaware Secretary of State's office, do not and will not conflict with or
result in a breach by the Company of any of the terms or provisions of, or
constitute a default (or an event which, with notice, lapse of time or both,
would constitute a default) under (i) the certificate of incorporation or
by-laws of the Company or (ii) any indenture, mortgage, deed of trust or other
material agreement or instrument to which the Company is a party or by which its
properties or assets are bound, or any law, rule, regulation, decree, judgment
or order of any court or public or governmental authority having jurisdiction
over the Company or any of the Company's properties or assets, except as to
clause (ii) above such conflict, breach or default which would not have a
Material Adverse Effect or as to which an effective waiver or consent was
obtained.
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G. Approvals. No authorization, approval or consent of any court or
public or governmental authority is required to be obtained by the Company for
the issuance and sale of the Preferred Shares or the Warrants (and the
Conversion Shares and Warrant Shares) to Buyer as contemplated by this
Agreement, except such authorizations, approvals and consents that have been
obtained by the Company prior to the date hereof.
H. Commission Filings. None of the Company's reports and documents
heretofore filed with the Commission pursuant to the Securities Act or the
Exchange Act (collectively, the "Commission Filings") contained at the time they
were filed any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they were made, not
misleading.
I. Absence of Certain Changes. Since the Balance Sheet Date (as
defined in Section III.M.), there has not occurred any change, event or
development in the business, financial condition, prospects or results of
operations of the Company, and there has not existed any condition having or
reasonably likely to have, a Material Adverse Effect.
J. Full Disclosure. There is no fact known to the Company (other
than general economic or industry conditions known to the public generally) that
has not been fully disclosed in the Commission Filings or in writing to the
Buyer that (i) reasonably could be expected to have a Material Adverse Effect or
(ii) reasonably could be expected to materially and adversely affect the ability
of the Company to perform its obligations pursuant to the Documents.
K. Absence of Litigation. There is no action, suit, claim,
proceeding, inquiry or investigation pending or, to the Company's knowledge,
threatened, by or before any court or public or governmental authority which, if
determined adversely to the Company, would have a Material Adverse Effect.
L. Absence of Events of Default. No "Event of Default" (as defined
in any agreement or instrument to which the Company is a party) and no event
which, with notice, lapse of time or both, would constitute an Event of Default
(as so defined), has occurred and is continuing, which could have a Material
Adverse Effect.
M. Financial Statements; No Undisclosed Liabilities. The Company has
delivered to Buyer true and complete copies of its audited balance sheet as at
March 31, 1999 and the related audited statements of operations and cash flows
for the fiscal years ended March 31, 1998 and March 31, 1999 including the
related notes and schedules thereto (collectively, the "Financial Statements"),
and all management letters, if any, from the Company's independent auditors
relating to the dates and periods covered by the Financial Statements. Each of
the Financial Statements is complete and correct in all material respects, has
been prepared in accordance with United States General Accepted Accounting
Principles ("GAAP") (subject, in the case of the interim Financial Statements,
to normal year end adjustments and the absence of footnotes) and in conformity
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with the practices consistently applied by the Company without modification of
the accounting principles used in the preparation thereof, and fairly presents
the financial position, results of operations and cash flows of the Company as
at the dates and for the periods indicated. For purposes hereof, the audited
balance sheet of the Company as at March 31, 1999 is hereinafter referred to as
the "Balance Sheet" and March 31, 1999 is hereinafter referred to as the
"Balance Sheet Date." Except as otherwise disclosed on Schedule III.M. hereof,
the Company has no indebtedness, obligations or liabilities of any kind (whether
accrued, absolute, contingent or otherwise, and whether due or to become due)
that would have been required to be reflected in, reserved against or otherwise
described in the Balance Sheet or in the notes thereto in accordance with GAAP,
which was not fully reflected in, reserved against or otherwise described in the
Balance Sheet or the notes thereto or was not incurred in the ordinary course of
business consistent with the Company's past practices since the Balance Sheet
Date.
N. Compliance with Laws; Permits. The Company is in compliance with
all laws, rules, regulations, codes, ordinances and statutes (collectively,
"Laws") applicable to it or to the conduct of its business, except for such
noncompliance which would not have a Material Adverse Effect. The Company
possesses all permits, approvals, authorizations, licenses, certificates and
consents from all public and governmental authorities which are necessary to
conduct its business, except for those the absence of which would not have a
Material Adverse Effect.
O. Related Party Transactions. Except as described in the Commission
Filings or set forth on Schedule III.O. hereto, neither the Company nor any of
its officers, directors or "Affiliates" (as such term is defined in Rule 12b-2
under the Exchange Act) has borrowed any moneys from or has outstanding any
indebtedness or other similar obligations to the Company. Except as set forth on
Schedule III.O. hereto, neither the Company nor any of its officers, directors
or Affiliates (i) owns any direct or indirect interest constituting more than a
1% equity (or similar profit participation) interest in, or controls or is a
director, officer, partner, member or employee of, or consultant to or lender to
or borrower from, or has the right to participate in the profits of, any person
or entity which is (x) a competitor, supplier, customer, landlord, tenant,
creditor or debtor of the Company, (y) engaged in a business related to the
business of the Company, or (z) a participant in any transaction to which the
Company is a party (other than in the ordinary course of the Company's business)
or (ii) is a party to any contract, agreement, commitment or other arrangement
with the Company.
P. Insurance. The Company maintains property and casualty, general
liability, workers' compensation, environmental hazard, personal injury and
other similar types of insurance with financially sound and reputable insurers
that is adequate, consistent with industry standards and the Company's
historical claims experience. The Company has not received notice from, and has
no knowledge of any threat by, any insurer (that has issued any insurance policy
to the Company) that such insurer intends to deny coverage under or cancel,
discontinue or not renew any insurance policy presently in force.
Q. Securities Law Matters. Based, in part, upon the representations
and warranties of Buyer set forth in Section II hereof, the offer and sale by
the Company of the Securities is exempt from (i) the registration and prospectus
delivery requirements of the Securities Act and the rules and regulations of the
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Commission thereunder and (ii) the registration and/or qualification provisions
of all applicable state securities and "blue sky" laws. Other than pursuant to
an effective registration statement under the Securities Act, the Company has
not issued, offered or sold the Preferred Shares or any shares of Common Stock
(including for this purpose any securities of the same or a similar class as the
Preferred Shares or Common Stock, or any securities convertible into or
exchangeable or exercisable for the Preferred Shares or Common Stock or any such
other securities) within the one-year next preceding the date hereof, except as
disclosed on Schedule III.Q. hereto or otherwise previously disclosed in writing
to Buyer, and the Company shall not directly or indirectly take, and shall not
permit any of its directors, officers or Affiliates directly or indirectly to
take, any action (including, without limitation, any offering or sale to any
person or entity of the Preferred Shares or shares of Common Stock), so as to
make unavailable the exemption from Securities Act registration being relied
upon by the Company for the offer and sale to Buyer of the Preferred Shares (and
the Conversion Shares) as contemplated by this Agreement. No form of general
solicitation or advertising has been used or authorized by the Company or any of
its officers, directors or Affiliates in connection with the offer or sale of
the Preferred Shares (and the Conversion Shares) as contemplated by this
Agreement or any other agreement to which the Company is a party.
R. Environmental Matters.
1. The operations of the Company are in compliance with all
applicable Environmental Laws and all permits issued pursuant to
Environmental Laws or otherwise;
2. The Company has obtained or applied for all permits
required under all applicable Environmental Laws necessary to operate its
business;
3. The Company is not the subject of any outstanding written
order of or agreement with any governmental authority or person respecting
(i) Environmental Laws, (ii) Remedial Action or (iii) any Release or
threatened Release of Hazardous Materials;
4. The Company has not received, since March 31, 1999, any
written communication alleging that it may be in violation of any
Environmental Law or any permit issued pursuant to any Environmental Law,
or may have any liability under any Environmental Law;
5. The Company does not have any current contingent liability
in connection with any Release of any Hazardous Materials into the indoor
or outdoor environment (whether on-site or off-site);
6. Except as set forth on Schedule III.R.6 hereto, to the
Company's knowledge, there are no investigations of the business,
operations, or currently or previously owned, operated or leased property
of the Company pending or threatened which could lead to the imposition of
any liability pursuant to any Environmental Law;
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7. There is not located at any of the properties of the
Company any (A) underground storage tanks, (B) asbestos-containing
material or (C) equipment containing polychlorinated biphenyls; and,
8. The Company has provided to Buyer all environmentally
related audits, studies, reports, analyses, and results of investigations
that have been performed with respect to the currently or previously
owned, leased or operated properties of the Company.
For purposes of this Section III.R.:
"Environmental Law" means any foreign, federal, state or local
statute, regulation, ordinance, or rule of common law as now or hereafter in
effect in any way relating to the protection of human health and safety or the
environment including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, the Hazardous Materials Transportation
Act, the Resource Conservation and Recovery Act, the Clean Water Act, the Clean
Air Act, the Toxic Substances Control Act, the Federal Insecticide, Fungicide,
and Rodenticide Act, and the Occupational Safety and Health Act, and the
regulations promulgated pursuant thereto.
"Hazardous Material" means any substance, material or waste which is
regulated by the United States, Canada or any of its provinces, or any state or
local governmental authority including, without limitation, petroleum and its
by-products, asbestos, and any material or substance which is defined as a
"hazardous waste," "hazardous substance," "hazardous material," "restricted
hazardous waste," "industrial waste," "solid waste," "contaminant," "pollutant,"
"toxic waste" or "toxic substance" under any provision of any Environmental Law;
"Release" means any release, spill, filtration, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, or leaching into
the indoor or outdoor environment, or into or out of any property;
"Remedial Action" means all actions to (x) clean up, remove, treat
or in any other way address any Hazardous Material; (y) prevent the Release of
any Hazardous Material so it does not endanger or threaten to endanger public
health or welfare or the indoor or outdoor environment; or (z) perform
pre-remedial studies and investigations or post-remedial monitoring and care.
S. Labor Matters. The Company is not party to any labor or
collective bargaining agreement and there are no labor or collective bargaining
agreements which pertain to employees of the Company. No employees of the
Company are represented by any labor organization and none of such employees has
made a pending demand for recognition, and there are no representation
proceedings or petitions seeking a representation proceeding presently pending
or, to the Company's knowledge, threatened to be brought or filed, with the
National Labor Relations Board or other labor relations tribunal. There is no
organizing activity involving the Company pending or to the Company's knowledge,
threatened by any labor organization or group of employees of the Company. There
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are no (i) strikes, work stoppages, slowdowns, lockouts or arbitrations or (ii)
material grievances or other labor disputes pending or, to the knowledge of the
Company, threatened against or involving the Company. There are no unfair labor
practice charges, grievances or complaints pending or, to the knowledge of the
Company, threatened by or on behalf of any employee or group of employees of the
Company.
T. ERISA Matters. The Company and its ERISA Affiliates are in
compliance in all material respects with all provisions of ERISA applicable to
it. No Reportable Event has occurred, been waived or exists as to which the
Company or any ERISA Affiliate was required to file a report with the Pension
Benefits Guaranty Corporation, and the present value of all liabilities under
all Plans (based on those assumptions used to fund such Plans) did not, as of
the most recent annual valuation date applicable thereto, exceed the value of
the assets of all such Plans in the aggregate. None of the Company or ERISA
Affiliates has incurred any Withdrawal Liability that could result in a Material
Adverse Effect. None of the Company or ERISA Affiliates has received any
notification that any Multiemployer Plan is in reorganization or has been
terminated within the meaning of Title IV of ERISA, and no Multiemployer Plan is
reasonably expected to be in reorganization or termination where such
reorganization or termination has resulted or could reasonably be expected to
result in increases to the contributions required to be made to such Plan or
otherwise.
For purposes of this Section III.T.:
"ERISA" means the Employee Retirement Income Security Act of 1974,
or any successor statute, together with the regulations thereunder, as the same
may be amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that was, is or hereafter may become, a member of a group of which
the Company is a member and which is treated as a single employer under Section
414 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue
Code").
"Multiemployer Plan" means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA to which the Company or any ERISA Affiliate (other
than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of
Section 414 of the Internal Revenue Code) is making or accruing an obligation to
make contributions, or has within any of the preceding five plan years made or
accrued an obligation to make contributions.
"PBGC" means the Pension Benefit Guaranty Corporation referred to
and defined in ERISA or any successor thereto.
"Plan" means any pension plan (other than a Multiemployer Plan)
subject to the provision of Title IV of ERISA or Section 412 of the Internal
Revenue Code that is maintained for employees of the Company or any ERISA
Affiliate.
"Reportable Event" means any reportable event as defined in Section
4043(b) of ERISA or the regulations issued thereunder with respect to a Plan
(other than a Plan maintained by an ERISA Affiliate that is considered an ERISA
Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Internal
Revenue Code).
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"Withdrawal Liability" means liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.
U. Tax Matters.
1. The Company has filed all Tax Returns which it is required
to file under applicable Laws, except for such Tax Returns in respect of
which the failure to so file does not and could not have a Material
Adverse Effect; all such Tax Returns are true and accurate in all material
respects and have been prepared in compliance with all applicable Laws;
the Company has paid all Taxes due and owing by it (whether or not such
Taxes are required to be shown on a Tax Return) and have withheld and paid
over to the appropriate taxing authorities all Taxes which it is required
to withhold from amounts paid or owing to any employee, stockholder,
creditor or other third parties; and since the Balance Sheet Date, the
charges, accruals and reserves for Taxes with respect to the Company
(including any provisions for deferred income taxes) reflected on the
books of the Company are adequate to cover any Tax liabilities of the
Company if its current tax year were treated as ending on the date hereof.
2. No claim has been made by a taxing authority in a
jurisdiction where the Company does not file tax returns that such
corporation is or may be subject to taxation by that jurisdiction. There
are no foreign, federal, state or local tax audits or administrative or
judicial proceedings pending or being conducted with respect to the
Company; no information related to Tax matters has been requested by any
foreign, federal, state or local taxing authority; and, except as
disclosed above, no written notice indicating an intent to open an audit
or other review has been received by the Company from any foreign,
federal, state or local taxing authority. There are no material unresolved
questions or claims concerning the Company's Tax liability. The Company
(A) has not executed or entered into a closing agreement pursuant to
Section 7121 of the Internal Revenue Code or any predecessor provision
thereof or any similar provision of state, local or foreign law; or (B)
has not agreed to or is required to make any adjustments pursuant to
Section 481(a) of the Internal Revenue Code or any similar provision of
state, local or foreign law by reason of a change in accounting method
initiated by the Company or any of its subsidiaries or has any knowledge
that the IRS has proposed any such adjustment or change in accounting
method, or has any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to
the business or operations of the Company. The Company has not been a
United States real property holding corporation within the meaning of
Section 897(c)(2) of the Internal Revenue Code during the applicable
period specified in Section 897(c)(1)(A)(ii) of the Internal Revenue Code.
3. The Company has not made an election under Section 341(f)
of the Internal Revenue Code. The Company is not liable for the Taxes of
another person that is not a subsidiary of the Company under (A) Treas.
Reg. Section 1.1502-6 (or comparable provisions of state, local or foreign
law), (B) as a transferee or successor, (C) by contract or indemnity or
(D) otherwise. The Company is not a party to any tax sharing agreement.
The Company has not made any payments, is obligated to make payments or is
a party to an agreement that could obligate it to make any payments that
would not be deductible under Section 280G of the Internal Revenue Code.
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For purposes of this Section III.U.:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or
other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications, real or
personal property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and including any
amendment thereof.
V. Property. The Company has good and marketable title to all real
and personal property owned by it, free and clear of all liens, encumbrances and
defects except such as are described on Schedule III.V. hereto or such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company; and any real
property and buildings held under lease by the Company are held by it under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company.
W. Intellectual Property. The Company owns or possesses adequate and
enforceable rights to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures) and other similar rights and proprietary knowledge (collectively,
"Intangibles") necessary for the conduct of its business as now being conducted.
To the Company's knowledge, the Company is not infringing upon or in conflict
with any right of any other person with respect to any Intangibles. Except as
disclosed on Schedule III.W. hereto, no claims have been asserted by any person
to the ownership or use of any Intangibles and the Company has no knowledge of
any basis for such claim.
X. Internal Controls and Procedures. The Company maintains accurate
books and records and internal accounting controls which provide reasonable
assurance that (i) all transactions to which the Company is a party or by which
its properties are bound are executed with management's authorization; (ii) the
reported accountability of the Company's assets is compared with existing assets
at regular intervals; (iii) access to the Company's assets is permitted only in
accordance with management's authorization; and (iv) all transactions to which
the Company is a party or by which its properties are bound are recorded as
necessary to permit preparation of the financial statements of the Company in
accordance with GAAP.
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Y. Payments and Contributions. Neither the Company nor any of its
directors, officers or, to its knowledge, other employees has (i) used any
Company funds for any unlawful contribution, endorsement, gift, entertainment or
other unlawful expense relating to political activity; (ii) made any direct or
indirect unlawful payment of Company funds to any foreign or domestic government
official or employee, (iii) violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any bribe,
rebate, payoff, influence payment, kickback or other similar payment to any
person with respect to Company matters.
Z. No Misrepresentation. No representation or warranty of the
Company contained in this Agreement, any schedule, annex or exhibit hereto or
any agreement, instrument or certificate furnished by the Company to Buyer
pursuant to this Agreement, contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, not misleading.
IV. Certain Covenants and Acknowledgments
A. Restrictive Legend. Buyer acknowledges and agrees that, upon
issuance pursuant to this Agreement, the Securities (and any shares of Common
Stock issued in conversion of the Preferred Shares or exercise of the Warrants)
shall have endorsed thereon a legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the Preferred Shares, the
Warrant Shares and the Conversion Shares until such legend has been removed):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR THE
SECURITIES LAWS OF ANY STATE. THE SHARES MAY NOT BE PLEDGED, HYPOTHECATED,
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT COVERING THE SECURITIES REPRESENTED
BY THIS CERTIFICATE, AND OTHER FILINGS UNDER ANY APPLICABLE STATE
SECURITIES LAWS, EXCEPT PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REQUIREMENTS OF THE ACT AND SUCH OTHER LAWS."
B. Filings. The Company shall make all necessary Commission Filings
and "blue sky" filings required to be made by the Company in connection with the
sale of the Securities to the Buyer as required by all applicable Laws, and
shall provide a copy thereof to the Buyer promptly after such filing.
C. Reporting Status. So long as the Buyer beneficially owns any of
the Securities, the Company shall timely file all reports required to be filed
by it with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
D. Use of Proceeds. The Company shall use the net proceeds from the
sale of the Securities (excluding amounts paid by the Company for Buyer's
out-of-pocket costs and expenses incurred in connection with the transactions
contemplated by this Agreement and finder's fees in connection with such sale)
solely for the acquisition of NetGuru Systems, Inc. and NetGuru Consulting, Inc.
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<PAGE>
E. Listing. Except to the extent the Company lists its Common Stock
on The New York Stock Exchange, the Company shall use its best efforts to
maintain its listing of the Common Stock on Nasdaq.
F. Reserved Conversion Shares. The Company at all times from and
after the date hereof shall have a sufficient number of shares of Common Stock
duly and validly authorized and reserved for issuance to satisfy the conversion,
in full, of 371,429 Preferred Shares (assuming for purposes of this Section
IV.F., a Conversion Price (as defined in the Certificate of Designation) of
$1.00 per share) and upon the exercise of Warrants to purchase 50,000 shares of
Common Stock. In the event the Current Market Price (as defined in the
Certificate of Designation) declines to $1.00 per share (the "Additional
Registration Trigger Price") and upon each $0.25 per share (the "Incremental
Decline") decline of the Current Market Price below the Additional Registration
Trigger Price, the Company shall, within 10 days of the occurrence of such
event, authorize and reserve for issuance such additional shares of Common Stock
sufficient in number for the conversion, in full, of 371,429 Preferred Shares,
assuming for purposes of this Section IV.F. a Conversion Price (as defined in
the Certificate of Designation) of (i) with respect to a decline to the
Additional Reservation Trigger Price, $0.75 per share (the "Assumed Conversion
Price") and (ii) with respect to each Incremental Decline below the Additional
Reservation Trigger Price, (a) the Assumed Conversion Price less (b) the product
of (x) the number of Incremental Declines below the Additional Reservation
Trigger Price times (y) $0.25 per share.
G. Right of First Refusal. If the Company should propose (the
"Proposal") to issue Common Stock or securities convertible into Common Stock at
a price less than the Current Market Price (as defined in Certificate of
Designation), or debt at less than par value or having an effective annual
interest rate in excess of 9.9% (each a "Right of First Refusal Security" and
collectively, the "Right of First Refusal Securities"), in each case on the date
of issuance during the period ending on the date all of the Preferred Shares
have been converted into Common Stock or two years after the Closing Date,
whichever comes earlier, (the "Right of First Refusal Period"), the Company
shall be obligated to offer the Buyer and Triton (as defined below) on the terms
set forth in the Proposal (the "Offer") and the Buyer and Triton shall have the
right, but not the obligation, to accept such Offer on such terms. "Triton"
means The Triton Private Equities Fund, Ltd., as "Buyer" pursuant to that
certain Securities Purchase Agreement of even date herewith between the Company
and Triton (the "Triton Purchase Agreement"). It is understood and agreed that
(x) any Offer made by the Company to the Buyer and Triton pursuant to this
Section IV.G. and the Triton Purchase Agreement may be accepted by the Buyer up
to an amount equal to 80% of the aggregate total amount of the financing
proposed in the Offer and by Triton up to an amount equal to 20% of such
aggregate total amount and (y) any portion of such Offer not accepted by the
Buyer or Triton, respectively, may be accepted instead by Triton or the Buyer,
respectively. If during the Right of First Refusal Period, the Company provides
written notice to the Buyer that it proposes to issue any Right of First Refusal
Securities on the terms set forth in the Proposal, then the Buyer shall have 10
business days to accept or reject such Offer in writing. If the Company fails
to: (i) issue a Proposal during the Right of First Refusal Period, (ii) offer
the Buyer the opportunity to complete the transaction as set forth in the
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<PAGE>
Proposal, or (iii) enter into an agreement with the Buyer, at such terms after
the Buyer has accepted the Offer, then the Company shall pay to the Buyer, as
liquidated damages, an amount in total equal to 10% of the amount paid to the
Company for the Right of First Refusal Securities. Except as set forth above,
the foregoing Right of First Refusal is and shall be senior in right to any
other right of first refusal issued by the Company to any other Person (as
defined in the Certificate of Designation). Notwithstanding the foregoing, the
Buyer shall have no rights under this Section IV.G. in respect of Common Stock
or any other securities of the Company issuable (i) upon the exercise or
conversion of options, warrants or other rights to purchase securities of the
Company outstanding as of the date hereof or (ii) to officers, directors or
employees of the Company or any of its subsidiaries.
H. Issuances of Additional Convertible Preferred Shares or
Convertible Debentures. So long as Buyer beneficially owns any of the Preferred
Shares, the Company shall not issue any additional convertible preferred stock
or convertible debt securities, in each case, convertible into Common Stock at a
floating conversion price, without the prior written consent of Buyer.
V. Transfer Agent Instructions
A. The Company undertakes and agrees that no instruction other than
the instructions referred to in this Section V and customary stop transfer
instructions prior to the registration and sale of the Common Stock pursuant to
an effective Securities Act registration statement will be given to its transfer
agent for the Common Stock and that the Common Stock issuable upon conversion of
the Preferred Shares and exercise of the Warrants otherwise shall be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement, the Registration Rights Agreement and applicable
law. Nothing contained in this Section V.A. shall affect in any way Buyer's
obligations and agreement to comply with all applicable securities laws upon
resale of such Common Stock. If, at any time, Buyer provides the Company with an
opinion of counsel reasonably satisfactory to the Company that registration of
the resale by Buyer of such Common Stock is not required under the Securities
Act and that the removal of restrictive legends is permitted under applicable
law, the Company shall permit the transfer of such Common Stock and promptly
instruct the Company's transfer agent to issue one or more certificates for
Common Stock without any restrictive legends endorsed thereon.
B. The Company shall permit Buyer to exercise its right to convert
the Preferred Shares by telecopying an executed and completed Notice of
Conversion (as defined in the Certificate of Designation) to the Company. Each
date on which a Notice of Conversion is telecopied to and received by the
Company in accordance with the provisions hereof shall be deemed a Conversion
Date (as defined in the Certificate of Designation). The Company shall instruct
its transfer agent to issue and transmit the certificates evidencing the shares
of Common Stock issuable upon conversion of any Preferred Shares (together with
certificates evidencing any Preferred Shares not being so converted) to Buyer
via express courier, by electronic transfer or otherwise, within five business
days after receipt by the Company of the Notice of Conversion (the "Delivery
Date"). Within 30 days after Buyer delivers the Notice of Conversion to the
Company, Buyer shall deliver to the Company the Preferred Shares being
converted.
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<PAGE>
C. The Company shall permit Buyer to exercise its right to purchase
shares of Common Stock pursuant to exercise of the Warrants in accordance with
its applicable terms of the Warrants. The last date that the Company may deliver
shares of Common Stock issuable upon any exercise of Warrants is referred to
herein as the "Warrant Delivery Date."
D. The Company understands that a delay in the issuance of the
shares of Common Stock issuable in lieu of cash dividends on the Preferred
Shares, upon the conversion of the Preferred Shares or exercise of the Warrants
beyond the applicable Dividend Payment Due Date (as defined in the Certificate
of Designation), Delivery Date or Warrant Delivery Date could result in economic
loss to Buyer. As compensation to Buyer for such loss (and not as a penalty),
the Company agrees to pay to Buyer for late issuance of Common Stock issuable in
lieu of cash dividends on the Preferred Shares, upon conversion of the Preferred
Shares or exercise of the Warrants in accordance with the following schedule
(where "No. Business Days" is defined as the number of business days beyond
seven days from the Dividend Payment Due Date, the Delivery Date or the Warrant
Delivery Date, as applicable):
<TABLE>
<CAPTION>
Compensation For Each 10
Shares of Preferred Shares Not
Converted Timely or 500 Shares of
Common Stock Issuable In Payment of
Dividends or Upon Exercise of
No. Business Days Warrants Not Issued Timely
<S> <C>
1 $ 25
2 50
3 75
4 100
5 125
6 150
7 175
8 200
9 225
10 250
more than 10 $250 + $100 for each
Business Day Late beyond
10 days
</TABLE>
The Company shall pay to Buyer the compensation described above by the transfer
of immediately available funds upon Buyer's demand. Nothing herein shall limit
Buyer's right to pursue actual damages for the Company's failure to issue and
deliver Common Stock to Buyer, and in addition to any other remedies which may
be available to Buyer, in the event the Company fails for any reason to effect
delivery of such shares of Common Stock within five business days after the
relevant Dividend Payment Due Date, the Delivery Date or the Warrant Delivery
Date, as applicable, Buyer shall be entitled to rescind the relevant Notice of
Conversion or exercise of Warrants by delivering a notice to such effect to the
Company whereupon the Company and Buyer shall each be restored to their
respective original positions immediately prior to delivery of such Notice of
Conversion on delivery.
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<PAGE>
VI. Delivery Instructions
The Securities shall be delivered by the Company to the Escrow Agent
pursuant to Section I.B. hereof on a "delivery-against-payment basis" at the
Closing.
VII. Closing Date
The date and time of the issuance and sale of the Preferred Shares
(the "Closing Date") shall be the date hereof or such other date as shall be
mutually agreed upon in writing. The issuance and sale of the Securities shall
occur on the Closing Date at the offices of the Escrow Agent. Notwithstanding
anything to the contrary contained herein, the Escrow Agent shall not be
authorized to release to the Company the Purchase Price and to Buyer the
certificate(s) (I/N/O Buyer or I/N/O Buyer's nominee) evidencing the Securities
being purchased by Buyer unless the conditions set forth in Section VIII.C. and
IX.G. hereof have been satisfied.
VIII. Conditions to the Company's Obligations
Buyer understands that the Company's obligation to sell the
Securities on the Closing Date to Buyer pursuant to this Agreement is
conditioned upon:
A. Delivery by Buyer to the Escrow Agent of the Purchase Price;
B. The accuracy in all material respects on the Closing Date of the
representations and warranties of Buyer contained in this Agreement as if made
on the Closing Date (except for representations and warranties which, by their
express terms, speak as of and relate to a specified date, in which case such
accuracy shall be measured as of such specified date) and the performance by
Buyer in all material respects on or before the Closing Date of all covenants
and agreements of Buyer required to be performed by it pursuant to this
Agreement on or before the Closing Date;
C. There shall not be in effect any Law or order, ruling, judgment
or writ of any court or public or governmental authority restraining, enjoining
or otherwise prohibiting any of the transactions contemplated by this Agreement.
IX. Conditions to Buyer's Obligations
The Company understands that Buyer's obligation to purchase the
Securities on the Closing Date pursuant to this Agreement is conditioned upon:
A. Delivery by the Company to Buyer of evidence that the Certificate
of Designation has been filed and is effective.
B. Delivery by the Company to the Escrow Agent of one or more
certificates (I/N/O Buyer or I/N/O Buyer's nominee) evidencing the Securities to
be purchased by Buyer pursuant to this Agreement;
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<PAGE>
C. The accuracy in all respects on the Closing Date of the
representations and warranties of the Company contained in this Agreement as if
made on the Closing Date (except for representations and warranties which, by
their express terms, speak as of and relate to a specified date, in which case
such accuracy shall be measured as of such specified date) and the performance
by the Company in all respects on or before the Closing Date of all covenants
and agreements of the Company required to be performed by it pursuant to this
Agreement on or before the Closing Date;
D. Buyer having received an opinion of counsel for the Company,
dated the Closing Date, in form, scope and substance reasonably satisfactory to
Buyer as to the matters set forth in Annex A;
E. There not having occurred (i) any general suspension of trading
in, or limitation on prices listed for, the Common Stock on Nasdaq, (ii) the
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States, (iii) the commencement of a war, armed hostilities
or other international or national calamity directly or indirectly involving the
United States or any of its territories, protectorates or possessions, or (iv)
in the case of the foregoing existing at the date of this Agreement, a material
acceleration or worsening thereof;
F. There not having occurred any event or development, and there
being in existence no condition, having or which reasonably and foreseeably
could have a Material Adverse Effect;
G. The Company shall have delivered to Buyer (as provided in the
Escrow Instructions) reimbursement of Buyer's out-of-pocket costs and expenses
whether or not accounted for or incurred in connection with the transactions
contemplated by this Agreement (including the fees and disbursements of Buyer's
legal counsel) of $55,000;
H. There shall not be in effect any Law or order, ruling, judgment
or writ of any court or public or governmental authority restraining, enjoining
or otherwise prohibiting any of the transactions contemplated by this Agreement;
and
I. Delivery of irrevocable instructions to the Company's transfer
agent to reserve 3,764,290 shares of Common Stock for issuance of the Conversion
Shares and the Warrant Shares.
X. Termination
A. Termination by Mutual Written Consent. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned, for any
reason and at any time prior to the Closing Date, by the mutual written consent
of the Company and Buyer.
B. Termination by the Company or Buyer. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned by action
of the Company or Buyer if (i) the Closing shall not have occurred at or prior
to 5:00 p.m., New York City time, on September 21, 1999 (the "Latest Closing
Date"); provided, however, that the right to terminate this Agreement pursuant
18
<PAGE>
to this Section X.B.(i) shall not be available to any party whose failure to
fulfill any of its obligations under this Agreement has been the cause of or
resulted in the failure of the Closing to occur at or before such time and date
or (ii) any court or public or governmental authority shall have issued an
order, ruling, judgment or writ, or there shall be in effect any Law,
restraining, enjoining or otherwise prohibiting the consummation of any of the
transactions contemplated by this Agreement; provided, further, however, that if
the Closing shall not have occurred on or prior to the Latest Closing Date, the
Closing may only occur after the Latest Closing Date with the written acceptance
of Buyer.
C. Termination by Buyer. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned by Buyer at any time prior to
the Closing Date, if (i) the Company shall have failed to comply with any of its
covenants or agreements contained in this Agreement, (ii) there shall have been
a breach by the Company with respect to any representation or warranty made by
it in this Agreement, (iii) there shall have occurred any event or development,
or there shall be in existence any condition, having or reasonably and
forseeably likely to have a Material Adverse Effect or (iv) the Company shall
have failed to satisfy the conditions provided in Section IX hereof.
D. Termination by the Company. This Agreement may be terminated and
the transactions contemplated hereby may be abandoned by the Company at any time
prior to the Closing Date, if (i) Buyer shall have failed to comply with any of
its covenants or agreements contained in this Agreement, (ii) there shall have
been a breach by Buyer with respect to any representation or warranty made by it
in this Agreement or (iii) Buyer shall have failed to satisfy the conditions
provided in Section VIII(A) and (B) hereof.
E. Fees and Expenses of Termination. If this Agreement is terminated
for any reason other than Buyer's breach or otherwise pursuant to paragraph D
above, the Company shall reimburse Buyer for all of Buyer's out-of-pocket costs
and expenses incurred in connection with the transactions contemplated by this
Agreement and the other Documents (including, without limitation, the fees and
disbursements of Buyer's legal counsel).
XI. Survival; Indemnification
A. The representations, warranties and covenants made by each of the
Company and Buyer in this Agreement, the annexes, schedules and exhibits hereto
and in each instrument, agreement and certificate entered into and delivered by
them pursuant to this Agreement, shall survive the Closing and the consummation
of the transactions contemplated hereby. In the event of a breach or violation
of any of such representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made shall have all rights
and remedies for such breach or violation available to it under the provisions
of this Agreement or otherwise, whether at law or in equity, irrespective of any
investigation made by or on behalf of such party on or prior to the Closing
Date.
B. The Company hereby agrees to indemnify and hold harmless Buyer,
its Affiliates and their respective officers, directors, partners and members
(collectively, the "Buyer Indemnitees"), from and against any and all losses,
claims, damages, judgments, penalties, liabilities and deficiencies
(collectively, "Losses"), and agrees to reimburse the Buyer Indemnitees for all
out of-pocket expenses (including the fees and expenses of legal counsel), in
each case promptly as incurred by the Buyer Indemnitees and to the extent
arising out of or in connection with:
19
<PAGE>
1. any misrepresentation, omission of fact or breach of any of
the Company's representations or warranties contained in this Agreement or
the other Documents, or the annexes, schedules or exhibits hereto or
thereto or any instrument, agreement or certificate entered into or
delivered by the Company pursuant to this Agreement or the other
Documents; or
2. any failure by the Company to perform any of its covenants,
agreements, undertakings or obligations set forth in this Agreement or the
other Documents, or the annexes, schedules or exhibits hereto or thereto
or any instrument, agreement or certificate entered into or delivered by
the Company pursuant to this Agreement or the other Documents; or
3. resales of the Common Shares by Buyer in the manner and as
contemplated by this Agreement and the Registration Rights Agreement.
C. Buyer hereby agrees to indemnify and hold harmless the Company,
its Affiliates and their respective officers, directors, partners and members
(collectively, the "Company Indemnitees"), from and against any and all Losses,
and agrees to reimburse the Company Indemnitees for all out-of-pocket expenses
(including the fees and expenses of legal counsel), in each case promptly as
incurred by the Company Indemnitees and to the extent arising out of or in
connection with:
1. any misrepresentation, omission of fact, or breach of any
of Buyer's representations or warranties contained in this Agreement or
the other Documents, or the annexes, schedules or exhibits hereto or
thereto or any instrument, agreement or certificate entered into or
delivered by Buyer pursuant to this Agreement or the other Documents; or
2. any failure by Buyer to perform in any material respect any
of its covenants, agreements, undertakings or obligations set forth in
this Agreement or the other Documents or any instrument, certificate or
agreement entered into or delivered by Buyer pursuant to this Agreement or
the other Documents.
D. Promptly after receipt by either party hereto seeking
indemnification pursuant to this Section XI (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Section XI is being sought (the "Indemnifying Party") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party except
to the extent that the Indemnifying Party is materially prejudiced and forfeits
substantive rights and defenses by reason of such failure. In connection with
any Claim as to which both the Indemnifying Party and the Indemnified Party are
parties, the Indemnifying Party shall be entitled to assume the defense thereof.
Notwithstanding the assumption of the defense of any Claim by the Indemnifying
Party, the Indemnified Party shall have the right to employ separate legal
counsel and to participate in the defense of such Claim, and the Indemnifying
Party shall bear the reasonable fees, out-of-pocket costs and expenses of such
separate legal counsel to the Indemnified Party if (and only if): (x) the
20
<PAGE>
Indemnifying Party shall have agreed to pay such fees, out-of-pocket costs and
expenses, (y) the Indemnified Party and the Indemnifying Party reasonably shall
have concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal counsel would not be appropriate due to actual or, as
reasonably determined by legal counsel to the Indemnified Party, potentially
differing interests between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are in addition to or disparate from those available to the Indemnifying Party,
or (z) the Indemnifying Party shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such Claim. If the Indemnified Party
employs separate legal counsel in circumstances other than as described in
clauses (x), (y) or (z) above, the fees, costs and expenses of such legal
counsel shall be borne exclusively by the Indemnified Party. Except as provided
above, the Indemnifying Party shall not, in connection with any Claim in the
same jurisdiction, be liable for the fees and expenses of more than one firm of
legal counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnified Party (which consent shall not unreasonably be withheld), settle
or compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
E. In the event one party hereunder should have a claim for
indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association. Judgment upon any
award rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.
XII. Governing Law; Miscellaneous
This Agreement shall be governed by and interpreted in accordance
with the laws of the State of New York, without regard to the conflicts of law
principles of such state. Each of the parties consents to the jurisdiction of
the federal courts whose districts encompass any part of the City of New York or
the state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on forum non conveniens, to the bringing of any such proceeding in such
jurisdictions. A facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original. The headings of this
Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement. If any provision of this Agreement shall
be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction. This Agreement may be amended only by an instrument
in writing signed by the party to be charged with enforcement. This Agreement
supersedes all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof.
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<PAGE>
XIII. Notices
Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or, if mailed,
three (3) days after the date of deposit in the United States mails, as follows:
<TABLE>
<S> <C>
A. if to the Company, to:
Research Engineers, Inc.
22700 Savi Ranch Parkway
Yorba Linda, CA 92887
Attention: Chief Financial Officer
(714) 974-2500
(714) 921-0683(Fax)
with a copy to:
Rutan & Tucker, LLP
611 Anton Blvd., 14th Floor
Costa Mesa, CA 92626
Attention: Gregg Amber, Esq.
(714) 641-3425
(714) 546-9035 (Fax)
B. if to the Buyer, to:
The Shaar Fund Ltd.,
c/o Levinson Capital Management
2 World Trade Center, Suite 1820
New York, NY 10048
Attention: Samuel Levinson
(212) 432-7711
(212) 432-7771 (Fax)
with a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attention: Dennis J. Block, Esq.
(212) 504-5555
(212) 504-5557 (Fax)
C. if to the Escrow Agent, to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attention: Dennis J. Block, Esq.
(212) 504-5555
(212) 504-5557 (Fax)
</TABLE>
22
<PAGE>
The Company, Buyer or the Escrow Agent may change the foregoing address by
notice given pursuant to this Section XIII.
XIV. Confidentiality
Each of the Company and Buyer agrees to keep confidential and not to
disclose to or use for the benefit of any third party the terms of this
Agreement or any other information which at any time is communicated by the
other party as being confidential without the prior written approval of the
other party; provided, however, that this provision shall not apply to
information which, at the time of disclosure, is already part of the public
domain (except by breach of this Agreement) and information which is required to
be disclosed by law (including, without limitation, pursuant to Item 601(b)(10)
of Regulation S-K under the Securities Act and the Exchange Act).
XV. Assignment
This Agreement shall not be assignable by either of the parties
hereto prior to the Closing without the prior written consent of the other
party, and any attempted assignment contrary to the provisions hereby shall be
null and void; provided, however, that Buyer may assign its rights and
obligations hereunder, in whole or in part, to any affiliate of Buyer who
furnishes to the Company the representations and warranties set forth in Section
II hereof and otherwise agrees to be bound by the terms of this Agreement.
23
<PAGE>
In Witness Whereof, the parties hereto have duly executed and
delivered this Agreement on the date first above written.
Research Engineers, Inc.
By:
Name: Jyoti Chatterjee
Title: President
The Shaar Fund Ltd.
By:
Name: Samuel Levinson
Title: Managing Director
24
<PAGE>
Exhibit 2.5
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement, dated as of September 14, 1999
(this "Agreement"), between Research Engineers, Inc., a Delaware corporation,
with principal executive offices located at 22700 Savi Ranch Parkway, Yorba
Linda, CA 92887 (the "Company"), and The Shaar Fund Ltd. (the "Initial
Investor").
Whereas, upon the terms and subject to the conditions of the
Securities Purchase Agreement dated as of September 14, 1999, between the
Initial Investor and the Company (the "Securities Purchase Agreement"), the
Company has agreed to issue and sell to the Initial Investor (i) 300,000 shares
of Series B 5% Convertible Preferred Stock, par value $ 0.01 per share (the
"Preferred Shares") which, upon the terms of and subject to the conditions of
the Company's Certificate of Designation of Series B 5% Convertible Preferred
Stock (the "Certificate of Designation"), are convertible into shares of the
Company's common stock, par value $0.01 per share (the "Common Stock") and (ii)
Common Stock Purchase Warrants (the "Warrants") to purchase shares of Common
Stock; and
Whereas, to induce the Initial Investor to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide with respect to
the Common Stock issued or issuable in lieu of cash dividend payments on the
Preferred Shares, upon conversion of the Preferred Shares and exercise of the
Warrants certain registration rights under the Securities Act;
Now, Therefore, in consideration of the premises and the mutual
covenants contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Definitions
(a) As used in this Agreement, the following terms shall have the
meanings:
(i) "Affiliate," of any specified Person means any other
Person who directly, or indirectly through one or more intermediaries, is
in control of, is controlled by, or is under common control with, such
specified Person. For purposes of this definition, control of a Person
means the power, directly or indirectly, to direct or cause the direction
of the management and policies of such Person whether by contract,
securities, ownership or otherwise; and the terms "controlling" and
"controlled" have the respective meanings correlative to the foregoing.
(ii) "Closing Date" means the date and time of the issuance
and sale of the Preferred Shares.
1
<PAGE>
(iii) "Commission" means the Securities and Exchange
Commission.
(iv) "Current Market Price" means on any date of determination
the closing bid price of a share of Common Stock on such day as reported
on the Nasdaq National Market ("Nasdaq"); provided, if such security is
not listed or admitted to trading on the Nasdaq, as reported on the
principal national security exchange or quotation system on which such
security is quoted or listed or admitted to trading, or, if not quoted or
listed or admitted to trading on any national securities exchange or
quotation system, the closing bid price of such security on the
over-the-counter market on the day in question as reported by Bloomberg
LP, or a similar generally accepted reporting service, as the case may be.
(v) "Exchange Act" means the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission thereunder, or
any similar successor statute.
(vi) "Investors" means the Initial Investor and any transferee
or assignee of Registrable Securities who agrees to become bound by all of
the terms and provisions of this Agreement in accordance with Section 8
hereof.
(vii) "Person" means any individual, partnership, corporation,
limited liability company, joint stock company, association, trust,
unincorporated organization, or a government or agency or political
subdivision thereof.
(viii) "Prospectus" means the prospectus (including, without
limitation, any preliminary prospectus and any final prospectus filed
pursuant to Rule 424(b) under the Securities Act, including any prospectus
that discloses information previously omitted from a prospectus filed as
part of an effective registration statement in reliance on Rule 430A under
the Securities Act) included in the Registration Statement, as amended or
supplemented by any prospectus supplement with respect to the terms of the
offering of any portion of the Registrable Securities covered by the
Registration Statement and by all other amendments and supplements to such
prospectus, including all material incorporated by reference in such
prospectus and all documents filed after the date of such prospectus by
the Company under the Exchange Act and incorporated by reference therein.
(ix) "Public Offering" means an offer registered with the
Commission and the appropriate state securities commissions by the Company
of its Common Stock and made pursuant to the Securities Act.
(x) "Registrable Securities" means the Common Stock issued or
issuable (i) in lieu of cash dividend payments on the Preferred Shares,
(ii) upon conversion of the Preferred Shares or (iii) upon exercise of the
Warrants; provided, however, a share of Common Stock shall cease to be a
Registrable Security for purposes of this Agreement when it no longer is a
Restricted Security.
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(xi) "Registration Statement" means a registration statement
of the Company filed on an appropriate form under the Securities Act
providing for the registration of, and the sale on a continuous or delayed
basis by the holders of, all of the Registrable Securities pursuant to
Rule 415 under the Securities Act, including the Prospectus contained
therein and forming a part thereof, any amendments to such registration
statement and supplements to such Prospectus, and all exhibits and other
material incorporated by reference in such registration statement and
Prospectus.
(xii) "Restricted Security" means any share of Common Stock
issued or issuable in lieu of cash dividend payments on the Preferred
Shares, upon conversion of the Preferred Shares or exercise of the
Warrants except any such share that (i) has been registered pursuant to an
effective registration statement under the Securities Act and sold in a
manner contemplated by the prospectus included in such registration
statement, (ii) has been transferred in compliance with the resale
provisions of Rule 144 under the Securities Act (or any successor
provision thereto) or is transferable pursuant to paragraph (k) of Rule
144 under the Securities Act (or any successor provision thereto), or
(iii) otherwise has been transferred and a new share of Common Stock not
subject to transfer restrictions under the Securities Act has been
delivered by or on behalf of the Company.
(xiii) "Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations of the Commission thereunder, or
any similar successor statute.
(b) All capitalized terms used and not defined herein have the
respective meaning assigned to them in the Securities Purchase Agreement.
2. Registration
(a) Filing and Effectiveness of Registration Statement. The Company
shall prepare and file with the Commission not later than 30 days after the
Closing Date, a Registration Statement relating to the offer and sale of the
Registrable Securities and shall use its best efforts to cause the Commission to
declare such Registration Statement effective under the Securities Act as
promptly as practicable but not later than 150 days after the Closing Date,
assuming for purposes hereof a Conversion Price under the Certificate of
Designation of $4.00 per share. At such time after the filing of the
Registration Statement pursuant to this Section 2(a) as the Commission
indicates, either orally or in writing, that it has no further comments with
respect to such Registration Statement or that it is willing to entertain
appropriate requests for acceleration of effectiveness of such Registration
Statement, the Company shall promptly, and in no event later than two business
days after receipt of such indication from the Commission, request that the
effectiveness of such Registration Statement be accelerated to within 48 hours
of the Commission's receipt of such request. The Company shall not include any
other securities in the Registration Statement relating to the offer and sale of
the Registrable Securities other than (i) Common Stock in an amount not to
exceed 171,000 shares registered by the Company pursuant to that certain
Registration Agreement, dated September 14, 1999 by and between the Company and
Bharat Manglani and (ii) that number of shares of Common Stock required to be
registered by the Company pursuant to that certain Registration Agreement, dated
September 14, 1999 by and between the Company and The Triton Private Equities
Fund, L.P. The Company shall notify the Investors by written notice that such
Registration Statement has been declared effective by the Commission within 24
hours of such declaration by the Commission.
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(b) Registration Default. If the Registration Statement covering the
Registrable Securities or the Additional Registrable Securities (as defined in
Section 2(d) hereof) required to be filed by the Company pursuant to Section
2(a) or 2(d) hereof, as the case may be, is not (i) filed with the Commission
within 30 days after the Closing Date or (ii) declared effective by the
Commission within 150 days after the Closing Date (either of which, without
duplication, an "Initial Date"), then the Company shall make the payments to the
Initial Investor as provided in the next sentence as liquidated damages and not
as a penalty. The amount to be paid by the Company to the Initial Investor shall
be determined as of each Computation Date (as defined below), and such amount
shall be equal to 2% (the "Liquidated Damage Rate") of the Purchase Price (as
defined in the Securities Purchase Agreement) from the Initial Date to the first
Computation Date and for each Computation Date thereafter, calculated on a pro
rata basis to the date on which the Registration Statement is filed with (in the
event of an Initial Date pursuant to clause (i) above) or declared effective by
(in the event of an Initial Date pursuant to clause (ii) above) the Commission
(the "Periodic Amount") provided, however, that in no event shall the liquidated
damages be less than $25,000. The full Periodic Amount shall be paid by the
Company to the Initial Investor by wire transfer of immediately available funds
within three days after each Computation Date.
As used in this Section 2(b), "Computation Date" means the date
which is 30 days after the Initial Date and, if the Registration Statement
required to be filed by the Company pursuant to Section 2(a) has not theretofore
been declared effective by the Commission, each date which is 30 days after the
previous Computation Date until such Registration Statement is so declared
effective.
Notwithstanding the above, if the Registration Statement covering
the Registrable Securities or the Additional Registrable Securities required to
be filed by the Company pursuant to Section 2(a) or 2(d) hereof, as the case may
be, is not filed with the Commission by the 30th day after the Closing Date, the
Company shall be in default of this Registration Rights Agreement.
(c) Eligibility for Use of Form S-3. The Company agrees that at such
time as it meets all the requirements for the use of Securities Act Registration
Statement on Form S-3 it shall file all reports and information required to be
filed by it with the Commission in a timely manner and take all such other
action so as to maintain such eligibility for the use of such form.
(d) In the event the Current Market Price declines to $5.00 per
share, the Company shall, to the extent required by the Securities Act (because
the additional shares were not covered by the Registration Statement filed
pursuant to Section 2(a)), as reasonably determined by the Initial Investor,
file an additional Registration Statement with the Commission for such
additional number of Registrable Securities as would be issuable upon conversion
of the Preferred Shares and exercise of the Warrants (the "Additional
Registrable Securities") in addition to those previously registered, assuming a
Conversion Price of $1.50 per share. The Company shall, to the extent required
by the Securities Act, as reasonably determined by the Initial Investor, prepare
and file with the Commission not later than the 30th day thereafter, a
Registration Statement relating to the offer and sale of such Additional
Registrable Securities and shall use its best efforts to cause the Commission to
declare such Registration Statement effective under the Securities Act as
promptly as practicable but not later than 60 days thereafter. The Company shall
not include any other securities in the Registration Statement relating to the
offer and sale of such Additional Registrable Securities.
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(e) (i) If the Company proposes to register any of its warrants,
Common Stock or any other shares of common stock of the Company under the
Securities Act (other than a registration (A) on Form S-8 or S-4 or any
successor or similar forms, (B) relating to Common Stock or any other
shares of common stock of the Company issuable upon exercise of employee
share options or in connection with any employee benefit or similar plan
of the Company or (C) in connection with a direct or indirect acquisition
by the Company of another Person or any transaction with respect to which
Rule 145 (or any successor provision) under the Securities Act applies),
whether or not for sale for its own account, it will each such time, give
prompt written notice at least 20 days prior to the anticipated filing
date of the registration statement relating to such registration to the
Initial Investor, which notice shall set forth such Initial Investor's
rights under this Section 2(e) and shall offer the Initial Investor the
opportunity to include in such registration statement such number of
Registrable Securities as the Initial Investor may request. Upon the
written request of an Initial Investor made within 10 days after the
receipt of notice from the Company (which request shall specify the number
of Registrable Securities intended to be disposed of by such Initial
Investor), the Company will use its best efforts to effect the
registration under the Securities Act of all Registrable Securities that
the Company has been so requested to register by the Initial Investor, to
the extent requisite to permit the disposition of the Registrable
Securities so to be registered; provided, however, that if, at any time
after giving written notice of its intention to register any Registrable
Securities pursuant to this Section 2 and prior to the effective date of
the registration statement filed in connection with such registration, the
Company shall determine for any reason not to register such Registrable
Securities, the Company shall give written notice to the Initial Investor
and, thereupon, shall be relieved of its obligation to register any
Registrable Securities in connection with such registration. The Company's
obligations under this Section 2(e) shall terminate on the date that the
registration statement to be filed in accordance with Section 2(a) is
declared effective by the Commission.
(ii) If a registration pursuant to this Section 2(e) involves
a Public Offering and the managing underwriter thereof advises the Company
that, in its view, the number of shares of Common Stock, Warrants or other
shares of Common Stock that the Company and the Investors intend to
include in such registration exceeds the largest number of shares of
Common Stock or Warrants (including any other shares of Common Stock or
Warrants of the Company) that can be sold without having an adverse effect
on such Public Offering (the "Maximum Offering Size"), the Company will
include in such registration, only that number of shares of Common Stock
or Warrants, as applicable, such that the number of shares of Registrable
Securities registered does not exceed the Maximum Offering Size, with the
difference between the number of shares in the Maximum Offering Size and
the number of shares to be issued by the Company to be allocated (after
including all shares to be issued and sold by the Company and all other
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selling shareholders ("Third-Party Sellers")), first, among the Company
and the Investors pro rata on the basis of the relative number of shares
of Common Stock or Warrants offered for sale under such registration by
each of the Company and the Investors, and second, to any Third-Party
Sellers pro rata on the basis of the relative number of shares of Common
Stock or Warrant offered for sale under such registration by Third-Party
Sellers. If as a result of the proration provisions of this Section
2(e)(ii), any Investor is not entitled to include all such Registrable
Securities in such registration, such Initial Investor may elect to
withdraw its request to include any Registrable Securities in such
registration. With respect to registrations pursuant to this Section 2(e),
the number of securities required to satisfy any underwriters'
over-allotment option shall be allocated on the basis set forth in the
first sentence of this Section 2(e)(ii).
3. Obligations of the Company
In connection with the registration of the Registrable Securities,
the Company shall:
(a) Promptly (i) prepare and file with the Commission such
amendments (including post-effective amendments) to the Registration Statement
and supplements to the Prospectus as may be necessary to keep the Registration
Statement continuously effective and in compliance with the provisions of the
Securities Act applicable thereto so as to permit the Prospectus forming part
thereof to be current and useable by Investors for resales of the Registrable
Securities for a period of two years from the date on which the Registration
Statement is first declared effective by the Commission (the "Effective Time")
or such shorter period that will terminate when all the Registrable Securities
covered by the Registration Statement have been sold pursuant thereto in
accordance with the plan of distribution provided in the Prospectus, transferred
pursuant to Rule 144 under the Securities Act or otherwise transferred in a
manner that results in the delivery of new securities not subject to transfer
restrictions under the Securities Act (the "Registration Period") and (ii) take
all lawful action such that each of (A) the Registration Statement and any
amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, not misleading and
(B) the Prospectus forming part of the Registration Statement, and any amendment
or supplement thereto, does not at any time during the Registration Period
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Notwithstanding the foregoing provisions of this Section 3(a), the Company may,
during the Registration Period, suspend the use of the Prospectus for a period
not to exceed 60 days (whether or not consecutive) in any 12-month period if the
Board of Directors of the Company determines in good faith that because of valid
business reasons, including pending mergers or other business combination
transactions, the planned acquisition or divestiture of assets, pending material
corporate developments and similar events, it is in the best interests of the
Company to suspend such use, and prior to or contemporaneously with suspending
such use the Company provides the Investors with written notice of such
suspension, which notice need not specify the nature of the event giving rise to
such suspension. At the end of any such suspension period, the Company shall
provide the Investors with written notice of the termination of such suspension;
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(b) During the Registration Period, comply with the provisions of
the Securities Act with respect to the Registrable Securities of the Company
covered by the Registration Statement until such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of
disposition by the Investors as set forth in the Prospectus forming part of the
Registration Statement;
(c) (i) Prior to the filing with the Commission of any Registration
Statement (including any amendments thereto) and the distribution or delivery of
any Prospectus (including any supplements thereto), provide (A) draft copies
thereof to the Investors and reflect in such documents all such comments as the
Investors (and their counsel) reasonably may propose and (B) to the Investors a
copy of the accountant's consent letter to be included in the filing and (ii)
furnish to each Investor whose Registrable Securities are included in the
Registration Statement and its legal counsel identified to the Company, (A)
promptly after the same is prepared and publicly distributed, filed with the
Commission, or received by the Company, one copy of the Registration Statement,
each Prospectus, and each amendment or supplement thereto, and (B) such number
of copies of the Prospectus and all amendments and supplements thereto and such
other documents, as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor;
(d) (i) Register or qualify the Registrable Securities covered by
the Registration Statement under such securities or "blue sky" laws of such
jurisdictions as the Investors who hold a majority-in-interest of the
Registrable Securities being offered reasonably request, (ii) prepare and file
in such jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof at all times during the Registration Period,
(iii) take all such other lawful actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the Registration
Period, and (iv) take all such other lawful actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (A) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (B) subject itself to general taxation in any such jurisdiction or
(C) file a general consent to service of process in any such jurisdiction;
(e) As promptly as practicable after becoming aware of such event,
notify each Investor of the occurrence of any event, as a result of which the
Prospectus included in the Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and
promptly prepare an amendment to the Registration Statement and supplement to
the Prospectus to correct such untrue statement or omission, and deliver a
number of copies of such supplement and amendment to each Investor as such
Investor may reasonably request;
(f) As promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance by
the Commission of any stop order or other suspension of the effectiveness of the
Registration Statement at the earliest possible time and take all lawful action
to effect the withdrawal, recession or removal of such stop order or other
suspension;
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(g) Cause all the Registrable Securities covered by the Registration
Statement to be listed on the principal national securities exchange, and
included in an inter-dealer quotation system of a registered national securities
association, on or in which securities of the same class or series issued by the
Company are then listed or included;
(h) Maintain a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date of the
Registration Statement;
(i) Cooperate with the Investors who hold Registrable Securities
being offered to facilitate the timely preparation and delivery of certificates
for the Registrable Securities to be offered pursuant to the registration
statement and enable such certificates for the Registrable Securities to be in
such denominations or amounts, as the case may be, as the Investors reasonably
may request and registered in such names as the Investor may request; and,
within three business days after a registration statement which includes
Registrable Securities is declared effective by the Commission, deliver and
cause legal counsel selected by the Company to deliver to the transfer agent for
the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such registration statement) an appropriate
instruction and, to the extent necessary, an opinion of such counsel;
(j) Take all such other lawful actions reasonably necessary to
expedite and facilitate the disposition by the Investors of their Registrable
Securities in accordance with the intended methods therefor provided in the
Prospectus which are customary under the circumstances;
(k) Make generally available to its security holders as soon as
practicable, but in any event not later than three (3) months after (i) the
effective date (as defined in Rule 158(c) under the Securities Act) of the
Registration Statement, and (ii) the effective date of each post-effective
amendment to the Registration Statement, as the case may be, an earnings
statement of the Company and its subsidiaries complying with Section 11(a) of
the Securities Act and the rules and regulations of the Commission thereunder
(including, at the option of the Company, Rule 158);
(1) In the event of an underwritten offering, promptly include or
incorporate in a Prospectus supplement or post-effective amendment to the
Registration Statement such information as the managers reasonably agree should
be included therein and to which the Company does not reasonably object and make
all required filings of such Prospectus supplement or post-effective amendment
as soon as practicable after it is notified of the matters to be included or
incorporated in such Prospectus supplement or post-effective amendment;
(m) (i) Make reasonably available for inspection by Investors, any
underwriter participating in any disposition pursuant to the Registration
Statement, and any attorney, accountant or other agent retained by such
Investors or any such underwriter all relevant financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries, and (ii) cause the Company's officers, directors and employees to
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supply all information reasonably requested by such Investors or any such
underwriter, attorney, accountant or agent in connection with the Registration
Statement, in each case, as is customary for similar due diligence examinations;
provided, however, that all records, information and documents that are
designated in writing by the Company, in good faith, as confidential,
proprietary or containing any material nonpublic information shall be kept
confidential by such Investors and any such underwriter, attorney, accountant or
agent (pursuant to an appropriate confidentiality agreement in the case of any
such holder or agent), unless such disclosure is made pursuant to judicial
process in a court proceeding (after first giving the Company an opportunity
promptly to seek a protective order or otherwise limit the scope of the
information sought to be disclosed) or is required by law, or such records,
information or documents become available to the public generally or through a
third party not in violation of an accompanying obligation of confidentiality;
and provided, further, that, if the foregoing inspection and information
gathering would otherwise disrupt the Company's conduct of its business, such
inspection and information gathering shall, to the maximum extent possible, be
coordinated on behalf of the Investors and the other parties entitled thereto by
one firm of counsel designed by and on behalf of the majority in interest of
Investors and other parties;
(n) In connection with any underwritten offering, make such
representations and warranties to the Investors participating in such
underwritten offering and to the managers, in form, substance and scope as are
customarily made by the Company to underwriters in secondary underwritten
offerings;
(o) In connection with any underwritten offering, obtain opinions of
counsel to the Company (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the managers) addressed to the
underwriters, covering such matters as are customarily covered in opinions
requested in secondary underwritten offerings (it being agreed that the matters
to be covered by such opinions shall include, without limitation, as of the date
of the opinion and as of the Effective Time of the Registration Statement or
most recent post-effective amendment thereto, as the case may be, the absence
from the Registration Statement and the Prospectus, including any documents
incorporated by reference therein, of an untrue statement of a material fact or
the omission of a material fact required to be stated therein or necessary to
make the statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading, subject to customary
limitations);
(p) In connection with any underwritten offering, obtain "cold
comfort" letters and updates thereof from the independent public accountants of
the Company (and, if necessary, from the independent public accountants of any
subsidiary of the Company or of any business acquired by the Company, in each
case for which financial statements and financial data are, or are required to
be, included in the Registration Statement), addressed to each underwriter
participating in such underwritten offering (if such underwriter has provided
such letter, representations or documentation, if any, required for such cold
comfort letter to be so addressed), in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
secondary underwritten offerings;
(q) In connection with any underwritten offering, deliver such
documents and certificates as may be reasonably required by the managers, if
any; and
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(r) In the event that any broker-dealer registered under the
Exchange Act shall be an "Affiliate" (as defined in Rule 2729(b)(1) of the rules
and regulations of the National Association of Securities Dealers, Inc. (the
"NASD Rules") (or any successor provision thereto)) of the Company or has a
"conflict of interest" (as defined in Rule 2720(b)(7) of the NASD Rules (or any
successor provision thereto)) and such broker-dealer shall underwrite,
participate as a member of an underwriting syndicate or selling group or assist
in the distribution of any Registrable Securities covered by the Registration
Statement, whether as a holder of such Registrable Securities or as an
underwriter, a placement or sales agent or a broker or dealer in respect
thereof, or otherwise, the Company shall assist such broker-dealer in complying
with the requirements of the NASD Rules, including, without limitation, by (A)
engaging a "qualified independent underwriter" (as defined in Rule 2720(b)(15)
of the NASD Rules (or any successor provision thereto)) to participate in the
preparation of the Registration Statement relating to such Registrable
Securities, to exercise usual standards of due diligence in respect thereof and
to recommend the public offering price of such Registrable Securities, (B)
indemnifying such qualified independent underwriter to the extent of the
indemnification of underwriters provided in Section 5 hereof, and (C) providing
such information to such broker-dealer as may be required in order for such
broker-dealer to comply with the requirements of the NASD Rules.
4. Obligations of the Investors
In connection with the registration of the Registrable Securities,
the Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. As least seven
days prior to the first anticipated filing date of the Registration Statement,
the Company shall notify each Investor of the information the Company requires
from each such Investor (the "Requested Information") if such Investor elects to
have any of its Registrable Securities included in the Registration Statement.
If at least two business days prior to the anticipated filing date the Company
has not received the Requested Information from an Investor (a "Non-Responsive
Investor"), then the Company may file the Registration Statement without
including Registrable Securities of such Non-Responsive Investor and have no
further obligations to the Non-Responsive Investor;
(b) Each Investor by its acceptance of the Registrable Securities
agrees to cooperate with the Company in connection with the preparation and
filing of the Registration Statement hereunder, unless such Investor has
notified the Company in writing of its election to exclude all of its
Registrable Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the
Company of the occurrence of any event of the kind described in Section 3(e) or
3(f), it shall immediately discontinue its disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such Investor's receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 3(e) and, if so directed by the Company, such
Investor shall deliver to the Company (at the expense of the Company) or destroy
(and deliver to the Company a certificate of destruction) all copies in such
Investor's possession, of the Prospectus covering such Registrable Securities
current at the time of receipt of such notice.
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5. Expenses of Registration
All expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Section 3, but including, without limitation, all registration, listing, and
qualifications fees, printing and engraving fees, accounting fees, and the fees
and disbursements of counsel for the Company, and the reasonable fees of one
firm of counsel to the holders of a majority in interest of the Registrable
Securities shall be borne by the Company.
6. Indemnification and Contribution
(a) The Company shall indemnify and hold harmless each Investor and
each underwriter, if any, which facilitates the disposition of Registrable
Securities, and each of their respective officers and directors and each person
who controls such Investor or underwriter within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act (each such person being
sometimes hereinafter referred to as an "Indemnified Person") from and against
any losses, claims, damages or liabilities, joint or several, to which such
Indemnified Person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement or an
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, not misleading, or
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any Prospectus or an omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and the Company hereby agrees to
reimburse such Indemnified Person for all reasonable legal and other expenses
incurred by them in connection with investigating or defending any such action
or claim as and when such expenses are incurred; provided, however, that the
Company shall not be liable to any such Indemnified Person in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon (i) an untrue statement or alleged untrue statement made in, or an
omission or alleged omission from, such Registration Statement or Prospectus in
reliance upon and in conformity with written information furnished to the
Company by such Indemnified Person expressly for use therein or (ii) in the case
of the occurrence of an event of the type specified in Section 3(e), the use by
the Indemnified Person of an outdated or defective Prospectus after the Company
has provided to such Indemnified Person an updated Prospectus correcting the
untrue statement or alleged untrue statement or omission or alleged omission
giving rise to such loss, claim, damage or liability.
(b) Indemnification by the Investors and Underwriters. Each Investor
agrees, as a consequence of the inclusion of any of its Registrable Securities
in a Registration Statement, and each underwriter, if any, which facilitates the
disposition of Registrable Securities shall agree, as a consequence of
facilitating such disposition of Registrable Securities, severally and not
jointly, to (i) indemnify and hold harmless the Company, its directors
(including any person who, with his or her consent, is named in the Registration
Statement as a director nominee of the Company), its officers who sign any
Registration Statement and each person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
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Exchange Act, against any losses, claims, damages or liabilities to which the
Company or such other persons may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in such Registration Statement or
Prospectus or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein (in light of the circumstances under which they were
made, in the case of the Prospectus), not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such holder or
underwriter expressly for use therein; provided, however, that no Investor or
underwriter shall be liable under this Section 6(b) for any amount in excess of
the net proceeds paid to such Investor or underwriter in respect of shares sold
by it, and (ii) reimburse the Company for any legal or other expenses incurred
by the Company in connection with investigating or defending any such action or
claim as such expenses are incurred.
(c) Notice of Claims, etc. Promptly after receipt by a party seeking
indemnification pursuant to this Section 6 (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Section 6 is being sought (the "Indemnifying Party") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party,
except to the extent that the Indemnifying Party is materially prejudiced and
forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim as to which both the Indemnifying Party and the
Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees, costs
and expenses, (y) the Indemnified Party and the Indemnifying Party shall
reasonably have concluded that representation of the Indemnified Party by the
Indemnifying Party by the same legal counsel would not be appropriate due to
actual or, as reasonably determined by legal counsel to the Indemnified Party,
potentially differing interests between such parties in the conduct of the
defense of such Claim, or if there may be legal defenses available to the
Indemnified Party that are in addition to or disparate from those available to
the Indemnifying Party, or (z) the Indemnifying Party shall have failed to
employ legal counsel reasonably satisfactory to the Indemnified Party within a
reasonable period of time after notice of the commencement of such Claim. If the
Indemnified Party employs separate legal counsel in circumstances other than as
described in clauses (x), (y) or (z) above, the fees, costs and expenses of such
legal counsel shall be borne exclusively by the Indemnified Party. Except as
provided above, the Indemnifying Party shall not, in connection with any Claim
in the same jurisdiction, be liable for the fees and expenses of more than one
firm of counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnified Party shall not, without the prior written consent of
the Indemnifying Party (which consent shall not unreasonably be withheld),
settle or compromise any Claim or consent to the entry of any judgment that does
not include an unconditional release of the Indemnifying Party from all
liabilities with respect to such Claim or judgment.
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(d) Contribution. If the indemnification provided for in this
Section 6 is unavailable to or insufficient to hold harmless an Indemnified
Person under subsection (a) or (b) above in respect of any losses, claims,
damages or liabilities (or actions in respect thereof) referred to therein, then
each Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and the Indemnified Party in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative fault of such Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
such Indemnifying Party or by such Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 6(d) were determined by
pro rata allocation (even if the Investors or any underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in this Section 6(d).
The amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
shall be deemed to include any legal or other fees or expenses reasonably
incurred by such Indemnified Party in connection with investigating or defending
any such action or claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The obligations of the Investors and any underwriters in this
Section 6(d) to contribute shall be several in proportion to the percentage of
Registrable Securities registered or underwritten, as the case may be, by them
and not joint.
(e) Notwithstanding any other provision of this Section 6, in no
event shall any (i) Investor be required to undertake liability to any person
under this Section 6 for any amounts in excess of the dollar amount of the
proceeds to be received by such Investor from the sale of such Investor's
Registrable Securities (after deducting any fees, discounts and commissions
applicable thereto) pursuant to any Registration Statement under which such
Registrable Securities are to be registered under the Securities Act and (ii)
underwriter be required to undertake liability to any Person hereunder for any
amounts in excess of the aggregate discount, commission or other compensation
payable to such underwriter with respect to the Registrable Securities
underwritten by it and distributed pursuant to the Registration Statement.
(f) The obligations of the Company under this Section 6 shall be in
addition to any liability which the Company may otherwise have to any
Indemnified Person and the obligations of any Indemnified Person under this
Section 6 shall be in addition to any liability which such Indemnified Person
may otherwise have to the Company. The remedies provided in this Section 6 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to an indemnified party at law or in equity.
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7. Rule 144
With a view to making available to the Investors the benefits of
Rule 144 under the Securities Act or any other similar rule or regulation of the
Commission that may at any time permit the Investors to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to
use its best efforts to:
(a) comply with the provisions of paragraph (c) (1) of Rule
144; and
(b) file with the Commission in a timely manner all reports and
other documents required to be filed by the Company pursuant to Section 13 or
15(d) under the Exchange Act; and, if at any time it is not required to file
such reports but in the past had been required to or did file such reports, it
will, upon the request of any Investor, make available other information as
required by, and so long as necessary to permit sales of, its Registrable
Securities pursuant to Rule 144.
8. Assignment
The rights to have the Company register Registrable Securities
pursuant to this Agreement shall be automatically assigned by the Investors to
any permitted transferee of all or any portion of such securities (or all or any
portion of any Preferred Shares or Warrant of the Company which is convertible
into such securities) of Registrable Securities only if: (a) the Investor agrees
in writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment, (b) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (i) the name and address of such
transferee or assignee and (ii) the securities with respect to which such
registration rights are being transferred or assigned, (c) immediately following
such transfer or assignment, the securities so transferred or assigned to the
transferee or assignee constitute Restricted Securities, and (d) at or before
the time the Company received the written notice contemplated by clause (b) of
this sentence the transferee or assignee agrees in writing with the Company to
be bound by all of the provisions contained herein.
9. Amendment and Waiver
Any provision of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who hold a majority-in-interest of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 9 shall be binding
upon each Investor and the Company.
10. Miscellaneous
(a) A person or entity shall be deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
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(b) If, after the date hereof and prior to the Commission declaring
the Registration Statement to be filed pursuant to Section 2(a) effective under
the Securities Act, the Company grants to any Person any registration rights
with respect to any Company securities which are more favorable to such other
Person than those provided in this Agreement, then the Company forthwith shall
grant (by means of an amendment to this Agreement or otherwise) identical
registration rights to all Investors hereunder.
(c) Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or, if mailed,
three days after the date of deposit in the United States mails, as follows:
<TABLE>
<S> <C>
(i) if to the Company, to:
Research Engineers, Inc.
22700 Savi Ranch Parkway
Yorba Linda, CA 92887
Attention: Chief Financial Officer
(714) 974-2500
(714) 921-0683 (Fax)
with a copy to:
Rutan & Tucker, LLP
611 Anton Blvd., 14th Floor
Costa Mesa, CA 92626
Attention: Gregg Amber, Esq.
(714) 641-3425
(714) 546-9035 (Fax)
(ii) if to the Initial Investor, to:
The Shaar Fund Ltd.,
c/o Levinson Capital Management
2 World Trade Center, Suite 1820
New York, NY 10048
Attention: Samuel Levinson
(212) 432-7711
(212) 432-7771 (Fax)
with a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attention: Dennis J. Block, Esq.
(212) 504-5555
(212) 504-5557 (Fax)
</TABLE>
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(iii) if to any other Investor, at such address as such
Investor shall have provided in writing to the Company.
The Company, the Initial Investor or any Investor may change the foregoing
address by notice given pursuant to this Section 10(c).
(d) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(e) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York. Each of the parties consents
to the jurisdiction of the federal courts whose districts encompass any part of
the City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions.
(f) The remedies provided in this Agreement are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(g) The Company shall not enter into any agreement with respect to
its securities that is inconsistent with the rights granted to the holders of
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof. The Company is not currently a party to any agreement
granting any registration rights with respect to any of its securities to any
person which conflicts with the Company's obligations hereunder or (except as
set forth in Section 2(a)) gives any other party the right to include any
securities in any Registration Statement filed pursuant hereto, except for such
rights and conflicts as have been irrevocably waived. Without limiting the
generality of the foregoing, without the written consent of the holders of a
majority in interest of the Registrable Securities, the Company shall not grant
to any person the right to request it to register any of its securities under
the Securities Act unless the rights so granted are subject in all respect to
the prior rights of the holders of Registrable Securities set forth herein, and
are not otherwise in conflict or inconsistent with the provisions of this
Agreement. The restrictions on the Company's rights to grant registration rights
under this paragraph shall terminate on the date the Registration Statement to
be filed pursuant to Section 2(a) is declared effective by the Commission.
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<PAGE>
(h) This Agreement, the Securities Purchase Agreement, the Escrow
Instructions, dated as of a date even herewith (the "Escrow Instructions"),
between the Company, the Initial Investor and Cadwalader, Wickersham & Taft, the
Preferred Shares and the Warrants constitute the entire agreement among the
parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement, the Securities Purchase Agreement, the
Escrow Instructions, the Certificate of Designation and the Warrants supersede
all prior agreements and undertakings among the parties hereto with respect to
the subject matter hereof.
(i) Subject to the requirements of Section 8 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
(j) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(k) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning thereof.
(1) The Company acknowledges that any failure by the Company to
perform its obligations under Section 3, or any delay in such performance could
result in direct damages to the Investors and the Company agrees that, in
addition to any other liability the Company may have by reason of any such
failure or delay, the Company shall be liable for all direct damages caused by
such failure or delay.
(m) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. A facsimile transmission of this signed Agreement shall be
legal and binding on all parties hereto.
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<PAGE>
In Witness Whereof, the parties have caused this Agreement to be
duly executed and delivered as of the date first above written.
Research Engineers, Inc.
By:
Name: Jyoti Chatterjee
Title: President
The Shaar Fund Ltd.
By:
Name: Samuel Levinson
Title: Managing Director
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Exhibit 2.6
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement, dated as of September 14, 1999,
between Research Engineers, Inc., a Delaware corporation with principal
executive offices located at 22700 Savi Ranch Parkway, Yorba Linda, California
92887 (the "Company"), and The Triton Private Equities Fund, L.P.
("Buyer").
Whereas, Buyer desires to purchase from the Company, and the Company
desires to issue and sell to the Buyer, upon the terms and subject to the
conditions of this Agreement, (i) 71,429 shares of the Company's Series B 5%
Convertible Preferred Stock, par value $0.01 per share (collectively, the
"Preferred Shares"), and (ii) Common Stock Purchase Warrants in the form
attached hereto as Exhibit A (collectively, the "Warrants");
Whereas, upon the terms and subject to the designations, preferences
and rights set forth in the Company's Certificate of Designation of Series B 5%
Convertible Preferred Stock in the form attached hereto as Exhibit B (the
"Certificate of Designation"), the Preferred Shares are convertible into shares
of the Company's common stock, par value $0.01 per share (the "Common Stock");
Whereas, the Warrants, upon the terms and subject to the conditions
in the Warrants, will for a period of five years be exercisable to purchase
10,000 shares of Common Stock;
Now, Therefore, in consideration of the premises and the mutual
covenants contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
I. Purchase and Sale of Preferred Shares and Warrants
A. Transaction. Buyer hereby agrees to purchase from the Company,
and the Company has offered and hereby agrees to issue and sell to the Buyer in
a transaction exempt from the registration and prospectus delivery requirements
of the Securities Act of 1933, as amended (the "Securities Act"), the Preferred
Shares and the Warrants to purchase 10,000 shares of Common Stock.
B. Purchase Price; Form of Payment. The purchase price for the
Preferred Shares and the Warrants to be purchased by Buyer hereunder shall be
$500,000 (the "Purchase Price"). Buyer shall pay the Purchase Price by wire
transfer of immediately available funds to the Company upon execution by both
parties of the signature pages to this Agreement and the Registration Rights
Agreement, and the Company's delivery to H. Glenn Bagwell, Jr., Esq., 3005
Anderson Drive, Suite 204, Raleigh, North Carolina 27609, Tel. 919.785.3113, Fax
919.785.3116 (the "Escrow Agent") of faxed signature pages to this Agreement and
the Registration Rights Agreement (with three (3) originals to follow via
overnight courier) and the full Legal Opinion. The Escrow Agent will assemble
contract sets of documents for the parties and deliver them to the parties as
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<PAGE>
soon as practicable after Closing. The parties acknowledge that the law firm of
Cadwalader, Wickersham & Taft in New York, New York ("CWT"), is as of the
execution of this Agreement in possession of the Purchase Price, along with the
original Preferred Share certificate(s) and the Warrant (the "CWT Documents").
CWT has represented that it will deliver the Purchase Price to the Company (less
any fees and expenses to be paid by the Company) and the CWT Documents to the
Escrow Agent immediately upon the Buyer's faxed instruction to do so. Buyer
shall not be responsible for any delay or failure of CWT to act in accordance
with the preceding sentence so long as Buyer sends via facsimile the said
instruction to CWT as soon as practicable after the Escrow Agent's receipt of
the said faxed signature pages.
C. Method of Payment. Payment of the Purchase Price shall be made by wire
transfer of immediately available funds to the Company by CWT.
II. Buyer's Representations, Warranties; Access to
Information; Independent Investigation
Buyer represents and warrants to and covenants and agrees with the
Company as follows:
A. Buyer is purchasing the Preferred Shares, the Warrants, the
Common Stock issuable upon exercise of the Warrants (the "Warrant Shares") and
the shares of Common Stock issuable upon conversion of the Preferred Shares (the
"Conversion Shares" and, collectively with the Preferred Shares, the Warrants
and the Warrant Shares, the "Securities") for its own account, for investment
purposes only and not with a view towards or in connection with the public sale
or distribution thereof in violation of the Securities Act.
B. Buyer is (i) an "accredited investor" within the meaning of Rule
501 of Regulation D under the Securities Act, (ii) experienced in making
investments of the kind contemplated by this Agreement, (iii) capable, by reason
of its business and financial experience, of evaluating the relative merits and
risks of an investment in the Securities, and (iv) able to afford the loss of
its investment in the Securities.
C. Buyer understands that the Securities are being offered and sold
by the Company in reliance on an exemption from the registration requirements of
the Securities Act and equivalent state securities and "blue sky" laws, and that
the Company is relying upon the accuracy of, and Buyer's compliance with,
Buyer's representations, warranties and covenants set forth in this Agreement to
determine the availability of such exemption and the eligibility of Buyer to
purchase the Securities;
D. Buyer understands that the Securities have not been approved or
disapproved by the Securities and Exchange Commission (the "Commission") or any
state securities commission and that the foregoing authorities have not reviewed
any documents or instruments in connection with the offer and sale to it of the
Securities and have not confirmed or determined the adequacy or accuracy of any
such documents or instruments.
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<PAGE>
E. This Agreement has been duly and validly authorized, executed and
delivered by Buyer and is a valid and binding agreement of Buyer enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and except as rights to
indemnity and contribution may be limited by federal or state securities laws or
the public policy underlying such laws.
F. Neither Buyer nor its affiliates nor any person acting on its or
their behalf has the intention of entering, or will enter into, prior to the
closing or at any time during which it or they own any of the Securities, any
put option, short position or other similar instrument or position with respect
to the Common Stock and neither Buyer nor any of its affiliates nor any person
acting on its or their behalf will use at any time shares of Common Stock
acquired pursuant to this Agreement to settle any put option, short position or
other similar instrument or position that may have been entered into prior to
the execution of this Agreement; provided, however, that nothing in this Section
II.F shall operate to forbid Buyer or any of its affiliates or any person acting
on its or their behalf from selling, or entering into any other transaction with
respect to, the Common Stock contemporaneously with or following such date and
time as the Person or Persons in whose name or names the Common Stock Delivered
at Conversion shall be issuable shall be deemed to have become the holder or
holders of record of the Common Shares represented thereby and all voting and
other rights associated with the beneficial ownership of such Common Shares
shall have vested with such Person or Persons.
III. The Company's Representations
The Company represents and warrants to Buyer that:
A. Capitalization.
1. The authorized capital stock of the Company consists of:
(i) 20,000,000 shares of Common Stock, of which 5,764,396 shares are
issued and outstanding on the date hereof; and (ii) 5,000,000 shares of
"blank check" preferred stock, of which no shares are issued and
outstanding on the date hereof. All of the issued and outstanding shares
of Common Stock and preferred stock, if any, have been duly authorized and
validly issued and are fully paid and nonassessable. As of the date
hereof, the Company has outstanding 950,364 stock options and warrants to
purchase shares of Common Stock. The Conversion Shares and Warrant Shares
have been duly and validly authorized and reserved for issuance by the
Company, and when issued by the Company upon conversion of, or in lieu of
accrued dividends on, the Preferred Shares and on exercise of the Warrants
will be duly and validly issued, fully paid and nonassessable and will not
subject the holder thereof to personal liability by reason of being such
holder. There are no preemptive, subscription, "call" or other similar
rights to acquire the Common Stock (including the Conversion Shares and
Warrant Shares) that have been issued or granted to any person, except as
disclosed on Schedule III.A.1. hereto or otherwise previously disclosed in
writing to Buyer.
2. Except as disclosed on Schedule III.A.2. hereto, the
Company does not own or control, directly or indirectly, any interest in
any other corporation, partnership, limited liability company,
unincorporated business organization, association, trust or other business
entity.
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<PAGE>
B. Organization; Reporting Company Status.
1. The Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and
is duly qualified as a foreign corporation in all jurisdictions in which
the failure to so qualify would have a material adverse effect on the
business, properties, prospects, condition (financial or otherwise) or
results of operations of the Company or on the consummation of any of the
transactions contemplated by this Agreement (a "Material Adverse Effect").
2. The Company has registered the Common Stock pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and has timely filed with the Commission all reports and
information required to be filed by it pursuant to all reporting
obligations under Section 13(a) or 15(d), as applicable, of the Exchange
Act for the 12-month period immediately preceding the date hereof. The
Common Stock is listed and traded on the Nasdaq National Market ("Nasdaq")
and the Company has not received any notice regarding, and to its
knowledge there is no threat of, the termination or discontinuance of the
eligibility of the Common Stock for such listing.
C. Authorized Shares. The Company has duly and validly authorized
and reserved for issuance shares of Common Stock sufficient in number for the
conversion, of the Preferred Shares (assuming for purposes of this Section
III.C. a Conversion Price (as defined in the Certificate of Designation) of
$1.00 per share) and the exercise of the Warrants. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock of the issuance
of the Preferred Shares and Warrant Shares upon conversion of the Preferred
Shares and exercise of the Warrants, respectively. The Company further
acknowledges that its obligation to issue Conversion Shares upon conversion of
the Preferred Shares and Warrant Shares upon exercise of the Warrants in
accordance with this Agreement, the Preferred Shares and the Warrants is
absolute and unconditional regardless of the dilutive effect that such issuance
may have on the ownership interests of other stockholders of the Company and
notwithstanding the commencement of any case under 11 U.S.C. ss. 101 et seq.
(the "Bankruptcy Code"). In the event the Company is a debtor under the
Bankruptcy Code, the Company hereby waives to the fullest extent permitted any
rights to relief it may have under 11 U.S.C. ss. 362 in respect of the
conversion of the Preferred Shares and the exercise of the Warrants. The Company
agrees, without cost or expense to Buyer, to take or consent to any and all
action necessary to effectuate relief under 11 U.S.C. ss. 362. Schedule III.C.
hereto sets forth (i) all issuances and sales by the Company since July 1, 1999
of its capital stock, and other securities convertible, exercisable or
exchangeable for capital stock of the Company, (ii) the amount of such
securities sold, including any underlying shares of capital stock, (iii) the
purchaser thereof, and (iv) the amount paid therefor.
D. Authority; Validity and Enforceability. The Company has the
requisite corporate power and authority to file and perform its obligations
under the Certificate of Designation and to enter into the Documents (as
hereinafter defined), and to perform all of its obligations hereunder and
thereunder (including the issuance, sale and delivery to Buyer of the
Securities). The execution, delivery and performance by the Company of the
Documents, and the consummation by the Company of the transactions contemplated
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<PAGE>
hereby and thereby (including, without limitation, the filing of the Certificate
of Designation with the Delaware Secretary of State's office, the issuance of
the Preferred Shares, the Warrants and the issuance and reservation for issuance
of the Conversion Shares and Warrant Shares), has been duly authorized by all
necessary corporate action on the part of the Company. Each of the Documents has
been duly and validly executed and delivered by the Company and the Certificate
of Designation has been duly filed with the Delaware Secretary of State's office
by the Company and each instrument constitutes a valid and binding obligation of
the Company enforceable against it in accordance with its terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally
and except as rights to indemnity and contribution may be limited by federal or
state securities laws or the public policy underlying such laws. The Securities
have been duly and validly authorized for issuance by the Company and, when
executed and delivered by the Company, will be valid and binding obligations of
the Company enforceable against it in accordance with their terms, subject to
applicable bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws affecting creditors' rights and remedies generally.
For purposes of this Agreement, the term "Documents" means (i) this Agreement;
(ii) the Registration Rights Agreement of even date herewith between the Company
and Buyer, a copy of which is annexed hereto as Exhibit D (the "Registration
Rights Agreement"); (iii) the Certificate of Designation; and (iv) the Warrants.
E. Authorization of the Securities. The authorization, issuance,
sale and delivery of the Preferred Shares and Warrants has been duly authorized
by all requisite corporate action on the part of the Company. As of the Closing
Date, the Preferred Shares and the Warrants, and the Conversion Shares and the
Warrant Shares upon their issuance in accordance with the Certificate of
Designation and the Warrants, respectively, will be validly issued and
outstanding, fully paid and nonassessable, and not subject to any preemptive
rights, rights of first refusal or other similar rights.
F. Non-contravention. The execution and delivery by the Company of
the Documents, the issuance of the Securities, and the consummation by the
Company of the other transactions contemplated hereby and thereby, including,
without limitation, the filing of the Certificate of Designation with the
Delaware Secretary of State's office, do not and will not conflict with or
result in a breach by the Company of any of the terms or provisions of, or
constitute a default (or an event which, with notice, lapse of time or both,
would constitute a default) under (i) the certificate of incorporation or
by-laws of the Company or (ii) any indenture, mortgage, deed of trust or other
material agreement or instrument to which the Company is a party or by which its
properties or assets are bound, or any law, rule, regulation, decree, judgment
or order of any court or public or governmental authority having jurisdiction
over the Company or any of the Company's properties or assets, except as to
clause (ii) above such conflict, breach or default which would not have a
Material Adverse Effect or as to which an effective waiver or consent was
obtained.
G. Approvals. No authorization, approval or consent of any court or
public or governmental authority is required to be obtained by the Company for
the issuance and sale of the Preferred Shares or the Warrants (and the
Conversion Shares and Warrant Shares) to Buyer as contemplated by this
Agreement, except such authorizations, approvals and consents that have been
obtained by the Company prior to the date hereof.
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H. Commission Filings. None of the Company's reports and documents
heretofore filed with the Commission pursuant to the Securities Act or the
Exchange Act (collectively, the "Commission Filings") contained at the time they
were filed any untrue statement of a material fact or omitted to state any
material fact required to be stated therein or necessary to make the statements
made therein, in light of the circumstances under which they were made, not
misleading.
I. Absence of Certain Changes. Since the Balance Sheet Date (as
defined in Section III.M.), there has not occurred any change, event or
development in the business, financial condition, prospects or results of
operations of the Company, and there has not existed any condition having or
reasonably likely to have, a Material Adverse Effect.
J. Full Disclosure. There is no fact known to the Company (other
than general economic or industry conditions known to the public generally) that
has not been fully disclosed in the Commission Filings or in writing to the
Buyer that (i) reasonably could be expected to have a Material Adverse Effect or
(ii) reasonably could be expected to materially and adversely affect the ability
of the Company to perform its obligations pursuant to the Documents.
K. Absence of Litigation. There is no action, suit, claim,
proceeding, inquiry or investigation pending or, to the Company's knowledge,
threatened, by or before any court or public or governmental authority which, if
determined adversely to the Company, would have a Material Adverse Effect.
L. Absence of Events of Default. No "Event of Default" (as defined
in any agreement or instrument to which the Company is a party) and no event
which, with notice, lapse of time or both, would constitute an Event of Default
(as so defined), has occurred and is continuing, which could have a Material
Adverse Effect.
M. Financial Statements; No Undisclosed Liabilities. The Company has
delivered to Buyer true and complete copies of its audited balance sheet as at
March 31, 1999 and the related audited statements of operations and cash flows
for the fiscal years ended March 31, 1998 and March 31, 1999 including the
related notes and schedules thereto (collectively, the "Financial Statements"),
and all management letters, if any, from the Company's independent auditors
relating to the dates and periods covered by the Financial Statements. Each of
the Financial Statements is complete and correct in all material respects, has
been prepared in accordance with United States General Accepted Accounting
Principles ("GAAP") (subject, in the case of the interim Financial Statements,
to normal year end adjustments and the absence of footnotes) and in conformity
with the practices consistently applied by the Company without modification of
the accounting principles used in the preparation thereof, and fairly presents
the financial position, results of operations and cash flows of the Company as
at the dates and for the periods indicated. For purposes hereof, the audited
balance sheet of the Company as at March 31, 1999 is hereinafter referred to as
the "Balance Sheet" and March 31, 1999 is hereinafter referred to as the
"Balance Sheet Date." Except as otherwise disclosed on Schedule III.M. hereof,
the Company has no indebtedness, obligations or liabilities of any kind (whether
accrued, absolute, contingent or otherwise, and whether due or to become due)
that would have been required to be reflected in, reserved against or otherwise
described in the Balance Sheet or in the notes thereto in accordance with GAAP,
which was not fully reflected in, reserved against or otherwise described in the
Balance Sheet or the notes thereto or was not incurred in the ordinary course of
business consistent with the Company's past practices since the Balance Sheet
Date.
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N. Compliance with Laws; Permits. The Company is in compliance with
all laws, rules, regulations, codes, ordinances and statutes (collectively,
"Laws") applicable to it or to the conduct of its business, except for such
noncompliance which would not have a Material Adverse Effect. The Company
possesses all permits, approvals, authorizations, licenses, certificates and
consents from all public and governmental authorities which are necessary to
conduct its business, except for those the absence of which would not have a
Material Adverse Effect.
O. Related Party Transactions. Except as described in the Commission
Filings or set forth on Schedule III.O. hereto, neither the Company nor any of
its officers, directors or "Affiliates" (as such term is defined in Rule 12b-2
under the Exchange Act) has borrowed any moneys from or has outstanding any
indebtedness or other similar obligations to the Company. Except as set forth on
Schedule III.O. hereto, neither the Company nor any of its officers, directors
or Affiliates (i) owns any direct or indirect interest constituting more than a
1% equity (or similar profit participation) interest in, or controls or is a
director, officer, partner, member or employee of, or consultant to or lender to
or borrower from, or has the right to participate in the profits of, any person
or entity which is (x) a competitor, supplier, customer, landlord, tenant,
creditor or debtor of the Company, (y) engaged in a business related to the
business of the Company, or (z) a participant in any transaction to which the
Company is a party (other than in the ordinary course of the Company's business)
or (ii) is a party to any contract, agreement, commitment or other arrangement
with the Company.
P. Insurance. The Company maintains property and casualty, general
liability, workers' compensation, environmental hazard, personal injury and
other similar types of insurance with financially sound and reputable insurers
that is adequate, consistent with industry standards and the Company's
historical claims experience. The Company has not received notice from, and has
no knowledge of any threat by, any insurer (that has issued any insurance policy
to the Company) that such insurer intends to deny coverage under or cancel,
discontinue or not renew any insurance policy presently in force.
Q. Securities Law Matters. Based, in part, upon the representations
and warranties of Buyer set forth in Section II hereof, the offer and sale by
the Company of the Securities is exempt from (i) the registration and prospectus
delivery requirements of the Securities Act and the rules and regulations of the
Commission thereunder and (ii) the registration and/or qualification provisions
of all applicable state securities and "blue sky" laws. Other than pursuant to
an effective registration statement under the Securities Act, the Company has
not issued, offered or sold the Preferred Shares or any shares of Common Stock
(including for this purpose any securities of the same or a similar class as the
Preferred Shares or Common Stock, or any securities convertible into or
exchangeable or exercisable for the Preferred Shares or Common Stock or any such
other securities) within the one-year next preceding the date hereof, except as
disclosed on Schedule III.Q. hereto or otherwise previously disclosed in writing
to Buyer, and the Company shall not directly or indirectly take, and shall not
permit any of its directors, officers or Affiliates directly or indirectly to
take, any action (including, without limitation, any offering or sale to any
person or entity of the Preferred Shares or shares of Common Stock), so as to
make unavailable the exemption from Securities Act registration being relied
upon by the Company for the offer and sale to Buyer of the Preferred Shares (and
the Conversion Shares) as contemplated by this Agreement. No form of general
solicitation or advertising has been used or authorized by the Company or any of
its officers, directors or Affiliates in connection with the offer or sale of
the Preferred Shares (and the Conversion Shares) as contemplated by this
Agreement or any other agreement to which the Company is a party.
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R. Environmental Matters.
1. The operations of the Company are in compliance with all
applicable Environmental Laws and all permits issued pursuant to
Environmental Laws or otherwise;
2. The Company has obtained or applied for all permits
required under all applicable Environmental Laws necessary to operate its
business;
3. The Company is not the subject of any outstanding written
order of or agreement with any governmental authority or person respecting
(i) Environmental Laws, (ii) Remedial Action or (iii) any Release or
threatened Release of Hazardous Materials;
4. The Company has not received, since March 31, 1999, any
written communication alleging that it may be in violation of any
Environmental Law or any permit issued pursuant to any Environmental Law,
or may have any liability under any Environmental Law;
5. The Company does not have any current contingent liability
in connection with any Release of any Hazardous Materials into the indoor
or outdoor environment (whether on-site or off-site);
6. Except as set forth on Schedule III.R.6 hereto, to the
Company's knowledge, there are no investigations of the business,
operations, or currently or previously owned, operated or leased property
of the Company pending or threatened which could lead to the imposition of
any liability pursuant to any Environmental Law;
7. There is not located at any of the properties of the
Company any (A) underground storage tanks, (B) asbestos-containing
material or (C) equipment containing polychlorinated biphenyls; and,
8. The Company has provided to Buyer all environmentally
related audits, studies, reports, analyses, and results of investigations
that have been performed with respect to the currently or previously
owned, leased or operated properties of the Company.
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For purposes of this Section III.R.:
"Environmental Law" means any foreign, federal, state or local
statute, regulation, ordinance, or rule of common law as now or hereafter in
effect in any way relating to the protection of human health and safety or the
environment including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, the Hazardous Materials Transportation
Act, the Resource Conservation and Recovery Act, the Clean Water Act, the Clean
Air Act, the Toxic Substances Control Act, the Federal Insecticide, Fungicide,
and Rodenticide Act, and the Occupational Safety and Health Act, and the
regulations promulgated pursuant thereto.
"Hazardous Material" means any substance, material or waste which is
regulated by the United States, Canada or any of its provinces, or any state or
local governmental authority including, without limitation, petroleum and its
by-products, asbestos, and any material or substance which is defined as a
"hazardous waste," "hazardous substance," "hazardous material," "restricted
hazardous waste," "industrial waste," "solid waste," "contaminant," "pollutant,"
"toxic waste" or "toxic substance" under any provision of any Environmental Law;
"Release" means any release, spill, filtration, emission, leaking,
pumping, injection, deposit, disposal, discharge, dispersal, or leaching into
the indoor or outdoor environment, or into or out of any property;
"Remedial Action" means all actions to (x) clean up, remove, treat
or in any other way address any Hazardous Material; (y) prevent the Release of
any Hazardous Material so it does not endanger or threaten to endanger public
health or welfare or the indoor or outdoor environment; or (z) perform
pre-remedial studies and investigations or post-remedial monitoring and care.
S. Labor Matters. The Company is not party to any labor or
collective bargaining agreement and there are no labor or collective bargaining
agreements which pertain to employees of the Company. No employees of the
Company are represented by any labor organization and none of such employees has
made a pending demand for recognition, and there are no representation
proceedings or petitions seeking a representation proceeding presently pending
or, to the Company's knowledge, threatened to be brought or filed, with the
National Labor Relations Board or other labor relations tribunal. There is no
organizing activity involving the Company pending or to the Company's knowledge,
threatened by any labor organization or group of employees of the Company. There
are no (i) strikes, work stoppages, slowdowns, lockouts or arbitrations or (ii)
material grievances or other labor disputes pending or, to the knowledge of the
Company, threatened against or involving the Company. There are no unfair labor
practice charges, grievances or complaints pending or, to the knowledge of the
Company, threatened by or on behalf of any employee or group of employees of the
Company.
T. ERISA Matters. The Company and its ERISA Affiliates are in
compliance in all material respects with all provisions of ERISA applicable to
it. No Reportable Event has occurred, been waived or exists as to which the
Company or any ERISA Affiliate was required to file a report with the Pension
Benefits Guaranty Corporation, and the present value of all liabilities under
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all Plans (based on those assumptions used to fund such Plans) did not, as of
the most recent annual valuation date applicable thereto, exceed the value of
the assets of all such Plans in the aggregate. None of the Company or ERISA
Affiliates has incurred any Withdrawal Liability that could result in a Material
Adverse Effect. None of the Company or ERISA Affiliates has received any
notification that any Multiemployer Plan is in reorganization or has been
terminated within the meaning of Title IV of ERISA, and no Multiemployer Plan is
reasonably expected to be in reorganization or termination where such
reorganization or termination has resulted or could reasonably be expected to
result in increases to the contributions required to be made to such Plan or
otherwise.
For purposes of this Section III.T.:
"ERISA" means the Employee Retirement Income Security Act of 1974,
or any successor statute, together with the regulations thereunder, as the same
may be amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that was, is or hereafter may become, a member of a group of which
the Company is a member and which is treated as a single employer under Section
414 of the Internal Revenue Code of 1986, as amended (the "Internal Revenue
Code").
"Multiemployer Plan" means a multiemployer plan as defined in
Section 4001(a)(3) of ERISA to which the Company or any ERISA Affiliate (other
than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of
Section 414 of the Internal Revenue Code) is making or accruing an obligation to
make contributions, or has within any of the preceding five plan years made or
accrued an obligation to make contributions.
"PBGC" means the Pension Benefit Guaranty Corporation referred to
and defined in ERISA or any successor thereto.
"Plan" means any pension plan (other than a Multiemployer Plan)
subject to the provision of Title IV of ERISA or Section 412 of the Internal
Revenue Code that is maintained for employees of the Company or any ERISA
Affiliate.
"Reportable Event" means any reportable event as defined in Section
4043(b) of ERISA or the regulations issued thereunder with respect to a Plan
(other than a Plan maintained by an ERISA Affiliate that is considered an ERISA
Affiliate only pursuant to subsection (m) or (o) of Section 414 of the Internal
Revenue Code).
"Withdrawal Liability" means liability to a Multiemployer Plan as a
result of a complete or partial withdrawal from such Multiemployer Plan, as such
terms are defined in Part I of Subtitle E of Title IV of ERISA.
U. Tax Matters.
1. The Company has filed all Tax Returns which it is required
to file under applicable Laws, except for such Tax Returns in respect of
which the failure to so file does not and could not have a Material
Adverse Effect; all such Tax Returns are true and accurate in all material
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respects and have been prepared in compliance with all applicable Laws;
the Company has paid all Taxes due and owing by it (whether or not such
Taxes are required to be shown on a Tax Return) and have withheld and paid
over to the appropriate taxing authorities all Taxes which it is required
to withhold from amounts paid or owing to any employee, stockholder,
creditor or other third parties; and since the Balance Sheet Date, the
charges, accruals and reserves for Taxes with respect to the Company
(including any provisions for deferred income taxes) reflected on the
books of the Company are adequate to cover any Tax liabilities of the
Company if its current tax year were treated as ending on the date hereof.
2. No claim has been made by a taxing authority in a
jurisdiction where the Company does not file tax returns that such
corporation is or may be subject to taxation by that jurisdiction. There
are no foreign, federal, state or local tax audits or administrative or
judicial proceedings pending or being conducted with respect to the
Company; no information related to Tax matters has been requested by any
foreign, federal, state or local taxing authority; and, except as
disclosed above, no written notice indicating an intent to open an audit
or other review has been received by the Company from any foreign,
federal, state or local taxing authority. There are no material unresolved
questions or claims concerning the Company's Tax liability. The Company
(A) has not executed or entered into a closing agreement pursuant to
Section 7121 of the Internal Revenue Code or any predecessor provision
thereof or any similar provision of state, local or foreign law; or (B)
has not agreed to or is required to make any adjustments pursuant to
Section 481(a) of the Internal Revenue Code or any similar provision of
state, local or foreign law by reason of a change in accounting method
initiated by the Company or any of its subsidiaries or has any knowledge
that the IRS has proposed any such adjustment or change in accounting
method, or has any application pending with any taxing authority
requesting permission for any changes in accounting methods that relate to
the business or operations of the Company. The Company has not been a
United States real property holding corporation within the meaning of
Section 897(c)(2) of the Internal Revenue Code during the applicable
period specified in Section 897(c)(1)(A)(ii) of the Internal Revenue Code.
3. The Company has not made an election under Section 341(f)
of the Internal Revenue Code. The Company is not liable for the Taxes of
another person that is not a subsidiary of the Company under (A) Treas.
Reg. Section 1.1502-6 (or comparable provisions of state, local or foreign
law), (B) as a transferee or successor, (C) by contract or indemnity or
(D) otherwise. The Company is not a party to any tax sharing agreement.
The Company has not made any payments, is obligated to make payments or is
a party to an agreement that could obligate it to make any payments that
would not be deductible under Section 280G of the Internal Revenue Code.
For purposes of this Section III.U.:
"IRS" means the United States Internal Revenue Service.
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"Tax" or "Taxes" means federal, state, county, local, foreign, or
other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications, real or
personal property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and including any
amendment thereof.
V. Property. The Company has good and marketable title to all real
and personal property owned by it, free and clear of all liens, encumbrances and
defects except such as are described on Schedule III.V. hereto or such as do not
materially affect the value of such property and do not interfere with the use
made and proposed to be made of such property by the Company; and any real
property and buildings held under lease by the Company are held by it under
valid, subsisting and enforceable leases with such exceptions as are not
material and do not interfere with the use made and proposed to be made of such
property and buildings by the Company.
W. Intellectual Property. The Company owns or possesses adequate and
enforceable rights to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures) and other similar rights and proprietary knowledge (collectively,
"Intangibles") necessary for the conduct of its business as now being conducted.
To the Company's knowledge, the Company is not infringing upon or in conflict
with any right of any other person with respect to any Intangibles. Except as
disclosed on Schedule III.W. hereto, no claims have been asserted by any person
to the ownership or use of any Intangibles and the Company has no knowledge of
any basis for such claim.
X. Internal Controls and Procedures. The Company maintains accurate
books and records and internal accounting controls which provide reasonable
assurance that (i) all transactions to which the Company is a party or by which
its properties are bound are executed with management's authorization; (ii) the
reported accountability of the Company's assets is compared with existing assets
at regular intervals; (iii) access to the Company's assets is permitted only in
accordance with management's authorization; and (iv) all transactions to which
the Company is a party or by which its properties are bound are recorded as
necessary to permit preparation of the financial statements of the Company in
accordance with GAAP.
Y. Payments and Contributions. Neither the Company nor any of its
directors, officers or, to its knowledge, other employees has (i) used any
Company funds for any unlawful contribution, endorsement, gift, entertainment or
other unlawful expense relating to political activity; (ii) made any direct or
indirect unlawful payment of Company funds to any foreign or domestic government
official or employee, (iii) violated or is in violation of any provision of the
Foreign Corrupt Practices Act of 1977, as amended; or (iv) made any bribe,
rebate, payoff, influence payment, kickback or other similar payment to any
person with respect to Company matters.
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Z. No Misrepresentation. No representation or warranty of the
Company contained in this Agreement, any schedule, annex or exhibit hereto or
any agreement, instrument or certificate furnished by the Company to Buyer
pursuant to this Agreement, contains any untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein, not misleading.
IV. Certain Covenants and Acknowledgments
A. Restrictive Legend. Buyer acknowledges and agrees that, upon
issuance pursuant to this Agreement, the Securities (and any shares of Common
Stock issued in conversion of the Preferred Shares or exercise of the Warrants)
shall have endorsed thereon a legend in substantially the following form (and a
stop-transfer order may be placed against transfer of the Preferred Shares, the
Warrant Shares and the Conversion Shares until such legend has been removed):
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT") OR THE
SECURITIES LAWS OF ANY STATE. THE SHARES MAY NOT BE PLEDGED, HYPOTHECATED,
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT COVERING THE SECURITIES REPRESENTED
BY THIS CERTIFICATE, AND OTHER FILINGS UNDER ANY APPLICABLE STATE
SECURITIES LAWS, EXCEPT PURSUANT TO AN AVAILABLE EXEMPTION FROM THE
REQUIREMENTS OF THE ACT AND SUCH OTHER LAWS."
B. Filings. The Company shall make all necessary Commission Filings
and "blue sky" filings required to be made by the Company in connection with the
sale of the Securities to the Buyer as required by all applicable Laws, and
shall provide a copy thereof to the Buyer promptly after such filing.
C. Reporting Status. So long as the Buyer beneficially owns any of
the Securities, the Company shall timely file all reports required to be filed
by it with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
D. Use of Proceeds. The Company shall use the net proceeds from the
sale of the Securities (excluding amounts paid by the Company for Buyer's
out-of-pocket costs and expenses incurred in connection with the transactions
contemplated by this Agreement and finder's fees in connection with such sale)
solely for the acquisition of NetGuru Systems, Inc. and NetGuru Consulting, Inc.
E. Listing. Except to the extent the Company lists its Common Stock
on The New York Stock Exchange, the Company shall use its best efforts to
maintain its listing of the Common Stock on Nasdaq.
F. Reserved Conversion Shares. The Company at all times from and
after the date hereof shall have a sufficient number of shares of Common Stock
duly and validly authorized and reserved for issuance to satisfy the conversion,
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in full, of 371,429 Preferred Shares (assuming for purposes of this Section
IV.F., a Conversion Price (as defined in the Certificate of Designation) of
$1.00 per share) and upon the exercise of Warrants to purchase 50,000 shares of
Common Stock. In the event the Current Market Price (as defined in the
Certificate of Designation) declines to $1.00 per share (the "Additional
Registration Trigger Price") and upon each $0.25 per share (the "Incremental
Decline") decline of the Current Market Price below the Additional Registration
Trigger Price, the Company shall, within 10 days of the occurrence of such
event, authorize and reserve for issuance such additional shares of Common Stock
sufficient in number for the conversion, in full, of 371,429 Preferred Shares,
assuming for purposes of this Section IV.F. a Conversion Price (as defined in
the Certificate of Designation) of (i) with respect to a decline to the
Additional Reservation Trigger Price, $0.75 per share (the "Assumed Conversion
Price") and (ii) with respect to each Incremental Decline below the Additional
Reservation Trigger Price, (a) the Assumed Conversion Price less (b) the product
of (x) the number of Incremental Declines below the Additional Reservation
Trigger Price times (y) $0.25 per share.
G. Right of First Refusal. If the Company should propose (the
"Proposal") to issue Common Stock or securities convertible into Common Stock at
a price less than the Current Market Price (as defined in Certificate of
Designation), or debt at less than par value or having an effective annual
interest rate in excess of 9.9% (each a "Right of First Refusal Security" and
collectively, the "Right of First Refusal Securities"), in each case on the date
of issuance during the period ending on the date all of the Preferred Shares
have been converted into Common Stock or two years after the Closing Date,
whichever comes earlier, (the "Right of First Refusal Period"), the Company
shall be obligated to offer the Buyer and Shaar (as defined below) on the terms
set forth in the Proposal (the "Offer") and the Buyer and Shaar shall have the
right, but not the obligation, to accept such Offer on such terms. "Shaar" means
The Shaar Fund, Ltd., as "Buyer" pursuant to that certain Securities Purchase
Agreement of even date herewith between the Company and Shaar (the "Shaar
Purchase Agreement"). It is understood and agreed that (x) any Offer made by the
Company to the Buyer and Shaar pursuant to this Section IV.G. and the Shaar
Purchase Agreement may be accepted by the Buyer up to an amount equal to 20% of
the aggregate total amount of the financing proposed in the Offer and by Shaar
up to an amount equal to 80% of such aggregate total amount and (y) any portion
of such Offer not accepted by the Buyer or Shaar, respectively, may be accepted
instead by Shaar or the Buyer, respectively. If during the Right of First
Refusal Period, the Company provides written notice to the Buyer that it
proposes to issue any Right of First Refusal Securities on the terms set forth
in the Proposal, then the Buyer shall have 10 business days to accept or reject
such Offer in writing. If the Company fails to: (i) issue a Proposal during the
Right of First Refusal Period, (ii) offer the Buyer the opportunity to complete
the transaction as set forth in the Proposal, or (iii) enter into an agreement
with the Buyer, at such terms after the Buyer has accepted the Offer, then the
Company shall pay to the Buyer, as liquidated damages, an amount in total equal
to 10% of the amount paid to the Company for the Right of First Refusal
Securities. Except as set forth above, the foregoing Right of First Refusal is
and shall be senior in right to any other right of first refusal issued by the
Company to any other Person (as defined in the Certificate of Designation).
Notwithstanding the foregoing, the Buyer shall have no rights under this Section
IV.G. in respect of Common Stock or any other securities of the Company issuable
(i) upon the exercise or conversion of options, warrants or other rights to
purchase securities of the Company outstanding as of the date hereof or (ii) to
officers, directors or employees of the Company or any of its subsidiaries.
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H. Issuances of Additional Convertible Preferred Shares or
Convertible Debentures. So long as Buyer beneficially owns any of the Preferred
Shares, the Company shall not issue any additional convertible preferred stock
or convertible debt securities, in each case, convertible into Common Stock at a
floating conversion price, without the prior written consent of Buyer.
V. Transfer Agent Instructions
A. The Company undertakes and agrees that no instruction other than
the instructions referred to in this Section V and customary stop transfer
instructions prior to the registration and sale of the Common Stock pursuant to
an effective Securities Act registration statement will be given to its transfer
agent for the Common Stock and that the Common Stock issuable upon conversion of
the Preferred Shares and exercise of the Warrants otherwise shall be freely
transferable on the books and records of the Company as and to the extent
provided in this Agreement, the Registration Rights Agreement and applicable
law. Nothing contained in this Section V.A. shall affect in any way Buyer's
obligations and agreement to comply with all applicable securities laws upon
resale of such Common Stock. If, at any time, Buyer provides the Company with an
opinion of counsel reasonably satisfactory to the Company that registration of
the resale by Buyer of such Common Stock is not required under the Securities
Act and that the removal of restrictive legends is permitted under applicable
law, the Company shall permit the transfer of such Common Stock and promptly
instruct the Company's transfer agent to issue one or more certificates for
Common Stock without any restrictive legends endorsed thereon.
B. The Company shall permit Buyer to exercise its right to convert
the Preferred Shares by telecopying an executed and completed Notice of
Conversion (as defined in the Certificate of Designation) to the Company. Each
date on which a Notice of Conversion is telecopied to and received by the
Company in accordance with the provisions hereof shall be deemed a Conversion
Date (as defined in the Certificate of Designation). The Company shall instruct
its transfer agent to issue and transmit the certificates evidencing the shares
of Common Stock issuable upon conversion of any Preferred Shares (together with
certificates evidencing any Preferred Shares not being so converted) to Buyer
via express courier, by electronic transfer or otherwise, within five business
days after receipt by the Company of the Notice of Conversion (the "Delivery
Date"). Within 30 days after Buyer delivers the Notice of Conversion to the
Company, Buyer shall deliver to the Company the Preferred Shares being
converted.
C. The Company shall permit Buyer to exercise its right to purchase
shares of Common Stock pursuant to exercise of the Warrants in accordance with
its applicable terms of the Warrants. The last date that the Company may deliver
shares of Common Stock issuable upon any exercise of Warrants is referred to
herein as the "Warrant Delivery Date."
D. The Company understands that a delay in the issuance of the
shares of Common Stock issuable in lieu of cash dividends on the Preferred
Shares, upon the conversion of the Preferred Shares or exercise of the Warrants
beyond the applicable Dividend Payment Due Date (as defined in the Certificate
of Designation), Delivery Date or Warrant Delivery Date could result in economic
loss to Buyer. As compensation to Buyer for such loss (and not as a penalty),
the Company agrees to pay to Buyer for late issuance of Common Stock issuable in
lieu of cash dividends on the Preferred Shares, upon conversion of the Preferred
Shares or exercise of the Warrants in accordance with the following schedule
(where "No. Business Days" is defined as the number of business days beyond
seven days from the Dividend Payment Due Date, the Delivery Date or the Warrant
Delivery Date, as applicable):
15
<PAGE>
<TABLE>
<CAPTION>
Compensation For Each 10
Shares of Preferred Shares Not
Converted Timely or 500 Shares of
Common Stock Issuable In Payment of
Dividends or Upon Exercise of
No. Business Days Warrants Not Issued Timely
<S> <C>
1 $ 25
2 50
3 75
4 100
5 125
6 150
7 175
8 200
9 225
10 250
more than 10 $250 + $100 for each
Business Day Late beyond
10 days
</TABLE>
The Company shall pay to Buyer the compensation described above by the transfer
of immediately available funds upon Buyer's demand. Nothing herein shall limit
Buyer's right to pursue actual damages for the Company's failure to issue and
deliver Common Stock to Buyer, and in addition to any other remedies which may
be available to Buyer, in the event the Company fails for any reason to effect
delivery of such shares of Common Stock within five business days after the
relevant Dividend Payment Due Date, the Delivery Date or the Warrant Delivery
Date, as applicable, Buyer shall be entitled to rescind the relevant Notice of
Conversion or exercise of Warrants by delivering a notice to such effect to the
Company whereupon the Company and Buyer shall each be restored to their
respective original positions immediately prior to delivery of such Notice of
Conversion on delivery.
VI. Delivery Instructions
The Securities shall be delivered by the Company to the Escrow Agent
pursuant to Section I.B. hereof on a "delivery-against-payment basis" at the
Closing.
VII. Closing Date
The date and time of the issuance and sale of the Preferred Shares
(the "Closing Date") shall be the date hereof or such other date as shall be
mutually agreed upon in writing. The issuance and sale of the Securities shall
occur on the Closing Date at the offices of the Escrow Agent. Notwithstanding
anything to the contrary contained herein, the Escrow Agent shall not be
authorized to release to the Company the Purchase Price and to Buyer the
certificate(s) (I/N/O Buyer or I/N/O Buyer's nominee) evidencing the Securities
being purchased by Buyer unless the conditions set forth in Section VIII.C. and
IX.G. hereof have been satisfied.
16
<PAGE>
VIII. Conditions to the Company's Obligations
Buyer understands that the Company's obligation to sell the
Securities on the Closing Date to Buyer pursuant to this Agreement is
conditioned upon:
A. Delivery by Buyer to CWT of the Purchase Price;
B. The accuracy in all material respects on the Closing Date of the
representations and warranties of Buyer contained in this Agreement as if made
on the Closing Date (except for representations and warranties which, by their
express terms, speak as of and relate to a specified date, in which case such
accuracy shall be measured as of such specified date) and the performance by
Buyer in all material respects on or before the Closing Date of all covenants
and agreements of Buyer required to be performed by it pursuant to this
Agreement on or before the Closing Date;
C. There shall not be in effect any Law or order, ruling, judgment
or writ of any court or public or governmental authority restraining, enjoining
or otherwise prohibiting any of the transactions contemplated by this Agreement.
IX. Conditions to Buyer's Obligations
The Company understands that Buyer's obligation to purchase the
Securities on the Closing Date pursuant to this Agreement is conditioned upon:
A. Delivery by the Company to Buyer of evidence that the Certificate
of Designation has been filed and is effective.
B. Delivery by the Company to CWT of one or more certificates (I/N/O
Buyer or I/N/O Buyer's nominee) evidencing the Securities to be purchased by
Buyer pursuant to this Agreement;
C. The accuracy in all respects on the Closing Date of the
representations and warranties of the Company contained in this Agreement as if
made on the Closing Date (except for representations and warranties which, by
their express terms, speak as of and relate to a specified date, in which case
such accuracy shall be measured as of such specified date) and the performance
by the Company in all respects on or before the Closing Date of all covenants
and agreements of the Company required to be performed by it pursuant to this
Agreement on or before the Closing Date;
D. Buyer having received an opinion of counsel for the Company,
dated the Closing Date, in form, scope and substance reasonably satisfactory to
Buyer as to the matters set forth in Annex A;
E. There not having occurred (i) any general suspension of trading
in, or limitation on prices listed for, the Common Stock on Nasdaq, (ii) the
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States, (iii) the commencement of a war, armed hostilities
or other international or national calamity directly or indirectly involving the
United States or any of its territories, protectorates or possessions, or (iv)
in the case of the foregoing existing at the date of this Agreement, a material
acceleration or worsening thereof;
17
<PAGE>
F. There not having occurred any event or development, and there
being in existence no condition, having or which reasonably and foreseeably
could have a Material Adverse Effect;
G. The Company shall have delivered to Buyer or at Buyer's direction
reimbursement of Buyer's out-of-pocket costs and expenses whether or not
accounted for or incurred in connection with the transactions contemplated by
this Agreement (including the fees and disbursements of Buyer's legal counsel)
of $5,000.00;
H. There shall not be in effect any Law or order, ruling, judgment
or writ of any court or public or governmental authority restraining, enjoining
or otherwise prohibiting any of the transactions contemplated by this Agreement;
and
I. Delivery of irrevocable instructions to the Company's transfer
agent to reserve 3,621,430 shares of Common Stock for issuance of the Conversion
Shares and the Warrant Shares.
X. Termination
A. Termination by Mutual Written Consent. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned, for any
reason and at any time prior to the Closing Date, by the mutual written consent
of the Company and Buyer.
B. Termination by the Company or Buyer. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned by action
of the Company or Buyer if (i) the Closing shall not have occurred at or prior
to 5:00 p.m., New York City time, on September 21, 1999 (the "Latest Closing
Date"); provided, however, that the right to terminate this Agreement pursuant
to this Section X.B.(i) shall not be available to any party whose failure to
fulfill any of its obligations under this Agreement has been the cause of or
resulted in the failure of the Closing to occur at or before such time and date
or (ii) any court or public or governmental authority shall have issued an
order, ruling, judgment or writ, or there shall be in effect any Law,
restraining, enjoining or otherwise prohibiting the consummation of any of the
transactions contemplated by this Agreement; provided, further, however, that if
the Closing shall not have occurred on or prior to the Latest Closing Date, the
Closing may only occur after the Latest Closing Date with the written acceptance
of Buyer.
C. Termination by Buyer. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned by Buyer at any time prior to
the Closing Date, if (i) the Company shall have failed to comply with any of its
covenants or agreements contained in this Agreement, (ii) there shall have been
a breach by the Company with respect to any representation or warranty made by
it in this Agreement, (iii) there shall have occurred any event or development,
or there shall be in existence any condition, having or reasonably and
forseeably likely to have a Material Adverse Effect or (iv) the Company shall
have failed to satisfy the conditions provided in Section IX hereof.
18
<PAGE>
D. Termination by the Company. This Agreement may be terminated and
the transactions contemplated hereby may be abandoned by the Company at any time
prior to the Closing Date, if (i) Buyer shall have failed to comply with any of
its covenants or agreements contained in this Agreement, (ii) there shall have
been a breach by Buyer with respect to any representation or warranty made by it
in this Agreement or (iii) Buyer shall have failed to satisfy the conditions
provided in Section VIII(A) and (B) hereof.
E. Fees and Expenses of Termination. If this Agreement is terminated
for any reason other than Buyer's breach or otherwise pursuant to paragraph D
above, the Company shall reimburse Buyer for all of Buyer's out-of-pocket costs
and expenses incurred in connection with the transactions contemplated by this
Agreement and the other Documents (including, without limitation, the fees and
disbursements of Buyer's legal counsel).
XI. Survival; Indemnification
A. The representations, warranties and covenants made by each of the
Company and Buyer in this Agreement, the annexes, schedules and exhibits hereto
and in each instrument, agreement and certificate entered into and delivered by
them pursuant to this Agreement, shall survive the Closing and the consummation
of the transactions contemplated hereby. In the event of a breach or violation
of any of such representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made shall have all rights
and remedies for such breach or violation available to it under the provisions
of this Agreement or otherwise, whether at law or in equity, irrespective of any
investigation made by or on behalf of such party on or prior to the Closing
Date.
B. The Company hereby agrees to indemnify and hold harmless Buyer,
its Affiliates and their respective officers, directors, partners and members
(collectively, the "Buyer Indemnitees"), from and against any and all losses,
claims, damages, judgments, penalties, liabilities and deficiencies
(collectively, "Losses"), and agrees to reimburse the Buyer Indemnitees for all
out of-pocket expenses (including the fees and expenses of legal counsel), in
each case promptly as incurred by the Buyer Indemnitees and to the extent
arising out of or in connection with:
1. any misrepresentation, omission of fact or breach of any of
the Company's representations or warranties contained in this Agreement or
the other Documents, or the annexes, schedules or exhibits hereto or
thereto or any instrument, agreement or certificate entered into or
delivered by the Company pursuant to this Agreement or the other
Documents; or
2. any failure by the Company to perform any of its covenants,
agreements, undertakings or obligations set forth in this Agreement or the
other Documents, or the annexes, schedules or exhibits hereto or thereto
or any instrument, agreement or certificate entered into or delivered by
the Company pursuant to this Agreement or the other Documents; or
3. resales of the Common Shares by Buyer in the manner and as
contemplated by this Agreement and the Registration Rights Agreement.
19
<PAGE>
C. Buyer hereby agrees to indemnify and hold harmless the Company,
its Affiliates and their respective officers, directors, partners and members
(collectively, the "Company Indemnitees"), from and against any and all Losses,
and agrees to reimburse the Company Indemnitees for all out-of-pocket expenses
(including the fees and expenses of legal counsel), in each case promptly as
incurred by the Company Indemnitees and to the extent arising out of or in
connection with:
1. any misrepresentation, omission of fact, or breach of any
of Buyer's representations or warranties contained in this Agreement or
the other Documents, or the annexes, schedules or exhibits hereto or
thereto or any instrument, agreement or certificate entered into or
delivered by Buyer pursuant to this Agreement or the other Documents; or
2. any failure by Buyer to perform in any material respect any
of its covenants, agreements, undertakings or obligations set forth in
this Agreement or the other Documents or any instrument, certificate or
agreement entered into or delivered by Buyer pursuant to this Agreement or
the other Documents.
D. Promptly after receipt by either party hereto seeking
indemnification pursuant to this Section XI (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Section XI is being sought (the "Indemnifying Party") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party except
to the extent that the Indemnifying Party is materially prejudiced and forfeits
substantive rights and defenses by reason of such failure. In connection with
any Claim as to which both the Indemnifying Party and the Indemnified Party are
parties, the Indemnifying Party shall be entitled to assume the defense thereof.
Notwithstanding the assumption of the defense of any Claim by the Indemnifying
Party, the Indemnified Party shall have the right to employ separate legal
counsel and to participate in the defense of such Claim, and the Indemnifying
Party shall bear the reasonable fees, out-of-pocket costs and expenses of such
separate legal counsel to the Indemnified Party if (and only if): (x) the
Indemnifying Party shall have agreed to pay such fees, out-of-pocket costs and
expenses, (y) the Indemnified Party and the Indemnifying Party reasonably shall
have concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal counsel would not be appropriate due to actual or, as
reasonably determined by legal counsel to the Indemnified Party, potentially
differing interests between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are in addition to or disparate from those available to the Indemnifying Party,
or (z) the Indemnifying Party shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such Claim. If the Indemnified Party
employs separate legal counsel in circumstances other than as described in
clauses (x), (y) or (z) above, the fees, costs and expenses of such legal
counsel shall be borne exclusively by the Indemnified Party. Except as provided
above, the Indemnifying Party shall not, in connection with any Claim in the
same jurisdiction, be liable for the fees and expenses of more than one firm of
legal counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnified Party (which consent shall not unreasonably be withheld), settle
or compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
20
<PAGE>
E. In the event one party hereunder should have a claim for
indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in accordance with the
procedures and rules of the American Arbitration Association. Judgment upon any
award rendered by any arbitrators may be entered in any court having competent
jurisdiction thereof.
XII. Governing Law; Miscellaneous
This Agreement shall be governed by and interpreted in accordance
with the laws of the State of New York, without regard to the conflicts of law
principles of such state. Each of the parties consents to the jurisdiction of
the federal courts whose districts encompass any part of the City of New York or
the state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement and hereby waives, to
the maximum extent permitted by law, any objection, including any objection
based on forum non conveniens, to the bringing of any such proceeding in such
jurisdictions. A facsimile transmission of this signed Agreement shall be legal
and binding on all parties hereto. This Agreement may be signed in one or more
counterparts, each of which shall be deemed an original. The headings of this
Agreement are for convenience of reference and shall not form part of, or affect
the interpretation of, this Agreement. If any provision of this Agreement shall
be invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction. This Agreement may be amended only by an instrument
in writing signed by the party to be charged with enforcement. This Agreement
supersedes all prior agreements and understandings among the parties hereto with
respect to the subject matter hereof.
XIII. Notices
Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or, if mailed,
three (3) days after the date of deposit in the United States mails, as follows:
<TABLE>
<S> <C>
A. if to the Company, to:
Research Engineers, Inc.
22700 Savi Ranch Parkway
Yorba Linda, CA 92887
Attention: Chief Financial Officer
(714) 974-2500
(714) 921-0683(Fax)
21
<PAGE>
with a copy to:
Rutan & Tucker, LLP
611 Anton Blvd., 14th Floor
Costa Mesa, CA 92626
Attention: Gregg Amber, Esq.
(714) 641-3425
(714) 546-9035 (Fax)
B. if to the Buyer, to:
The Triton Private Equities Fund, L.P.,
c/o Triton Capital Management, L.L.C.
225 North Market Street, Suite 220
Wichita, Kansas 67202
Attention: John C. Tausche
(316) 262.8874
(316) 262.6801 (Fax)
with a copy to:
H. Glenn Bagwell, Jr., Esq.
Law Offices of H. Glenn Bagwell, Jr.
3005 Anderson Drive, Suite 204
Raleigh, North Carolina 27609
(919) 785.3113
(919) 785.3116 (Fax)
</TABLE>
The Company or the Buyer may change the foregoing address by notice given
pursuant to this Section XIII.
XIV. Confidentiality
Each of the Company and Buyer agrees to keep confidential and not to
disclose to or use for the benefit of any third party the terms of this
Agreement or any other information which at any time is communicated by the
other party as being confidential without the prior written approval of the
other party; provided, however, that this provision shall not apply to
information which, at the time of disclosure, is already part of the public
domain (except by breach of this Agreement) and information which is required to
be disclosed by law (including, without limitation, pursuant to Item 601(b)(10)
of Regulation S-K under the Securities Act and the Exchange Act).
22
<PAGE>
XV. Assignment
This Agreement shall not be assignable by either of the parties
hereto prior to the Closing without the prior written consent of the other
party, and any attempted assignment contrary to the provisions hereby shall be
null and void; provided, however, that Buyer may assign its rights and
obligations hereunder, in whole or in part, to any affiliate of Buyer who
furnishes to the Company the representations and warranties set forth in Section
II hereof and otherwise agrees to be bound by the terms of this Agreement.
23
<PAGE>
In Witness Whereof, the parties hereto have duly executed and
delivered this Agreement on the date first above written.
Research Engineers, Inc.
By:
Name: Jyoti Chatterjee
Title: President
The Triton Private Equities Fund, L.P.
By: Triton Capital Management, L.L.C.
By:
Name: John C. Tausche
Title: Managing Member
24
<PAGE>
Exhibit 2.7
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement, dated as of September 14, 1999
(this "Agreement"), between Research Engineers, Inc., a Delaware corporation,
with principal executive offices located at 22700 Savi Ranch Parkway, Yorba
Linda, CA 92887 (the "Company"), and The Triton Private Equities Fund, L.P. (the
"Initial Investor").
Whereas, upon the terms and subject to the conditions of the
Securities Purchase Agreement dated as of September 14, 1999, between the
Initial Investor and the Company (the "Securities Purchase Agreement"), the
Company has agreed to issue and sell to the Initial Investor (i) 71,429 shares
of Series B 5% Convertible Preferred Stock, par value $ 0.01 per share (the
"Preferred Shares") which, upon the terms of and subject to the conditions of
the Company's Certificate of Designation of Series B 5% Convertible Preferred
Stock (the "Certificate of Designation"), are convertible into shares of the
Company's common stock, par value $0.01 per share (the "Common Stock") and (ii)
Common Stock Purchase Warrants (the "Warrants") to purchase shares of Common
Stock; and
Whereas, to induce the Initial Investor to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide with respect to
the Common Stock issued or issuable in lieu of cash dividend payments on the
Preferred Shares, upon conversion of the Preferred Shares and exercise of the
Warrants certain registration rights under the Securities Act;
Now, Therefore, in consideration of the premises and the mutual
covenants contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Definitions
(a) As used in this Agreement, the following terms shall have the
meanings:
(i) "Affiliate," of any specified Person means any other
Person who directly, or indirectly through one or more intermediaries, is
in control of, is controlled by, or is under common control with, such
specified Person. For purposes of this definition, control of a Person
means the power, directly or indirectly, to direct or cause the direction
of the management and policies of such Person whether by contract,
securities, ownership or otherwise; and the terms "controlling" and
"controlled" have the respective meanings correlative to the foregoing.
(ii) "Closing Date" means the date and time of the issuance
and sale of the Preferred Shares.
(iii) "Commission" means the Securities and Exchange
Commission.
1
<PAGE>
(iv) "Current Market Price" means on any date of determination
the closing bid price of a share of Common Stock on such day as reported
on the Nasdaq National Market ("Nasdaq"); provided, if such security is
not listed or admitted to trading on the Nasdaq, as reported on the
principal national security exchange or quotation system on which such
security is quoted or listed or admitted to trading, or, if not quoted or
listed or admitted to trading on any national securities exchange or
quotation system, the closing bid price of such security on the
over-the-counter market on the day in question as reported by Bloomberg
LP, or a similar generally accepted reporting service, as the case may be.
(v) "Exchange Act" means the Securities Exchange Act of 1934,
as amended, and the rules and regulations of the Commission thereunder, or
any similar successor statute.
(vi) "Investors" means the Initial Investor and any transferee
or assignee of Registrable Securities who agrees to become bound by all of
the terms and provisions of this Agreement in accordance with Section 8
hereof.
(vii) "Person" means any individual, partnership, corporation,
limited liability company, joint stock company, association, trust,
unincorporated organization, or a government or agency or political
subdivision thereof.
(viii) "Prospectus" means the prospectus (including, without
limitation, any preliminary prospectus and any final prospectus filed
pursuant to Rule 424(b) under the Securities Act, including any prospectus
that discloses information previously omitted from a prospectus filed as
part of an effective registration statement in reliance on Rule 430A under
the Securities Act) included in the Registration Statement, as amended or
supplemented by any prospectus supplement with respect to the terms of the
offering of any portion of the Registrable Securities covered by the
Registration Statement and by all other amendments and supplements to such
prospectus, including all material incorporated by reference in such
prospectus and all documents filed after the date of such prospectus by
the Company under the Exchange Act and incorporated by reference therein.
(ix) "Public Offering" means an offer registered with the
Commission and the appropriate state securities commissions by the Company
of its Common Stock and made pursuant to the Securities Act.
(x) "Registrable Securities" means the Common Stock issued or
issuable (i) in lieu of cash dividend payments on the Preferred Shares,
(ii) upon conversion of the Preferred Shares or (iii) upon exercise of the
Warrants; provided, however, a share of Common Stock shall cease to be a
Registrable Security for purposes of this Agreement when it no longer is a
Restricted Security.
(xi) "Registration Statement" means a registration statement
of the Company filed on an appropriate form under the Securities Act
providing for the registration of, and the sale on a continuous or delayed
basis by the holders of, all of the Registrable Securities pursuant to
2
<PAGE>
Rule 415 under the Securities Act, including the Prospectus contained
therein and forming a part thereof, any amendments to such registration
statement and supplements to such Prospectus, and all exhibits and other
material incorporated by reference in such registration statement and
Prospectus.
(xii) "Restricted Security" means any share of Common Stock
issued or issuable in lieu of cash dividend payments on the Preferred
Shares, upon conversion of the Preferred Shares or exercise of the
Warrants except any such share that (i) has been registered pursuant to an
effective registration statement under the Securities Act and sold in a
manner contemplated by the prospectus included in such registration
statement, (ii) has been transferred in compliance with the resale
provisions of Rule 144 under the Securities Act (or any successor
provision thereto) or is transferable pursuant to paragraph (k) of Rule
144 under the Securities Act (or any successor provision thereto), or
(iii) otherwise has been transferred and a new share of Common Stock not
subject to transfer restrictions under the Securities Act has been
delivered by or on behalf of the Company.
(xiii) "Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations of the Commission thereunder, or
any similar successor statute.
(b) All capitalized terms used and not defined herein have the
respective meaning assigned to them in the Securities Purchase Agreement.
2. Registration
(a) Filing and Effectiveness of Registration Statement. The Company
shall prepare and file with the Commission not later than 30 days after the
Closing Date, a Registration Statement relating to the offer and sale of the
Registrable Securities and shall use its best efforts to cause the Commission to
declare such Registration Statement effective under the Securities Act as
promptly as practicable but not later than 150 days after the Closing Date,
assuming for purposes hereof a Conversion Price under the Certificate of
Designation of $4.00 per share. At such time after the filing of the
Registration Statement pursuant to this Section 2(a) as the Commission
indicates, either orally or in writing, that it has no further comments with
respect to such Registration Statement or that it is willing to entertain
appropriate requests for acceleration of effectiveness of such Registration
Statement, the Company shall promptly, and in no event later than two business
days after receipt of such indication from the Commission, request that the
effectiveness of such Registration Statement be accelerated to within 48 hours
of the Commission's receipt of such request. The Company shall not include any
other securities in the Registration Statement relating to the offer and sale of
the Registrable Securities other than (i) Common Stock in an amount not to
exceed 171,000 shares registered by the Company pursuant to that certain
Registration Rights Agreement, dated September 14, 1999 by and between the
Company and Bharat Manglani, and (ii) that number of shares of Common Stock
required to be registered by the Company pursuant to that certain Registration
Agreement, dated September 14, 1999 by and between the Company and The Shaar
Fund Ltd.The Company shall notify the Investors by written notice that such
Registration Statement has been declared effective by the Commission within 24
hours of such declaration by the Commission.
3
<PAGE>
(b) Registration Default. If the Registration Statement covering the
Registrable Securities or the Additional Registrable Securities (as defined in
Section 2(d) hereof) required to be filed by the Company pursuant to Section
2(a) or 2(d) hereof, as the case may be, is not (i) filed with the Commission
within 30 days after the Closing Date or (ii) declared effective by the
Commission within 150 days after the Closing Date (either of which, without
duplication, an "Initial Date"), then the Company shall make the payments to the
Initial Investor as provided in the next sentence as liquidated damages and not
as a penalty. The amount to be paid by the Company to the Initial Investor shall
be determined as of each Computation Date (as defined below), and such amount
shall be equal to 2% (the "Liquidated Damage Rate") of the Purchase Price (as
defined in the Securities Purchase Agreement) from the Initial Date to the first
Computation Date and for each Computation Date thereafter, calculated on a pro
rata basis to the date on which the Registration Statement is filed with (in the
event of an Initial Date pursuant to clause (i) above) or declared effective by
(in the event of an Initial Date pursuant to clause (ii) above) the Commission
(the "Periodic Amount") provided, however, that in no event shall the liquidated
damages be less than $5,000. The full Periodic Amount shall be paid by the
Company to the Initial Investor by wire transfer of immediately available funds
within three days after each Computation Date.
As used in this Section 2(b), "Computation Date" means the date
which is 30 days after the Initial Date and, if the Registration Statement
required to be filed by the Company pursuant to Section 2(a) has not theretofore
been declared effective by the Commission, each date which is 30 days after the
previous Computation Date until such Registration Statement is so declared
effective.
Notwithstanding the above, if the Registration Statement covering
the Registrable Securities or the Additional Registrable Securities required to
be filed by the Company pursuant to Section 2(a) or 2(d) hereof, as the case may
be, is not filed with the Commission by the 30th day after the Closing Date, the
Company shall be in default of this Registration Rights Agreement.
(c) Eligibility for Use of Form S-3. The Company agrees that at such
time as it meets all the requirements for the use of Securities Act Registration
Statement on Form S-3 it shall file all reports and information required to be
filed by it with the Commission in a timely manner and take all such other
action so as to maintain such eligibility for the use of such form.
(d) In the event the Current Market Price declines to $5.00 per
share, the Company shall, to the extent required by the Securities Act (because
the additional shares were not covered by the Registration Statement filed
pursuant to Section 2(a)), as reasonably determined by the Initial Investor,
file an additional Registration Statement with the Commission for such
additional number of Registrable Securities as would be issuable upon conversion
of the Preferred Shares and exercise of the Warrants (the "Additional
Registrable Securities") in addition to those previously registered, assuming a
Conversion Price of $1.50 per share. The Company shall, to the extent required
by the Securities Act, as reasonably determined by the Initial Investor, prepare
and file with the Commission not later than the 30th day thereafter, a
Registration Statement relating to the offer and sale of such Additional
Registrable Securities and shall use its best efforts to cause the Commission to
declare such Registration Statement effective under the Securities Act as
promptly as practicable but not later than 60 days thereafter. The Company shall
not include any other securities in the Registration Statement relating to the
offer and sale of such Additional Registrable Securities.
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(e) (i) If the Company proposes to register any of its warrants,
Common Stock or any other shares of common stock of the Company under the
Securities Act (other than a registration (A) on Form S-8 or S-4 or any
successor or similar forms, (B) relating to Common Stock or any other
shares of common stock of the Company issuable upon exercise of employee
share options or in connection with any employee benefit or similar plan
of the Company or (C) in connection with a direct or indirect acquisition
by the Company of another Person or any transaction with respect to which
Rule 145 (or any successor provision) under the Securities Act applies),
whether or not for sale for its own account, it will each such time, give
prompt written notice at least 20 days prior to the anticipated filing
date of the registration statement relating to such registration to the
Initial Investor, which notice shall set forth such Initial Investor's
rights under this Section 2(e) and shall offer the Initial Investor the
opportunity to include in such registration statement such number of
Registrable Securities as the Initial Investor may request. Upon the
written request of an Initial Investor made within 10 days after the
receipt of notice from the Company (which request shall specify the number
of Registrable Securities intended to be disposed of by such Initial
Investor), the Company will use its best efforts to effect the
registration under the Securities Act of all Registrable Securities that
the Company has been so requested to register by the Initial Investor, to
the extent requisite to permit the disposition of the Registrable
Securities so to be registered; provided, however, that if, at any time
after giving written notice of its intention to register any Registrable
Securities pursuant to this Section 2 and prior to the effective date of
the registration statement filed in connection with such registration, the
Company shall determine for any reason not to register such Registrable
Securities, the Company shall give written notice to the Initial Investor
and, thereupon, shall be relieved of its obligation to register any
Registrable Securities in connection with such registration. The Company's
obligations under this Section 2(e) shall terminate on the date that the
registration statement to be filed in accordance with Section 2(a) is
declared effective by the Commission.
(ii) If a registration pursuant to this Section 2(e) involves
a Public Offering and the managing underwriter thereof advises the Company
that, in its view, the number of shares of Common Stock, Warrants or other
shares of Common Stock that the Company and the Investors intend to
include in such registration exceeds the largest number of shares of
Common Stock or Warrants (including any other shares of Common Stock or
Warrants of the Company) that can be sold without having an adverse effect
on such Public Offering (the "Maximum Offering Size"), the Company will
include in such registration, only that number of shares of Common Stock
or Warrants, as applicable, such that the number of shares of Registrable
Securities registered does not exceed the Maximum Offering Size, with the
difference between the number of shares in the Maximum Offering Size and
the number of shares to be issued by the Company to be allocated (after
including all shares to be issued and sold by the Company and all other
selling shareholders ("Third-Party Sellers")), first, among the Company
and the Investors pro rata on the basis of the relative number of shares
of Common Stock or Warrants offered for sale under such registration by
each of the Company and the Investors, and second, to any Third-Party
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Sellers pro rata on the basis of the relative number of shares of Common
Stock or Warrant offered for sale under such registration by Third-Party
Sellers. If as a result of the proration provisions of this Section
2(e)(ii), any Investor is not entitled to include all such Registrable
Securities in such registration, such Initial Investor may elect to
withdraw its request to include any Registrable Securities in such
registration. With respect to registrations pursuant to this Section 2(e),
the number of securities required to satisfy any underwriters'
over-allotment option shall be allocated on the basis set forth in the
first sentence of this Section 2(e)(ii).
3. Obligations of the Company
In connection with the registration of the Registrable Securities,
the Company shall:
(a) Promptly (i) prepare and file with the Commission such
amendments (including post-effective amendments) to the Registration Statement
and supplements to the Prospectus as may be necessary to keep the Registration
Statement continuously effective and in compliance with the provisions of the
Securities Act applicable thereto so as to permit the Prospectus forming part
thereof to be current and useable by Investors for resales of the Registrable
Securities for a period of two years from the date on which the Registration
Statement is first declared effective by the Commission (the "Effective Time")
or such shorter period that will terminate when all the Registrable Securities
covered by the Registration Statement have been sold pursuant thereto in
accordance with the plan of distribution provided in the Prospectus, transferred
pursuant to Rule 144 under the Securities Act or otherwise transferred in a
manner that results in the delivery of new securities not subject to transfer
restrictions under the Securities Act (the "Registration Period") and (ii) take
all lawful action such that each of (A) the Registration Statement and any
amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, not misleading and
(B) the Prospectus forming part of the Registration Statement, and any amendment
or supplement thereto, does not at any time during the Registration Period
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Notwithstanding the foregoing provisions of this Section 3(a), the Company may,
during the Registration Period, suspend the use of the Prospectus for a period
not to exceed 60 days (whether or not consecutive) in any 12-month period if the
Board of Directors of the Company determines in good faith that because of valid
business reasons, including pending mergers or other business combination
transactions, the planned acquisition or divestiture of assets, pending material
corporate developments and similar events, it is in the best interests of the
Company to suspend such use, and prior to or contemporaneously with suspending
such use the Company provides the Investors with written notice of such
suspension, which notice need not specify the nature of the event giving rise to
such suspension. At the end of any such suspension period, the Company shall
provide the Investors with written notice of the termination of such suspension;
(b) During the Registration Period, comply with the provisions of
the Securities Act with respect to the Registrable Securities of the Company
covered by the Registration Statement until such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of
disposition by the Investors as set forth in the Prospectus forming part of the
Registration Statement;
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(c) (i) Prior to the filing with the Commission of any Registration
Statement (including any amendments thereto) and the distribution or delivery of
any Prospectus (including any supplements thereto), provide (A) draft copies
thereof to the Investors and reflect in such documents all such comments as the
Investors (and their counsel) reasonably may propose and (B) to the Investors a
copy of the accountant's consent letter to be included in the filing and (ii)
furnish to each Investor whose Registrable Securities are included in the
Registration Statement and its legal counsel identified to the Company, (A)
promptly after the same is prepared and publicly distributed, filed with the
Commission, or received by the Company, one copy of the Registration Statement,
each Prospectus, and each amendment or supplement thereto, and (B) such number
of copies of the Prospectus and all amendments and supplements thereto and such
other documents, as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor;
(d) (i) Register or qualify the Registrable Securities covered by
the Registration Statement under such securities or "blue sky" laws of such
jurisdictions as the Investors who hold a majority-in-interest of the
Registrable Securities being offered reasonably request, (ii) prepare and file
in such jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof at all times during the Registration Period,
(iii) take all such other lawful actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the Registration
Period, and (iv) take all such other lawful actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (A) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (B) subject itself to general taxation in any such jurisdiction or
(C) file a general consent to service of process in any such jurisdiction;
(e) As promptly as practicable after becoming aware of such event,
notify each Investor of the occurrence of any event, as a result of which the
Prospectus included in the Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and
promptly prepare an amendment to the Registration Statement and supplement to
the Prospectus to correct such untrue statement or omission, and deliver a
number of copies of such supplement and amendment to each Investor as such
Investor may reasonably request;
(f) As promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance by
the Commission of any stop order or other suspension of the effectiveness of the
Registration Statement at the earliest possible time and take all lawful action
to effect the withdrawal, recession or removal of such stop order or other
suspension;
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(g) Cause all the Registrable Securities covered by the Registration
Statement to be listed on the principal national securities exchange, and
included in an inter-dealer quotation system of a registered national securities
association, on or in which securities of the same class or series issued by the
Company are then listed or included;
(h) Maintain a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date of the
Registration Statement;
(i) Cooperate with the Investors who hold Registrable Securities
being offered to facilitate the timely preparation and delivery of certificates
for the Registrable Securities to be offered pursuant to the registration
statement and enable such certificates for the Registrable Securities to be in
such denominations or amounts, as the case may be, as the Investors reasonably
may request and registered in such names as the Investor may request; and,
within three business days after a registration statement which includes
Registrable Securities is declared effective by the Commission, deliver and
cause legal counsel selected by the Company to deliver to the transfer agent for
the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such registration statement) an appropriate
instruction and, to the extent necessary, an opinion of such counsel;
(j) Take all such other lawful actions reasonably necessary to
expedite and facilitate the disposition by the Investors of their Registrable
Securities in accordance with the intended methods therefor provided in the
Prospectus which are customary under the circumstances;
(k) Make generally available to its security holders as soon as
practicable, but in any event not later than three (3) months after (i) the
effective date (as defined in Rule 158(c) under the Securities Act) of the
Registration Statement, and (ii) the effective date of each post-effective
amendment to the Registration Statement, as the case may be, an earnings
statement of the Company and its subsidiaries complying with Section 11(a) of
the Securities Act and the rules and regulations of the Commission thereunder
(including, at the option of the Company, Rule 158);
(1) In the event of an underwritten offering, promptly include or
incorporate in a Prospectus supplement or post-effective amendment to the
Registration Statement such information as the managers reasonably agree should
be included therein and to which the Company does not reasonably object and make
all required filings of such Prospectus supplement or post-effective amendment
as soon as practicable after it is notified of the matters to be included or
incorporated in such Prospectus supplement or post-effective amendment;
(m) (i) Make reasonably available for inspection by Investors, any
underwriter participating in any disposition pursuant to the Registration
Statement, and any attorney, accountant or other agent retained by such
Investors or any such underwriter all relevant financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries, and (ii) cause the Company's officers, directors and employees to
supply all information reasonably requested by such Investors or any such
underwriter, attorney, accountant or agent in connection with the Registration
Statement, in each case, as is customary for similar due diligence examinations;
provided, however, that all records, information and documents that are
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designated in writing by the Company, in good faith, as confidential,
proprietary or containing any material nonpublic information shall be kept
confidential by such Investors and any such underwriter, attorney, accountant or
agent (pursuant to an appropriate confidentiality agreement in the case of any
such holder or agent), unless such disclosure is made pursuant to judicial
process in a court proceeding (after first giving the Company an opportunity
promptly to seek a protective order or otherwise limit the scope of the
information sought to be disclosed) or is required by law, or such records,
information or documents become available to the public generally or through a
third party not in violation of an accompanying obligation of confidentiality;
and provided, further, that, if the foregoing inspection and information
gathering would otherwise disrupt the Company's conduct of its business, such
inspection and information gathering shall, to the maximum extent possible, be
coordinated on behalf of the Investors and the other parties entitled thereto by
one firm of counsel designed by and on behalf of the majority in interest of
Investors and other parties;
(n) In connection with any underwritten offering, make such
representations and warranties to the Investors participating in such
underwritten offering and to the managers, in form, substance and scope as are
customarily made by the Company to underwriters in secondary underwritten
offerings;
(o) In connection with any underwritten offering, obtain opinions of
counsel to the Company (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the managers) addressed to the
underwriters, covering such matters as are customarily covered in opinions
requested in secondary underwritten offerings (it being agreed that the matters
to be covered by such opinions shall include, without limitation, as of the date
of the opinion and as of the Effective Time of the Registration Statement or
most recent post-effective amendment thereto, as the case may be, the absence
from the Registration Statement and the Prospectus, including any documents
incorporated by reference therein, of an untrue statement of a material fact or
the omission of a material fact required to be stated therein or necessary to
make the statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading, subject to customary
limitations);
(p) In connection with any underwritten offering, obtain "cold
comfort" letters and updates thereof from the independent public accountants of
the Company (and, if necessary, from the independent public accountants of any
subsidiary of the Company or of any business acquired by the Company, in each
case for which financial statements and financial data are, or are required to
be, included in the Registration Statement), addressed to each underwriter
participating in such underwritten offering (if such underwriter has provided
such letter, representations or documentation, if any, required for such cold
comfort letter to be so addressed), in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
secondary underwritten offerings;
(q) In connection with any underwritten offering, deliver such
documents and certificates as may be reasonably required by the managers, if
any; and
(r) In the event that any broker-dealer registered under the
Exchange Act shall be an "Affiliate" (as defined in Rule 2729(b)(1) of the rules
and regulations of the National Association of Securities Dealers, Inc. (the
"NASD Rules") (or any successor provision thereto)) of the Company or has a
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"conflict of interest" (as defined in Rule 2720(b)(7) of the NASD Rules (or any
successor provision thereto)) and such broker-dealer shall underwrite,
participate as a member of an underwriting syndicate or selling group or assist
in the distribution of any Registrable Securities covered by the Registration
Statement, whether as a holder of such Registrable Securities or as an
underwriter, a placement or sales agent or a broker or dealer in respect
thereof, or otherwise, the Company shall assist such broker-dealer in complying
with the requirements of the NASD Rules, including, without limitation, by (A)
engaging a "qualified independent underwriter" (as defined in Rule 2720(b)(15)
of the NASD Rules (or any successor provision thereto)) to participate in the
preparation of the Registration Statement relating to such Registrable
Securities, to exercise usual standards of due diligence in respect thereof and
to recommend the public offering price of such Registrable Securities, (B)
indemnifying such qualified independent underwriter to the extent of the
indemnification of underwriters provided in Section 5 hereof, and (C) providing
such information to such broker-dealer as may be required in order for such
broker-dealer to comply with the requirements of the NASD Rules.
4. Obligations of the Investors
In connection with the registration of the Registrable Securities,
the Investors shall have the following obligations:
(a) It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. As least seven
days prior to the first anticipated filing date of the Registration Statement,
the Company shall notify each Investor of the information the Company requires
from each such Investor (the "Requested Information") if such Investor elects to
have any of its Registrable Securities included in the Registration Statement.
If at least two business days prior to the anticipated filing date the Company
has not received the Requested Information from an Investor (a "Non-Responsive
Investor"), then the Company may file the Registration Statement without
including Registrable Securities of such Non-Responsive Investor and have no
further obligations to the Non-Responsive Investor;
(b) Each Investor by its acceptance of the Registrable Securities
agrees to cooperate with the Company in connection with the preparation and
filing of the Registration Statement hereunder, unless such Investor has
notified the Company in writing of its election to exclude all of its
Registrable Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the
Company of the occurrence of any event of the kind described in Section 3(e) or
3(f), it shall immediately discontinue its disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such Investor's receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 3(e) and, if so directed by the Company, such
Investor shall deliver to the Company (at the expense of the Company) or destroy
(and deliver to the Company a certificate of destruction) all copies in such
Investor's possession, of the Prospectus covering such Registrable Securities
current at the time of receipt of such notice.
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5. Expenses of Registration
All expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Section 3, but including, without limitation, all registration, listing, and
qualifications fees, printing and engraving fees, accounting fees, and the fees
and disbursements of counsel for the Company, and the reasonable fees of one
firm of counsel to the holders of a majority in interest of the Registrable
Securities shall be borne by the Company.
6. Indemnification and Contribution
(a) The Company shall indemnify and hold harmless each Investor and
each underwriter, if any, which facilitates the disposition of Registrable
Securities, and each of their respective officers and directors and each person
who controls such Investor or underwriter within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act (each such person being
sometimes hereinafter referred to as an "Indemnified Person") from and against
any losses, claims, damages or liabilities, joint or several, to which such
Indemnified Person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement or an
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, not misleading, or
arise out of or are based upon an untrue statement or alleged untrue statement
of a material fact contained in any Prospectus or an omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and the Company hereby agrees to
reimburse such Indemnified Person for all reasonable legal and other expenses
incurred by them in connection with investigating or defending any such action
or claim as and when such expenses are incurred; provided, however, that the
Company shall not be liable to any such Indemnified Person in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon (i) an untrue statement or alleged untrue statement made in, or an
omission or alleged omission from, such Registration Statement or Prospectus in
reliance upon and in conformity with written information furnished to the
Company by such Indemnified Person expressly for use therein or (ii) in the case
of the occurrence of an event of the type specified in Section 3(e), the use by
the Indemnified Person of an outdated or defective Prospectus after the Company
has provided to such Indemnified Person an updated Prospectus correcting the
untrue statement or alleged untrue statement or omission or alleged omission
giving rise to such loss, claim, damage or liability.
(b) Indemnification by the Investors and Underwriters. Each Investor
agrees, as a consequence of the inclusion of any of its Registrable Securities
in a Registration Statement, and each underwriter, if any, which facilitates the
disposition of Registrable Securities shall agree, as a consequence of
facilitating such disposition of Registrable Securities, severally and not
jointly, to (i) indemnify and hold harmless the Company, its directors
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(including any person who, with his or her consent, is named in the Registration
Statement as a director nominee of the Company), its officers who sign any
Registration Statement and each person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, against any losses, claims, damages or liabilities to which the
Company or such other persons may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in such Registration Statement or
Prospectus or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein (in light of the circumstances under which they were
made, in the case of the Prospectus), not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such holder or
underwriter expressly for use therein; provided, however, that no Investor or
underwriter shall be liable under this Section 6(b) for any amount in excess of
the net proceeds paid to such Investor or underwriter in respect of shares sold
by it, and (ii) reimburse the Company for any legal or other expenses incurred
by the Company in connection with investigating or defending any such action or
claim as such expenses are incurred.
(c) Notice of Claims, etc. Promptly after receipt by a party seeking
indemnification pursuant to this Section 6 (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Section 6 is being sought (the "Indemnifying Party") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party,
except to the extent that the Indemnifying Party is materially prejudiced and
forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim as to which both the Indemnifying Party and the
Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees, costs
and expenses, (y) the Indemnified Party and the Indemnifying Party shall
reasonably have concluded that representation of the Indemnified Party by the
Indemnifying Party by the same legal counsel would not be appropriate due to
actual or, as reasonably determined by legal counsel to the Indemnified Party,
potentially differing interests between such parties in the conduct of the
defense of such Claim, or if there may be legal defenses available to the
Indemnified Party that are in addition to or disparate from those available to
the Indemnifying Party, or (z) the Indemnifying Party shall have failed to
employ legal counsel reasonably satisfactory to the Indemnified Party within a
reasonable period of time after notice of the commencement of such Claim. If the
Indemnified Party employs separate legal counsel in circumstances other than as
described in clauses (x), (y) or (z) above, the fees, costs and expenses of such
legal counsel shall be borne exclusively by the Indemnified Party. Except as
provided above, the Indemnifying Party shall not, in connection with any Claim
in the same jurisdiction, be liable for the fees and expenses of more than one
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firm of counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnified Party shall not, without the prior written consent of
the Indemnifying Party (which consent shall not unreasonably be withheld),
settle or compromise any Claim or consent to the entry of any judgment that does
not include an unconditional release of the Indemnifying Party from all
liabilities with respect to such Claim or judgment.
(d) Contribution. If the indemnification provided for in this
Section 6 is unavailable to or insufficient to hold harmless an Indemnified
Person under subsection (a) or (b) above in respect of any losses, claims,
damages or liabilities (or actions in respect thereof) referred to therein, then
each Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and the Indemnified Party in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative fault of such Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
such Indemnifying Party or by such Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 6(d) were determined by
pro rata allocation (even if the Investors or any underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in this Section 6(d).
The amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
shall be deemed to include any legal or other fees or expenses reasonably
incurred by such Indemnified Party in connection with investigating or defending
any such action or claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The obligations of the Investors and any underwriters in this
Section 6(d) to contribute shall be several in proportion to the percentage of
Registrable Securities registered or underwritten, as the case may be, by them
and not joint.
(e) Notwithstanding any other provision of this Section 6, in no
event shall any (i) Investor be required to undertake liability to any person
under this Section 6 for any amounts in excess of the dollar amount of the
proceeds to be received by such Investor from the sale of such Investor's
Registrable Securities (after deducting any fees, discounts and commissions
applicable thereto) pursuant to any Registration Statement under which such
Registrable Securities are to be registered under the Securities Act and (ii)
underwriter be required to undertake liability to any Person hereunder for any
amounts in excess of the aggregate discount, commission or other compensation
payable to such underwriter with respect to the Registrable Securities
underwritten by it and distributed pursuant to the Registration Statement.
(f) The obligations of the Company under this Section 6 shall be in
addition to any liability which the Company may otherwise have to any
Indemnified Person and the obligations of any Indemnified Person under this
Section 6 shall be in addition to any liability which such Indemnified Person
may otherwise have to the Company. The remedies provided in this Section 6 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to an indemnified party at law or in equity.
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7. Rule 144
With a view to making available to the Investors the benefits of
Rule 144 under the Securities Act or any other similar rule or regulation of the
Commission that may at any time permit the Investors to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to
use its best efforts to:
(a) comply with the provisions of paragraph (c) (1) of Rule
144; and
(b) file with the Commission in a timely manner all reports and
other documents required to be filed by the Company pursuant to Section 13 or
15(d) under the Exchange Act; and, if at any time it is not required to file
such reports but in the past had been required to or did file such reports, it
will, upon the request of any Investor, make available other information as
required by, and so long as necessary to permit sales of, its Registrable
Securities pursuant to Rule 144.
8. Assignment
The rights to have the Company register Registrable Securities
pursuant to this Agreement shall be automatically assigned by the Investors to
any permitted transferee of all or any portion of such securities (or all or any
portion of any Preferred Shares or Warrant of the Company which is convertible
into such securities) of Registrable Securities only if: (a) the Investor agrees
in writing with the transferee or assignee to assign such rights, and a copy of
such agreement is furnished to the Company within a reasonable time after such
assignment, (b) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (i) the name and address of such
transferee or assignee and (ii) the securities with respect to which such
registration rights are being transferred or assigned, (c) immediately following
such transfer or assignment, the securities so transferred or assigned to the
transferee or assignee constitute Restricted Securities, and (d) at or before
the time the Company received the written notice contemplated by clause (b) of
this sentence the transferee or assignee agrees in writing with the Company to
be bound by all of the provisions contained herein.
9. Amendment and Waiver
Any provision of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company
and Investors who hold a majority-in-interest of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 9 shall be binding
upon each Investor and the Company.
10. Miscellaneous
(a) A person or entity shall be deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
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(b) If, after the date hereof and prior to the Commission declaring
the Registration Statement to be filed pursuant to Section 2(a) effective under
the Securities Act, the Company grants to any Person any registration rights
with respect to any Company securities which are more favorable to such other
Person than those provided in this Agreement, then the Company forthwith shall
grant (by means of an amendment to this Agreement or otherwise) identical
registration rights to all Investors hereunder.
(c) Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or, if mailed,
three days after the date of deposit in the United States mails, as follows:
<TABLE>
<S> <C>
(i) if to the Company, to:
Research Engineers, Inc.
22700 Savi Ranch Parkway
Yorba Linda, CA 92887
Attention: Chief Financial Officer
(714) 974-2500
(714) 921-0683 (Fax)
with a copy to:
Rutan & Tucker, LLP
611 Anton Blvd., 14th Floor
Costa Mesa, CA 92626
Attention: Gregg Amber, Esq.
(714) 641-3425
(714) 546-9035 (Fax)
(ii) if to the Initial Investor, to:
The Triton Private Equities Fund, L.P.,
c/o Triton Capital Management, L.L.C.
225 North Market Street, Suite 220
Wichita, Kansas 67202
Attention: John C. Tausche
316.262.8874316.262.6801 (Fax)
with a copy to:
H. Glenn Bagwell, Jr., Esq.
Law Offices of H. Glenn Bagwell, Jr.
3005 Anderson Drive, Suite 204
Raleigh, N. C. 27609
919.785.3113
919.785.3116 (Fax)
</TABLE>
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<PAGE>
(iii) if to any other Investor, at such address as such
Investor shall have provided in writing to the Company.
The Company, the Initial Investor or any Investor may change the foregoing
address by notice given pursuant to this Section 10(c).
(d) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(e) This Agreement shall be governed by and interpreted in
accordance with the laws of the State of New York. Each of the parties consents
to the jurisdiction of the federal courts whose districts encompass any part of
the City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions.
(f) The remedies provided in this Agreement are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(g) The Company shall not enter into any agreement with respect to
its securities that is inconsistent with the rights granted to the holders of
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof. The Company is not currently a party to any agreement
granting any registration rights with respect to any of its securities to any
person which conflicts with the Company's obligations hereunder or (except as
set forth in Section 2(a)) gives any other party the right to include any
securities in any Registration Statement filed pursuant hereto, except for such
rights and conflicts as have been irrevocably waived. Without limiting the
generality of the foregoing, without the written consent of the holders of a
majority in interest of the Registrable Securities, the Company shall not grant
to any person the right to request it to register any of its securities under
the Securities Act unless the rights so granted are subject in all respect to
the prior rights of the holders of Registrable Securities set forth herein, and
are not otherwise in conflict or inconsistent with the provisions of this
Agreement. The restrictions on the Company's rights to grant registration rights
under this paragraph shall terminate on the date the Registration Statement to
be filed pursuant to Section 2(a) is declared effective by the Commission.
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<PAGE>
(h) This Agreement and the Securities Purchase Agreement, the
Preferred Shares and the Warrants constitute the entire agreement among the
parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement, the Securities Purchase Agreement, the
Certificate of Designation and the Warrants supersede all prior agreements and
undertakings among the parties hereto with respect to the subject matter hereof.
(i) Subject to the requirements of Section 8 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
(j) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(k) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning thereof.
(1) The Company acknowledges that any failure by the Company to
perform its obligations under Section 3, or any delay in such performance could
result in direct damages to the Investors and the Company agrees that, in
addition to any other liability the Company may have by reason of any such
failure or delay, the Company shall be liable for all direct damages caused by
such failure or delay.
(m) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. A facsimile transmission of this signed Agreement shall be
legal and binding on all parties hereto.
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<PAGE>
In Witness Whereof, the parties have caused this Agreement to be
duly executed and delivered as of the date first above written.
Research Engineers, Inc.
By:
Name: Jyoti Chatterjee
Title: President
The Triton Private Equities Fund, L.P.
By: Triton Capital Management, LLC
By:
Name: John C. Tausche
Title: Managing Member
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Exhibit 4.1
CERTIFICATE OF DESIGNATION
OF
SERIES B 5% CONVERTIBLE PREFERRED STOCK
OF
RESEARCH ENGINEERS, INC.
- ------------------------------------------------------------
Pursuant to Section 151 of the
General Corporation Law of the State of
Delaware
- ------------------------------------------------------------
Research Engineers, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation"), hereby
certifies that the following resolutions were adopted by the Board of Directors
of the Corporation on September 11, 1999 pursuant to authority of the Board of
Directors as required by Section 151 of the General Corporation Law of the State
of Delaware:
Resolved, that pursuant to the authority granted to and vested in
the Board of Directors of this Corporation (the "Board of Directors" or the
"Board") in accordance with the provisions of its Certificate of Incorporation,
the Board of Directors hereby authorizes a series of the Corporation's
previously authorized Preferred Stock, par value $ 0.01 per share (the
"Preferred Stock"), and hereby states the designation and number of shares, and
fixes the relative rights, preferences, privileges, powers and restrictions
thereof as follows:
Series B 5% Convertible Preferred Stock:
ARTICLE 1
Definitions
The terms defined in this Article whenever used in this Certificate
of Designation have the following respective meanings:
(a) "Additional Capital Shares" has the meaning set forth in Section 6.1(c).
(b) "Affiliate" has the meaning ascribed to such term in Rule 12b-2 under
the Securities Exchange Act of 1934, as amended.
(c) "Business Day" means a day other than Saturday, Sunday or any day on which
banks located in the State of New York are authorized or obligated to close.
(d) "Capital Shares" means the Common Shares and any other shares of any other
class or series of common stock, whether now or hereafter authorized and however
designated, which have the right to participate in the distribution of earnings
and assets (upon dissolution, liquidation or winding-up) of the Corporation.
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<PAGE>
(e) "Closing Date" means September 14, 1999.
(f) "Closing Price" means last bid price of the Common Shares as reported on
the Nasdaq National Market on the Closing Date.
(g) "Common Shares" or "Common Stock" means shares of common stock, par value
$0.01 per share, of the Corporation.
(h) "Common Stock Issued at Conversion" when used with reference to the
securities issuable upon conversion of the Series B Preferred Stock, means
all Common Shares now or hereafter Outstanding and securities of any other
class or series into which the Series B Preferred Stock hereafter shall have
been changed or substituted, whether now or hereafter created and however
designated.
(i) "Conversion Date" means any day on which all or any portion of shares of the
Series B Preferred Stock is converted in accordance with the provisions hereof.
(j) "Conversion Notice" has the meaning set forth in Section 6.2.
(k) "Conversion Price" means on any date of determination the applicable price
for the conversion of shares of Series B Preferred Stock into Common Shares on
such day as set forth in Section 6.1.
(l) "Conversion Ratio" means on any date of determination the applicable
percentage of the Market Price for conversion of shares of Series B Preferred
Stock into Common Shares on such day as set forth in Section 6.1.
(m) "Corporation" means Research Engineers, Inc., a Delaware corporation, and
any successor or resulting corporation by way of merger, consolidation, sale or
exchange of all or substantially all of the Corporation's assets, or otherwise.
(n) "Current Market Price" means on any date of determination the closing bid
price of a Common Share on such day as reported on the Nasdaq National Market
("Nasdaq"); provided, if such security bid is not listed or admitted to trading
on the Nasdaq, as reported on the principal national security exchange or
quotation system on which such security is quoted or listed or admitted to
trading, or, if not quoted or listed or admitted to trading on any national
securities exchange or quotation system, the closing bid price of such security
on the over-the-counter market on the day in question as reported by Bloomberg
LP, or a similar generally accepted reporting service, as the case may be.
(o) "Default Dividend Rate" shall be equal to the Preferred Stock Dividend Rate
plus an additional 8% per annum.
(p) "Holder" means each of The Shaar Fund Ltd., The Triton Private Equities
Fund, L.P., any successor to either of them, or any Person or Persons to whom
the Series B Preferred Stock is subsequently transferred in accordance with the
provisions hereof.
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<PAGE>
(q) "Market Disruption Event" means any event that results in a material
suspension or limitation of trading of the Common Shares on Nasdaq.
(r) "Market Price" per Common Share means the arithmetic mean of the three
lowest closing bid prices of the Common Shares as reported on the Nasdaq
National Market for 10 Trading Days during any Valuation Period, it being
understood that such three Trading Days during any Valuation Period need not be
consecutive.
(s) "Outstanding" when used with reference to Common Shares or Capital Shares
(collectively, "Shares"), means, on any date of determination, all issued and
outstanding Shares, and includes all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in such
Shares; provided, however, that any such Shares directly or indirectly owned or
held by or for the account of the Corporation or any Subsidiary of the
Corporation shall not be deemed "Outstanding" for purposes hereof.
(t) "Person" means an individual, a corporation, a partnership, an association,
a limited liability company, an unincorporated business organization, a trust or
other entity or organization, and any government or political subdivision or any
agency or instrumentality thereof.
(u) "Registration Rights Agreement" means each of (x) that certain Registration
Rights Agreement dated as of September 14, 1999 between the Corporation and The
Shaar Fund Ltd. and (y) that certain Registration Rights Agreement dated as of
September 14, 1999 between the Corporation and The Triton Private Equities Fund,
L.P.
(v) "SEC" means the United States Securities and Exchange Commission.
(w) "Securities Act" means the Securities Act of 1933, as amended, and the rules
and regulations of the SEC thereunder, all as in effect at the time. (x)
"Securities Purchase Agreement" means each of
(x) that certain Securities Purchase Agreement dated as of September 14, 1999
between the Corporation and The Shaar Fund Ltd. and
(y) that certain Securities Purchase Agreement dated as of September 14, 1999
between the Corporation and The Triton Private Equities Fund, L.P. (y) "Series B
Preferred Shares" or "Series B Preferred Stock" means the shares of Series 5%
Convertible Preferred Stock of the Corporation or such other convertible
Preferred Stock exchanged therefor.
(z) "Stated Value" has the meaning set forth in Article 2.
(aa) "Subsidiary" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are owned directly or
indirectly by the Corporation.
(bb) "Trading Day" means any day on which purchases and sales of securities
authorized for quotation on Nasdaq are reported thereon and on which no Market
Disruption Event has occurred.
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(cc) "Valuation Event" has the meaning set forth in Section 6.1.
(dd) "Valuation Period" means the ten Trading Day period immediately preceding
the Conversion Date.
All references to "cash" or "$" herein means currency of the United
States of America.
ARTICLE 2
Designation and Amount
The designation of this series, which consists of 357,143 shares of
Preferred Stock, is Series B 5% Convertible Preferred Stock (the "Series B
Preferred Stock") and the stated value shall be $10.00 per share (the "Stated
Value").
ARTICLE 3
Rank
The Series B Preferred Stock shall rank: (i) prior to the Common
Stock; (ii) prior to any class or series of capital stock of the Corporation
hereafter created other than "Pari Passu Securities" (collectively, with the
Common Stock, "Junior Securities"); and (iii) pari passu with any class or
series of capital stock of the Corporation hereafter created specifically
ranking on parity with the Series B Preferred Stock ("Pari Passu Securities").
ARTICLE 4
Dividends
(a) (i) The Holder shall be entitled to receive, when, as and if declared by the
Board of Directors, out of funds legally available for the payment of dividends,
dividends (subject to Article 4(a)(ii) hereof) at the rate of 5% per annum
(computed on the basis of a 360-day year) (the "Dividend Rate") on the
Liquidation Preference (as defined below) of each outstanding share of Series B
Preferred Stock on and as of the most recent Dividend Payment Due Date (as
defined below) with respect to each Dividend Period (as defined below).
Dividends on the Series B Preferred Stock shall be cumulative from the date of
issue, whether or not declared for any reason, including if such declaration is
prohibited under any outstanding indebtedness or borrowings of the Corporation
or any of its Subsidiaries, or any other contractual provision binding on the
Corporation or any of its Subsidiaries, and whether or not there shall be funds
legally available for the payment thereof.
(ii) Each dividend shall be payable in equal quarterly amounts on each June
30 and December 31 of each year (each, a "Dividend Payment Due Date"),
commencing December 31, 1999, to the holders of record of shares of the Series B
Preferred Stock, as they appear on the stock records of the Corporation at the
close of business on any record date, not more than 60 days or less than 10 days
preceding the payment dates thereof, as shall be fixed by the Board of
Directors. For the purposes hereof, "Dividend Period" means the quarterly period
commencing on and including the Issue Date (as defined in Section 6.1) or, if a
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<PAGE>
dividend has previously been paid, the day after the immediately preceding
Dividend Payment Due Date and ending on and including the immediately subsequent
Dividend Payment Due Date. Accrued and unpaid dividends for any past Dividend
Period may be declared and paid at any time, without reference to any Dividend
Payment Due Date, to holders of record on such date, not more than 15 days
preceding the payment date thereof, as may be fixed by the Board of Directors.
(iii) At the option of the Corporation, the dividend shall be paid in cash
or through the issuance of duly and validly authorized and issued, fully paid
and nonassessable, freely tradeable shares of the Common Stock valued at the
Market Price. The Common Stock to be issued in lieu of cash payments shall be
registered for resale in the Registration Statement (as defined in each
Registration Rights Agreement) to be filed by the Corporation to register the
Common Stock issuable upon conversion of the shares of Series B Preferred Stock
and exercise of the Warrants as set forth in each Registration Rights Agreement.
Notwithstanding the foregoing, until such Registration Statement (as defined in
each Registration Rights Agreement) has been declared effective under the
Securities Act by the SEC, payment of dividends on the Series B Preferred Stock
shall be in cash.
(b) The Holder shall not be entitled to any dividends in excess of the
cumulative dividends, as herein provided, on the Series B Preferred Stock.
Except as provided in this Article 4, no interest, or sum of money in lieu of
interest, shall be payable in respect of any dividend payment or payments on the
Series B Preferred Stock that may be in arrears.
(c) So long as any shares of the Series B Preferred Stock are outstanding, no
dividends, except as described in the next succeeding sentence, shall be
declared or paid or set apart for payment on Pari Passu Securities for any
period unless full cumulative dividends required to be paid in cash have been or
contemporaneously are declared and paid or declared and a sum sufficient for the
payment thereof set apart for such payment on the Series B Preferred Stock for
all Dividend Periods terminating on or prior to the date of payment of the
dividend on such class or series of Pari Passu Securities. When dividends are
not paid in full or a sum sufficient for such payment is not set apart, as
aforesaid, all dividends declared upon shares of the Series B Preferred Stock
and all dividends declared upon any other class or series of Pari Passu
Securities shall be declared ratably in proportion to the respective amounts of
dividends accumulated and unpaid on the Series B Preferred Stock and accumulated
and unpaid on such Pari Passu Securities.
(d) So long as any shares of the Series B Preferred Stock are outstanding, no
dividends shall be declared or paid or set apart for payment or other
distribution declared or made upon Junior Securities, nor shall any Junior
Securities be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of shares of Common Stock made
pursuant to that certain Amended and Restated Stock Purchase Agreement dated as
of September 14, 1999 by and among the Corporation, NetGuru Systems, Inc.,
NetGuru Consulting, Inc. and Bharat Manglani or for purposes of an employee
incentive or benefit plan (including a stock option plan) of the Corporation or
any subsidiary), (all such dividends, distributions, redemptions or purchases
5
<PAGE>
being hereinafter referred to as a "Junior Securities Distribution") for any
consideration (or any moneys be paid to or made available for a sinking fund for
the redemption of any shares of any such stock) by the Corporation, directly or
indirectly, unless in each case (i) the full cumulative dividends required to be
paid in cash on all outstanding shares of the Series B Preferred Stock and any
other Pari Passu Securities shall have been paid or set apart for payment for
all past Dividend Periods with respect to the Series B Preferred Stock and all
past dividend periods with respect to such Pari Passu Securities, and (ii)
sufficient funds shall have been paid or set apart for the payment of the
dividend for the current Dividend Period with respect to the Series B Preferred
Stock and the current dividend period with respect to such Pari Passu
Securities.
(e) If the Corporation shall at any time or from time to time after the Closing
Date declare, order, pay or make a dividend or other distribution (including,
without limitation, any distribution of stock or other securities or property or
rights or warrants to subscribe for securities of the Corporation or any of its
subsidiaries by way of dividend or spin-off) on shares of its Common Stock,
then, and in each such case, the Corporation shall declare, order, pay and make
the same dividend or distribution with respect to each share of Series B
Preferred Stock.
ARTICLE 5
Liquidation Preference
(a) If the Corporation shall commence a voluntary case under the Federal
bankruptcy laws or any other applicable Federal or state bankruptcy, insolvency
or similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee, sequestrator (or other similar official) of the Corporation
or of any substantial part of its property, or make an assignment for the
benefit of its creditors, or admit in writing its inability to pay its debts
generally as they become due, or if a decree or order for relief in respect of
the Corporation shall be entered by a court having jurisdiction in the premises
in an involuntary case under the Federal bankruptcy laws or any other applicable
Federal or state bankruptcy, insolvency or similar law resulting in the
appointment of a receiver, liquidator, assignee, custodian, trustee,
sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of 30 consecutive days and, on account of any such event, the Corporation
shall liquidate, dissolve or wind up, or if the Corporation shall otherwise
liquidate, dissolve or wind up (each such event being considered a "Liquidation
Event"), no distribution shall be made to the holders of any shares of capital
stock of the Corporation upon liquidation, dissolution or winding-up unless
prior thereto, the holders of shares of Series B Preferred Stock, subject to
this Article 5, shall have received the Liquidation Preference (as defined in
Article 5(c)) with respect to each share. If upon the occurrence of a
Liquidation Event, the assets and funds available for distribution among the
holders of the Series B Preferred Stock and holders of Pari Passu Securities
shall be insufficient to permit the payment to such holders of the preferential
amounts payable thereon, then the entire assets and funds of the Corporation
legally available for distribution to the Series B Preferred Stock and the Pari
Passu Securities shall be distributed ratably among such shares in proportion to
the ratio that the Liquidation Preference payable on each such share bears to
the aggregate Liquidation Preference payable on all such shares.
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<PAGE>
(b) At the option of each Holder, the sale, conveyance of disposition of all or
substantially all of the assets of the Corporation, the effectuation by the
Corporation of a transaction or series of related transactions in which more
than 50% of the voting power of the Corporation is disposed of, or the
consolidation, merger or other business combination of the Corporation with or
into any other Person or Persons when the Corporation is not the survivor shall
either: (i) be deemed to be a liquidation, dissolution or winding up of the
Corporation pursuant to which the Corporation shall be required to distribute,
upon consummation of and as a condition to, such transaction an amount equal to
100% of the Liquidation Preference with respect to each outstanding share of
Series B Preferred Stock in accordance with and subject to the terms of this
Article 5 or (ii) be treated pursuant to Article 5(c)(iii) hereof; provided,
that all holders of Series B Preferred Stock shall be deemed to elect the option
set forth in clause (i) hereof if at least a majority in interest of such
holders elect such option.
(c) For purposes hereof, the "Liquidation Preference" with respect to a share of
the Series B Preferred Stock shall mean an amount equal to the sum of (i) the
Stated Value thereof, plus (ii) the aggregate of all accrued and unpaid
dividends on such share of Series B Preferred Stock until the most recent
Dividend Payment Due Date; provided that, in the event of an actual liquidation,
dissolution or winding up of the Corporation, the amount referred to in clause
(ii) above shall be calculated by including accrued and unpaid dividends to the
actual date of such liquidation, dissolution or winding up, rather than the
Dividend Payment Due Date referred to above.
ARTICLE 6
Conversion of Preferred Stock
Section 6.1 Conversion; Conversion Price
At the option of the Holder, the shares of Preferred Stock may be
converted, either in whole or in part, into Common Shares (calculated as to each
such conversion to the nearest 1/100th of a share), at any time after the 90th
day from closing, and from time to time following the date of issuance of the
Series B Preferred Stock (the "Issue Date") at a Conversion Price per share of
Common Stock equal to 105% of the Market Price; provided that any unconverted
Series B Preferred Stock remaining up to 120 days after the Closing Date may be
converted, at the sole option of the Holder, at a Conversion Price per share of
Common Stock equal to the lesser of: (i) 150% of the Closing Price or (ii) 103%
of the Market Price; provided, further, that any unconverted Series B Preferred
Stock remaining 150 days after the Closing Date may be converted, at the sole
option of the Holder, at a Conversion Price per share of Common Stock equal to
the lesser of: (i) 150% of the Closing Price or (ii) 100% of the Market Price;
provided, further, that any unconverted Series B Preferred Stock remaining after
180 days after the Closing Date may be converted, at the sole option of the
Holder, at a Conversion Price per share of Common Stock equal to the lesser of:
(i) 150% of the Closing Price or (ii) 97% of the Market Price; provided, further
that any unconverted Series B Preferred Stock remaining after 210 days after the
Closing Date may be converted, at the sole option of the Holder, at a conversion
price per share of Common Stock equal to the lesser of: (i) 150% of the Closing
Price or (ii) 95% of the Market Price; and, provided, further, that if the
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<PAGE>
Corporation's Common Stock is delisted from Nasdaq, for any reason, then any
remaining unconverted Series B Preferred Stock may be converted, at the sole
option of the Holder, at a Conversion Price per share of Common Stock equal to
65% of the Current Market Price. At the Corporation's option, the amount of
accrued and unpaid dividends as of the Conversion Date shall not be subject to
conversion but instead may be paid in cash as of the Conversion Date; if the
Corporation elects to convert the amount of accrued and unpaid dividends at the
Conversion Date into Common Stock, the Common Stock issued to the Holder shall
be valued at the applicable Conversion Price.
The number of shares of Common Stock due upon conversion of Series B
Preferred Stock shall be (i) the number of shares of Series B Preferred Stock to
be converted, multiplied by (ii) the Stated Value and divided by (iii) the
applicable Conversion Price.
Within two Business Days of the occurrence of a Valuation Event, the
Corporation shall send notice (the "Valuation Event Notice") of such occurrence
to the Holder. Notwithstanding anything to the contrary contained herein, if a
Valuation Event occurs during any Valuation Period, a new Valuation Period shall
begin on the Trading Day immediately following the occurrence of such Valuation
Event and end on the Conversion Date; provided that, if a Valuation Event occurs
on the fifth day of any Valuation Period, then the Conversion Price shall be the
Current Market Price of the Common Shares on such day; and provided, further,
that the Holder may, in its discretion, postpone such Conversion Date to a
Trading Day which is no more than five Trading Days after the occurrence of the
latest Valuation Event by delivering a notification to the Corporation within
two Business Days of the receipt of the Valuation Event Notice. In the event
that the Holder deems the Valuation Period to be other than the five Trading
Days immediately prior to the Conversion Date, the Holder shall give written
notice of such fact to the Corporation in the related Conversion Notice at the
time of conversion.
For purposes of this Section 6.1, a "Valuation Event" shall mean an
event in which the Corporation at any time during a Valuation Period takes any
of the following actions:
(a) subdivides or combines its Capital Shares;
(b) makes any distribution on its Capital Shares;
(c) issues any additional Capital Shares (the "Additional
Capital Shares"), otherwise than as provided in the foregoing Sections 6.1(a)
and 6.1(b) above, at a price per share less, or for other consideration lower,
than the Current Market Price in effect immediately prior to such issuances, or
without consideration, except for issuances under employee benefit plans
consistent with those presently in effect and issuances under presently
outstanding warrants, options or convertible securities;
(d) issues any warrants, options or other rights to subscribe
for or purchase any Additional Capital Shares and the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Current Market
Price in effect immediately prior to such issuance;
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(e) issues any securities convertible into or exchangeable or
exercisable for Additional Capital Shares and the consideration per share for
which Additional Capital Shares may at any time thereafter be issuable pursuant
to the terms of such convertible, exchangeable or exercisable securities shall
be less than the Current Market Price in effect immediately prior to such
issuance;
(f) makes a distribution of its assets or evidences of
indebtedness to the holders of its Capital Shares as a dividend in liquidation
or by way of return of capital or other than as a dividend payable out of
earnings or surplus legally available for the payment of dividends under
applicable law or any distribution to such holders made in respect of the sale
of all or substantially all of the Corporation's assets (other than under the
circumstances provided for in the foregoing Sections 6.1(a) through 6.1(e)); or
(g) takes any action affecting the number of Outstanding Capital
Shares, other than an action described in any of the foregoing Sections 6.1(a)
through 6.1(f) hereof, inclusive, which in the opinion of the Corporation's
Board of Directors, determined in good faith, would have a material adverse
effect upon the rights of the Holder at the time of a conversion of the
Preferred Stock.
Section 6.2 Exercise of Conversion Privilege
(a) Conversion of the Series B Preferred Stock may be exercised, in
whole or in part, by the Holder by telecopying an executed and completed notice
of conversion in the form annexed hereto as Annex I (the "Conversion Notice") to
the Corporation. Each date on which a Conversion Notice is telecopied to the
Corporation in accordance with the provisions of this Section 6.2 shall
constitute a Conversion Date. The Corporation shall convert the Preferred Stock
and issue the Common Stock Issued at Conversion, and all voting and other rights
associated with the beneficial ownership of the Common Stock Issued at
Conversion shall vest with the Holder, effective as of the Conversion Date at
the time specified in the Conversion Notice. The Conversion Notice also shall
state the name or names (with addresses) of the persons who are to become the
holders of the Common Stock Issued at Conversion in connection with such
conversion. The Holder shall deliver the shares of Series B Preferred Stock to
the Corporation by express courier within 30 days following the date on which
the telecopied Conversion Notice has been transmitted to the Corporation. Upon
surrender for conversion, the Preferred Stock shall be accompanied by a proper
assignment thereof to the Corporation or be endorsed in blank. As promptly as
practicable after the receipt of the Conversion Notice as aforesaid, but in any
event not more than five Business Days after the Corporation's receipt of such
Conversion Notice, the Corporation shall (i) issue the Common Stock issued at
Conversion in accordance with the provisions of this Article 6, and (ii) cause
to be mailed for delivery by overnight courier to the Holder (x) a certificate
or certificate(s) representing the number of Common Shares to which the Holder
is entitled by virtue of such conversion, (y) cash, as provided in Section 6.3,
in respect of any fraction of a Common Share issuable upon such conversion and
(z) cash in the amount of accrued and unpaid dividends as of the Conversion
Date. Such conversion shall be deemed to have been effected at the time at which
the Conversion Notice indicates so long as the Series B Preferred Stock shall
have been surrendered as aforesaid at such time, and at such time the rights of
the Holder of the Series B Preferred Stock, as such, shall cease and the Person
or Persons in whose name or names the Common Stock Issued at Conversion shall be
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issuable shall be deemed to have become the holder or holders of record of the
Common Shares represented thereby and all voting and other rights associated
with the beneficial ownership of such Common Shares shall at such time vest with
such Person or Persons. The Conversion Notice shall constitute a contract
between the Holder and the Corporation, whereby the Holder shall be deemed to
subscribe for the number of Common Shares which it will be entitled to receive
upon such conversion and, in payment and satisfaction of such subscription (and
for any cash adjustment to which it is entitled pursuant to Section 6.4), to
surrender the Series B Preferred Stock and to release the Corporation from all
liability thereon. No cash payment aggregating less than $1.00 shall be required
to be given unless specifically requested by the Holder.
(b) If, at any time (i) the Corporation challenges, disputes or denies the right
of the Holder hereof to effect the conversion of the Series B Preferred Stock
into Common Shares or otherwise dishonors or rejects any Conversion Notice
delivered in accordance with this Section 6.2 or (ii) any third party who is not
and has never been an Affiliate of the Holder commences any lawsuit or
proceeding or otherwise asserts any claim before any court or public or
governmental authority which seeks to challenge, deny, enjoin, limit, modify,
delay or dispute the right of the Holder hereof to effect the conversion of the
Series B Preferred Stock into Common Shares, then the Holder shall have the
right, by written notice to the Corporation, to require the Corporation to
promptly redeem the Series B Preferred Stock for cash at a redemption price
equal to 110% of the Stated Value thereof together with all accrued and unpaid
dividends thereon (the "Mandatory Purchase Amount"). Under any of the
circumstances set forth above, the Corporation shall be responsible for the
payment of all costs and expenses of the Holder, including reasonable legal fees
and expenses, as and when incurred in disputing any such action or pursuing its
rights hereunder (in addition to any other rights of the Holder).
Section 6.3 Fractional Shares
No fractional Common Shares or scrip representing fractional Common
Shares shall be issued upon conversion of the Series B Preferred Stock. Instead
of any fractional Common Shares which otherwise would be issuable upon
conversion of the Series B Preferred Stock, the Corporation shall pay a cash
adjustment in respect of such fraction in an amount equal to the same fraction.
No cash payment of less than $1.00 shall be required to be given unless
specifically requested by the Holder.
Section 6.4 Reclassification, Consolidation, Merger or Mandatory
Share Exchange
At any time while the Series B Preferred Stock remains outstanding
and any shares thereof have not been converted, in case of any reclassification
or change of Outstanding Common Shares issuable upon conversion of the Series B
Preferred Stock (other than a change in par value, or from par value to no par
value per share, or from no par value per share to par value or as a result of a
subdivision or combination of outstanding securities issuable upon conversion of
the Series B Preferred Stock) or in case of any consolidation, merger or
mandatory share exchange of the Corporation with or into another corporation
(other than a merger or mandatory share exchange with another corporation in
which the Corporation is a continuing corporation and which does not result in
any reclassification or change, other than a change in par value, or from par
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value to no par value per share, or from no par value per share to par value, or
as a result of a subdivision or combination of Outstanding Common Shares upon
conversion of the Series B Preferred Stock), or in the case of any sale or
transfer to another corporation of the property of the Corporation as an
entirety or substantially as an entirety, the Corporation, or such successor,
resulting or purchasing corporation, as the case may be, shall, without benefit
of any additional consideration therefor, execute a new Preferred Stock
providing that the Holder shall have the right to convert such new Preferred
Stock (upon terms and conditions not less favorable to the Holder than those in
effect pursuant to the Series B Preferred Stock) and to receive upon such
exercise, in lieu of each Common Share theretofore issuable upon conversion of
the Series B Preferred Stock, the kind and amount of shares of stock, other
securities, money or property receivable upon such reclassification, change,
consolidation, merger, mandatory share exchange, sale or transfer by the holder
of one Common Share issuable upon conversion of the Series B Preferred Stock had
the Series B Preferred Stock been converted immediately prior to such
reclassification, change, consolidation, merger, mandatory share exchange or
sale or transfer. The provisions of this Section 6.4 shall similarly apply to
successive reclassifications, changes, consolidations, mergers, mandatory share
exchanges and sales and transfers.
Section 6.5 Adjustments to Conversion Ratio
For so long as any shares of the Series B Preferred Stock are
outstanding, if the Corporation: (i) issues and sells pursuant to an exemption
from registration under the Securities Act (A) Common Shares at a purchase price
on the date of issuance thereof that is lower than the Conversion Price, (B)
warrants or options with an exercise price representing a percentage of the
Current Market Price with an exercise price on the date of issuance of the
warrants or options that is lower than the agreed upon exercise price for the
Holder, except for employee stock option agreements or stock incentive
agreements of the Corporation, or (C) convertible, exchangeable or exercisable
securities with a right to exchange at lower than the Current Market Price on
the date of issuance or conversion, as applicable, of such convertible,
exchangeable or exercisable securities, except for stock option agreements or
stock incentive agreements; and (ii) grants the right to the purchaser(s)
thereof to demand that the Corporation register under the Securities Act such
Common Shares issued or the Common Shares for which such warrants or options may
be exercised or such convertible, exchangeable or exercisable securities may be
converted, exchanged or exercised, then the Conversion Ratio shall be reduced to
equal the lowest of any such lower rates.
Section 6.6 Optional Redemption Under Certain Circumstances
At anytime 180 days after the date of issuance of the Series B
Preferred Stock until the Mandatory Conversion Date (as defined below), the
Corporation, upon 60-day notice delivered to the Holder as provided in Section
6.7, may redeem, in cash, the Series B Preferred Stock (but only with respect to
such shares as to which the Holder has not theretofore furnished a Conversion
Notice in compliance with Section 6.2), at 100% of the Stated Value thereof (the
"Optional Redemption Price"). Except as set forth in this Section 6.6, the
Corporation shall not have the right to prepay or redeem the Series B Preferred
Stock.
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Section 6.7 Notice of Redemption
Notice of redemption pursuant to Section 6.6 shall be provided by
the Corporation to the Holder in writing (by registered mail or overnight
courier at the Holder's last address appearing in the Corporation's security
registry) not less than ten nor more than 15 days prior to the Redemption Date,
which notice shall specify the Redemption Date and refer to Section 6.6
(including a statement of the Market Price per Common Share) and this Section
6.7.
Section 6.8 Surrender of Preferred Stock
Upon any redemption of the Series B Preferred Stock pursuant to
Sections 6.6 or 6.7, the Holder shall either deliver the Series B Preferred
Stock by hand to the Corporation at its principal executive offices or surrender
the same to the Corporation at such address by express courier. Payment of the
optional Redemption Price specified in Section 6.6 shall be made by the
Corporation to the Holder against receipt of the Series B Preferred Stock (as
provided in this Section 6.8) by wire transfer of immediately available funds to
such account(s) as the Holder shall specify to the Corporation. If payment of
such redemption price is not made in full by the Mandatory Redemption Date or
the Redemption Date, as the case may be, the Holder shall again have the right
to convert the Series B Preferred Stock as provided in Article 6 hereof.
Section 6.9 Mandatory Conversion
On the third anniversary of the date of the Securities Purchase
Agreements (the "Mandatory Conversion Date"), the Corporation shall convert all
Series B Preferred Stock outstanding into Common Shares at the Conversion Price.
Section 6.10 Certain Conversion Limitations
(a) Notwithstanding anything herein to the contrary, the Holder
shall not have the right, and the Corporation shall not have the obligation, to
convert all or any portion of the Series B Preferred Stock (and the Corporation
shall not have the right to pay dividends on the Series B Preferred Stock in
shares of Common Stock) if and to the extent that the issuance to the Holder of
shares of Common Stock upon such conversion (or payment of dividends) would
result in the Holder being deemed the "beneficial owner" of more than 5% of the
then outstanding shares of Common Stock within the meaning of Section 13(d) of
the Securities Exchange Act of 1934, as amended, and the rules promulgated
thereunder. If any court of competent jurisdiction shall determine that the
foregoing limitation is ineffective to prevent a Holder from being deemed the
beneficial owner of more than 5% of the then outstanding shares of Common Stock,
then the Corporation shall redeem so many of such Holder's shares (the
"Redemption Shares") of Series B Preferred Stock as are necessary to cause such
Holder to be deemed the beneficial owner of not more than 5% of the then
outstanding shares of Common Stock. Upon such determination by a court of
competent jurisdiction, the Redemption Shares shall immediately and without
further action be deemed returned to the status of authorized but unissued
shares of Series B Preferred Stock, and the Holder shall have no interest in or
rights under such Redemption Shares. Any and all dividends paid on or prior to
the date of such determination shall be deemed dividends paid on the remaining
shares of Series B Preferred Stock held by the Holder. Such redemption shall be
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for cash at a redemption price equal to the sum of (i) the Stated Value of the
Redemption Shares and (ii) any accrued and unpaid dividends to the date of such
redemption; provided, however, if the redemption is a result of the mandatory
conversion pursuant to Section 6.9, the Corporation may either (i) make such
redemption in cash at a redemption price equal to the sum of (x) 110% of the
Stated Value of such shares and (y) any accrued and unpaid dividends to the date
of such redemption or (ii) extend the Mandatory Conversion Date for a period of
one year.
(b) Unless the Corporation shall have obtained the approval of its
voting stockholders to such issuance in accordance with the rules of the Nasdaq
or such other stock market with which the Corporation shall be required to
comply, but only to the extent required thereby, the Corporation shall not issue
shares of Common Stock (i) upon conversion of any shares of Series B Preferred
Stock or (ii) as a dividend on the Series B Preferred Stock, if such issuance of
Common Stock, when added to the number of shares of Common Stock previously
issued by the Corporation (i) upon conversion of shares of the Series B
Preferred Stock, (ii) upon exercise of the Warrants issued pursuant to the terms
of each Securities Purchase Agreement and (iii) in payment of dividends on the
Series B Preferred Stock, would equal or exceed 20% of the number of shares of
the Corporation's Common Stock which were issued and outstanding on the Closing
Date (the "Maximum Issuance Amount"). In the event that a properly executed
Conversion Notice is received by the Corporation which would require the
Corporation to issue shares of Common Stock equal to or in excess of the Maximum
Issuance Amount, the Corporation shall honor such conversion request by (i)
converting the number of shares of Series B Preferred Stock stated in the
Conversion Notice not in excess of the Maximum Issuance Amount and (ii)
redeeming the number of shares of Series B Preferred Stock stated in the
Conversion Notice equal to or in excess of the Maximum Issuance Amount in cash
at a price equal to 110% of the Stated Value of the shares of Series B Preferred
Stock to be so redeemed, together with all accrued and unpaid dividends thereon.
In the event that the Corporation shall elect to pay a dividend in shares of
Common Stock which would require the Corporation to issue shares of Common Stock
equal to or in excess of the Maximum Issuance Amount, the Corporation shall pay
(i) a dividend in shares of Common Stock equal to one less than an amount which
would result in the Corporation issuing shares equal to the Maximum Issuance
Amount and (ii) the balance of the dividend in cash.
ARTICLE 7
Voting Rights
The holders of the Series B Preferred Stock have no voting power,
except as otherwise provided by the General Corporation Law of the State of
Delaware ("DGCL"), in this Article 7, and in Article 8 below.
Notwithstanding the above, the Corporation shall provide each Holder
of Series B Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
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are entitled to vote in connection with any proposed liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice to each
Holder, at least 30 days prior to the consummation of the transaction or event,
whichever is earlier), of the date on which any such action is to be taken for
the purpose of such dividend, distribution, right or other event, and a brief
statement regarding, the amount and character of such dividend, distribution,
right or other event to the extent known at such time.
To the extent that under the DGCL the vote of the Holders of the
Series B Preferred Stock, voting separately as a class or Series Bs applicable,
is required to authorize a given action of the Corporation, the affirmative vote
or consent of the Holders of at least a majority of the outstanding shares of
Series B Preferred Stock represented at a duly held meeting at which a quorum is
present or by written consent of a majority of the outstanding shares of Series
B Preferred Stock (except as otherwise may be required under the DGCL) shall
constitute the approval of such action by the class. To the extent that under
the DGCL holders of the Series B Preferred Stock are entitled to vote on a
matter with holders of Common Stock, voting together as one class, each share of
Series B Preferred Stock shall be entitled to a number of votes equal to the
number of shares of Common Stock into which it is then convertible using the
record date for the taking of such vote of shareholders as the date as of which
the Conversion Price is calculated. Holders of the Series B Preferred Stock
shall be entitled to notice of all shareholder meetings or written consents (and
copies of proxy materials and other information sent to shareholders) with
respect to which they would be entitled to vote, which notice would be provided
pursuant to the Corporation's bylaws and the DGCL.
ARTICLE 8
Protective Provisions
So long as shares of Series B Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided by the DGCL) of the Holders of at least a majority of the
then outstanding shares of Series B Preferred Stock:
(a) alter or change the rights, preferences or privileges of the
Series B Preferred Stock;
(b) create any new class or series of capital stock having a preference over the
Series B Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation ("Senior Securities") or alter or
change the rights, preferences or privileges of any Senior Securities so as to
affect adversely the Series B Preferred Stock;
(c) increase the authorized number of shares of Series B Preferred Stock; or
(d) do any act or thing not authorized or contemplated by this Certificate of
Designation which would result in taxation of the holders of shares of the
Series B Preferred Stock under Section 305 of the Internal Revenue Code of 1986,
as amended (or any comparable provision of the Internal Revenue Code as
hereafter from time to time amended).
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In the event Holders of least a majority of the then outstanding
shares of Series B Preferred Stock agree to allow the Corporation to alter or
change the rights, preferences or privileges of the shares of Series Preferred
Stock, pursuant to subsection (a) above, so as to affect the Series B Preferred
Stock, then the Corporation will deliver notice of such approved change to the
Holders of the Series Preferred Stock that did not agree to such alteration or
change (the "Dissenting Holders") and Dissenting Holders shall have the right
for a period of 30 days to convert pursuant to the terms of this Certificate of
Designation as they exist prior to such alteration or change or continue to hold
their shares of Series B Preferred Stock.
ARTICLE 9
Miscellaneous
Section 9.1 Loss, Theft, Destruction of Preferred Stock
Upon receipt of evidence satisfactory to the Corporation of the
loss, theft, destruction or mutilation of shares of Series B Preferred Stock
and, in the case of any such loss, theft or destruction, upon receipt of
indemnity or security reasonably satisfactory to the Corporation, or, in the
case of any such mutilation, upon surrender and cancellation of the Series B
Preferred Stock, the Corporation shall make, issue and deliver, in lieu of such
lost, stolen, destroyed or mutilated shares of Series B Preferred Stock, new
shares of Series B Preferred Stock of like tenor. The Series B Preferred Stock
shall be held and owned upon the express condition that the provisions of this
Section 9.1 are exclusive with respect to the replacement of mutilated,
destroyed, lost or stolen shares of Series B Preferred Stock and shall preclude
any and all other rights and remedies notwithstanding any law or statute
existing or hereafter enacted to the contrary with respect to the replacement of
negotiable instruments or other securities without the surrender thereof.
Section 9.2 Who Deemed Absolute Owner
The Corporation may deem the Person in whose name the Series B
Preferred Stock shall be registered upon the registry books of the Corporation
to be, and may treat it as, the absolute owner of the Series B Preferred Stock
for the purpose of receiving payment of dividends on the Series B Preferred
Stock, for the conversion of the Series B Preferred Stock and for all other
purposes, and the Corporation shall not be affected by any notice to the
contrary. All such payments and such conversion shall be valid and effectual to
satisfy and discharge the liability upon the Series B Preferred Stock to the
extent of the sum or sums so paid or the conversion so made.
Section 9.3 Notice of Certain Events
In the case of the occurrence of any event described in Sections
6.1, 6.6 or 6.7 of this Certificate of Designation, the Corporation shall cause
to be mailed to the Holder of the Series B Preferred Stock at its last address
as it appears in the Corporation's security registry, at least 20 days prior to
the applicable record, effective or expiration date hereinafter specified (or,
if such 20 days notice is not possible, at the earliest possible date prior to
any such record, effective or expiration date), a notice stating (x) the date on
which a record is to be taken for the purpose of such dividend, distribution,
issuance or granting of rights, options or warrants, or if a record is not to be
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taken, the date as of which the Holders of record of Series B Preferred Stock to
be entitled to such dividend, distribution, issuance or granting of rights,
options or warrants are to be determination or the date on which such
reclassification, consolidation, merger, sale, transfer, dissolution,
liquidation or winding-up is expected to become effective, and (y) the date as
of which it is expected that Holders of record of Series B Preferred Stock will
be entitled to exchange their shares for securities, cash or other property
deliverable upon such reclassification, consolidation, merger, sale transfer,
dissolution, liquidation or winding-up.
Section 9.4 Register
The Corporation shall keep at its principal office a register in
which the Corporation shall provide for the registration of the Series B
Preferred Stock. Upon any transfer of the Series B Preferred Stock in accordance
with the provisions hereof, the Corporation shall register such transfer on the
Series B Preferred Stock register.
The Corporation may deem the person in whose name the Series B
Preferred Stock shall be registered upon the registry books of the Corporation
to be, and may treat it as, the absolute owner of the Series B Preferred Stock
for the purpose of receiving payment of dividends on the Series B Preferred
Stock, for the conversion of the Series B Preferred Stock and for all other
purposes, and the Corporation shall not be affected by any notice to the
contrary. All such payments and such conversions shall be valid and effective to
satisfy and discharge the liability upon the Series B Preferred Stock to the
extent of the sum or sums so paid or the conversion or conversions so made.
Section 9.5 Withholding
To the extent required by applicable law, the Corporation may
withhold amounts for or on account of any taxes imposed or levied by or on
behalf of any taxing authority in the United States having jurisdiction over the
Corporation from any payments made pursuant to the Series B Preferred Stock.
Section 9.6 Headings
The headings of the Articles and Sections of this Certificate of
Designation are inserted for convenience only and do not constitute a part of
this Certificate of Designation.
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In Witness Whereof, the Corporation has caused this Certificate of
Designation to be signed by its duly authorized officers on September 14, 1999.
Research Engineers, Inc.
By:
Name: Jyoti Chatterjee
Title: President
By:
Name: Wayne L. Blair
Title: Secretary
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Exhibit 4.2
THIS COMMON STOCK PURCHASE WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER OR
THE PROVISIONS OF THIS COMMON STOCK PURCHASE WARRANT.
Number of Shares of Common Stock: 40,000
Warrant No. 1
COMMON STOCK PURCHASE WARRANT
To Purchase Common Stock of
Research Engineers, Inc.
This Is To Certify That The Shaar Fund Ltd., or registered assigns,
is entitled, at any time from the Closing Date (as hereinafter defined) to the
Expiration Date (as hereinafter defined), to purchase from Research Engineers,
Inc., a Delaware Corporation (the "Company"), 40,000 shares of Common Stock (as
hereinafter defined and subject to adjustment as provided herein), in whole or
in part, including fractional parts, at a purchase price set forth herein, all
on the terms and conditions and pursuant to the provisions hereinafter set
forth.
1. Definitions
As used in this Common Stock Purchase Warrant (this "Warrant"), the
following terms have the respective meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common
Stock issued by the Company after the Closing Date, other than Warrant Stock.
"Book Value" shall mean, in respect of any share of Common Stock on
any date herein specified, the consolidated book value of the Company as of the
last day of any month immediately preceding such date, divided by the number of
Fully Diluted Outstanding shares of Common Stock as determined in accordance
with GAAP (assuming the payment of the exercise prices for such shares) by KPMG
LLP or any other firm of independent certified public accountants of recognized
national standing selected by the Company and reasonably acceptable to the
Holder.
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"Business Day" shall mean any day that is not a Saturday or Sunday
or a day on which banks are required or permitted to be closed in the State of
New York.
"Closing Date" shall have the meaning set forth in the Securities
Purchase Agreement.
"Commission" shall mean the Securities and Exchange Commission or
any other federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean (except where the context otherwise
indicates) the Common Stock, par value $0.01 per share, of the Company as
constituted on the Closing Date, and any capital stock into which such Common
Stock may thereafter be changed, and shall also include (i) capital stock of the
Company of any other class (regardless of how denominated) issued to the holders
of shares of Common Stock upon any reclassification thereof which is also not
preferred as to dividends or assets over any other class of stock of the Company
and which is not subject to redemption and (ii) shares of common stock of any
successor or acquiring corporation received by or distributed to the holders of
Common Stock of the Company in the circumstances contemplated by Section 4.4.
"Convertible Securities" shall mean evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable,
with or without payment of additional consideration in cash or property, for
shares of Common Stock, either immediately or upon the occurrence of a specified
date or a specified event.
"Current Warrant Price" shall mean, in respect of a share of Common
Stock at any date herein specified, one hundred and ten percent (110%) of the
arithmetic mean of the closing bid prices of a share of Common Stock as reported
on the Nasdaq on the ten (10) Trading Days immediately preceding the Closing
Date.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Exercise Period" shall mean the period during which this Warrant is
exercisable pursuant to Section 2.1.
"Expiration Date" shall mean September 14, 2004.
"Fully Diluted Outstanding" shall mean, when used with reference to
Common Stock, at any date as of which the number of shares thereof is to be
determined, all shares of Common Stock Outstanding at such date and all shares
of Common Stock issuable in respect of this Warrant, outstanding on such date,
and other options or warrants to purchase, or securities convertible into,
shares of Common Stock outstanding on such date which would be deemed
outstanding in accordance with GAAP for purposes of determining Book Value or
net income per share.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as from time to time in effect.
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"Holder" shall mean the Person in whose name the Warrant or Warrant
Stock set forth herein is registered on the books of the Company maintained for
such purpose.
"Market Price" per share of Common Stock shall mean the average of
the closing bid prices of the Common Stock as reported on the Nasdaq, or, if
such security bid is not listed or admitted to trading on the Nasdaq, on the
principal national security exchange or quotation system on which such security
is quoted or listed or admitted to trading, or, if not quoted or listed or
admitted to trading on any national securities exchange or quotation system, the
closing bid price of such security on the over-the-counter market on the day in
question as reported by the National Quotation Bureau Incorporated, or a similar
generally accepted reporting service, or if not so available, in such manner as
furnished by any Nasdaq member firm of the National Association of Securities
Dealers, Inc. selected from time to time by the Board of Directors of the
Company for that purpose, or a price determined in good faith by the Board of
Directors of the Company as being equal to the fair market value thereof, as the
case may be, for the five trading days immediately preceding the Closing Date.
"Nasdaq" shall mean the Nasdaq National Market.
"Other Property" shall have the meaning set forth in Section 4.4.
"Outstanding" shall mean, when used with reference to Common Stock,
at any date as of which the number of shares thereof is to be determined, all
issued shares of Common Stock, except shares then owned or held by or for the
account of the Company or any subsidiary thereof, and shall include all shares
issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, incorporated organization, association,
corporation, institution, public benefit corporation, entity or government
(whether federal, state, county, city, municipal or otherwise, including,
without limitation, any instrumentality, division, agency, body or department
thereof).
"Registration Rights Agreement" shall mean the Registration Rights
Agreement dated as of a date even herewith between the Company and The Shaar
Fund Ltd., as it may be amended from time to time.
"Restricted Common Stock" shall mean shares of Common Stock which
are, or which upon their issuance on their exercise of this Warrant would be,
evidenced by a certificate bearing the restrictive legend set forth in Section
9.1(a).
"Securities Act" shall mean the Securities Act of 1933, as amended,
or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Securities Purchase Agreement" shall mean the Securities Purchase
Agreement dated as of a date even herewith between the Company and The Shaar
Fund Ltd., as it may be amended from time to time.
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"Transfer" shall mean any disposition of any Warrant or Warrant
Stock or of any interest in either thereof, which would constitute a sale
thereof within the meaning of the Securities Act.
"Transfer Notice" shall have the meaning set forth in Section 9.2.
"Warrant Price" shall mean an amount equal to (i) the number of
shares of Common Stock being purchased upon exercise of this Warrant pursuant to
Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of such
exercise.
"Warrant Stock" shall mean the shares of Common Stock purchased by
the holders of the Warrants upon the exercise thereof.
"Warrants" shall mean this Warrant and all warrants issued upon
transfer, division or combination of, or in substitution for, any thereof. All
Warrants shall at all times be identical as to terms and conditions and date,
except as to the number of shares of Common Stock for which they may be
exercised.
2. Exercise of Warrant
2.1 Manner of Exercise
From and after the Closing Date and until 5:00 p.m., New York time,
on the Expiration Date, Holder may exercise this Warrant, on any Business Day,
for all or any part of the number of shares of Common Stock purchasable
hereunder.
In order to exercise this Warrant, in whole or in part, Holder shall
deliver to the Company at its principal office at 22700 Savi Ranch Parkway,
Yorba Linda, CA 92887, or at the office or agency designated by the Company
pursuant to Section 12, (i) a written notice of Holder's election to exercise
this Warrant, which notice shall specify the number of shares of Common Stock to
be purchased, (ii) to the extent such exercise is not being effected through a
Cashless Exercise (as defined below), payment of the Warrant Price in cash or
wire transfer or cashier's check drawn on a United States bank and (iii) this
Warrant. Such notice shall be substantially in the form of the subscription form
appearing at the end of this Warrant as Exhibit A, duly executed by Holder or
its agent or attorney. Upon receipt of the items referred to in clauses (i),
(ii) and (iii) above, the Company shall, as promptly as practicable, and in any
event within five Business Days thereafter, execute or cause to be executed and
deliver or cause to be delivered to Holder a certificate or certificates
representing the aggregate number of full shares of Common Stock issuable upon
such exercise, together with cash in lieu of any fraction of a share, as
hereinafter provided. The stock certificate or certificates so delivered shall
be, to the extent possible, in such denomination or denominations as Holder
shall request in the notice and shall be registered in the name of Holder or,
subject to Section 9, such other name as shall be designated in the notice. This
Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and Holder or any other Person
so designated to be named therein shall be deemed to have become a holder of
record of such shares for all purposes, as of the date the notice, together with
the cash or check or checks and this Warrant, is received by the Company as
described above and all taxes required to be paid by Holder, if any, pursuant to
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Section 2.2 prior to the issuance of such shares have been paid. If this Warrant
shall have been exercised in part, the Company shall, at the time of delivery of
the certificate or certificates representing Warrant Stock, deliver to Holder a
new Warrant evidencing the rights of Holder to purchase the unpurchased shares
of Common Stock called for by this Warrant, which new Warrant shall in all other
respects be identical with this Warrant, or, at the request of Holder,
appropriate notation may be made on this Warrant and the same returned to
Holder. Notwithstanding any provision herein to the contrary, the Company shall
not be required to register shares in the name of any Person who acquired this
Warrant (or part hereof) or any Warrant Stock otherwise than in accordance with
this Warrant.
Simultaneously with the exercise of this Warrant, payment in full of
the Warrant Price may be made, at the option of the Holder, (i) by payment of
the Warrant Price in cash or by wire transfer or cashier's check drawn on a
United States bank, (ii) by the surrender (which surrender shall be evidenced by
cancellation of the number of Warrants represented by any certificate(s)
evidencing the Warrants (the "Warrant Certificate") presented in connection with
a Cashless Exercise of a Warrant or Warrants (represented by one or more Warrant
Certificates), and without payment of the Warrant Price in cash, for such number
of shares equal to the product of (1) the number of shares for which such
Warrant is exercisable with payment in cash of the Warrant Price as of the date
of exercise and (2) the Cashless Exercise Ratio or (iii) by any combination of
(i) and (ii). For purposes of this Agreement, the "Cashless Exercise Ratio"
shall equal a fraction, the numerator of which is the excess of the Current
Market Price per share of the Common Stock on the date of exercise over the
Warrant Price per share as of the date of exercise and the denominator of which
is the Current Market Price per share of the Common Stock on the date of
exercise. An exercise of a Warrant in accordance with the immediately preceding
sentences is herein called a "Cashless Exercise." Upon surrender of a Warrant
Certificate representing more than one Warrant in connection with the Holder's
option to elect a Cashless Exercise, the number of shares deliverable upon a
Cashless Exercise shall be equal to the Cashless Exercise Ratio multiplied by
the product of (a) the number of Warrants that the Holder specifies is to be
exercised pursuant to a Cashless Exercise and (b) the number of shares for which
such Warrant is then exercisable (without giving effect to the Cashless Exercise
option). All provisions of this Agreement shall be applicable with respect to an
exercise of a Warrant Certificate pursuant to a Cashless Exercise for less than
the full number of Warrants represented thereby.
2.2 Payment of Taxes and Charges
All shares of Common Stock issuable upon the exercise of this
Warrant pursuant to the terms hereof shall be validly issued, fully paid and
nonassessable, freely tradable and without any preemptive rights. The Company
shall pay all expenses in connection with, and all taxes and other governmental
charges that may be imposed with respect to, the issue or delivery thereof,
unless such tax or charge is imposed by law upon Holder, in which case such
taxes or charges shall be paid by Holder. The Company shall not be required,
however, to pay any tax or other charge imposed in connection with any transfer
involved in the issue of any certificate for shares of Common Stock issuable
upon exercise of this Warrant in any name other than that of Holder, and in such
case the Company shall not be required to issue or deliver any stock certificate
until such tax or other charge has been paid or it has been established to the
satisfaction of the Company that no such tax or other charge is due.
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2.3 Fractional Shares
The Company shall not be required to issue a fractional share of
Common Stock upon exercise of any Warrant. As to any fraction of a share which
Holder would otherwise be entitled to purchase upon such exercise, the Company
shall pay a cash adjustment in respect of such final fraction in an amount equal
to the same fraction of the Market Price per share of Common Stock as of the
Closing Date.
2.4 Continued Validity
A holder of shares of Common Stock issued upon the exercise of this
Warrant, in whole or in part (other than a holder who acquires such shares after
the same have been publicly sold pursuant to a Registration Statement under the
Securities Act or sold pursuant to Rule 144 thereunder), shall continue to be
entitled with respect to such shares to all rights to which it would have been
entitled as Holder under Sections 9, 10 and 14 of this Warrant. The Company
will, at the time of exercise of this Warrant, in whole or in part, upon the
request of Holder, acknowledge in writing, in form reasonably satisfactory to
Holder, its continuing obligation to afford Holder all such rights; provided,
however, that if Holder shall fail to make any such request, such failure shall
not affect the continuing obligation of the Company to afford to Holder all such
rights.
3. Transfer, Division and Combination
3.1 Transfer
Subject to compliance with Section 9, transfer of this Warrant and
all rights hereunder, in whole or in part, shall be registered on the books of
the Company to be maintained for such purpose, upon surrender of this Warrant at
the principal office of the Company referred to in Section 2.1 or the office or
agency designated by the Company pursuant to Section 12, together with a written
assignment of this Warrant substantially in the form of Exhibit B hereto duly
executed by Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer. Upon such surrender
and, if required, such payment, the Company shall, subject to Section 9, execute
and deliver a new Warrant or Warrants in the name of the assignee or assignees
and in the denomination specified in such instrument of assignment, and shall
issue to the assignor a new Warrant evidencing the portion of this Warrant not
so assigned, and this Warrant shall promptly be canceled. A Warrant, if properly
assigned in compliance with Section 9, may be exercised by a new Holder for the
purchase of shares of Common Stock without having a new warrant issued.
3.2 Division and Combination
Subject to Section 9, this Warrant may be divided or combined with
other Warrants upon presentation hereof at the aforesaid office or agency of the
Company, together with a written notice specifying the names and denominations
in which new Warrants are to be issued, signed by Holder or its agent or
attorney. Subject to compliance with Section 3.1 and with Section 9, as to any
transfer which may be involved in such division or combination, the Company
shall execute and deliver a new Warrant or Warrants in exchange for the Warrant
or Warrants to be divided or combined in accordance with such notice.
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3.3 Expenses
The Company shall prepare, issue and deliver at its own expense
(other than transfer taxes) the new Warrants or Warrants under this Section 3.
3.4 Maintenance of Books
The Company agrees to maintain, at its aforesaid office or agency,
books for the registration and the registration of transfer of the Warrants.
4. Adjustments
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this Warrant, shall be subject to adjustment from time to time as set forth in
this Section 4. The Company shall give Holder notice of any event described
below which requires an adjustment pursuant to this Section 4 at the time of
such event.
4.1 Stock Dividends, Subdivisions and Combinations
If at any time the Company shall:
(a) take a record of the holders of its Common Stock for the purpose of
entitling them to receive a dividend payable in, or other distribution of,
Additional Shares of Common Stock;
(b) subdivide its outstanding shares of Common Stock into a larger number of
shares of Common Stock; or (c) combine its outstanding shares of Common Stock
into a smaller number of shares of Common Stock;
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current Warrant Price
shall be adjusted to equal (A) the Current Warrant Price multiplied by the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such adjustment.
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4.2 Certain Other Distributions
If at any time the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive any dividend or other
distribution of:
(a) cash;
(b) any evidences of its indebtedness, any shares of its stock or any other
securities or property of any nature whatsoever (other than cash, Convertible
Securities or Additional Shares of Common Stock); or
(c) any warrants or other rights to subscribe for or purchase any evidences of
its indebtedness, any shares of its stock or any other securities or property of
any nature whatsoever (other than cash, Convertible Securities or Additional
Shares of Common Stock);
then Holder shall be entitled to receive such dividend or distribution as if
Holder had exercised the Warrant. A reclassification of the Common Stock (other
than a change in par value, or from par value to no par value or from no par
value to par value) into shares of Common Stock and shares of any other class of
stock shall be deemed a distribution by the Company to the holders of its Common
Stock of such shares of such other class of stock within the meaning of this
Section 4.2 and, if the outstanding shares of Common Stock shall be changed into
a larger or smaller number of shares of Common Stock as a part of such
reclassification, such change shall be deemed a subdivision or combination, as
the case may be, of the outstanding shares of Common Stock within the meaning of
Section 4.1.
4.3 Other Provisions Applicable to Adjustments under this
Section
The following provisions shall be applicable to the making of
adjustments of the number of shares of Common Stock for which this Warrant is
exercisable and the Current Warrant Price provided for in this Section 4:
(a) When Adjustments to be Made. The adjustments required by this Section 4
shall be made whenever and as often as any specified event requiring an
adjustment shall occur. For the purpose of any adjustment, any specified event
shall be deemed to have occurred at the close of business on the date of its
occurrence.
(b) Fractional Interests. In computing adjustments under this Section 4,
fractional interests in Common Stock shall be taken into account to the nearest
1/10th of a share.
(c) When Adjustment not Required. If the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them to receive a
dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by reason of the taking
of such record and any such adjustment previously made in respect thereof shall
be rescinded and annulled.
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(d) Challenge to Good Faith Determination. Whenever the Board of Directors of
the Company shall be required to make a determination in good faith of the fair
value of any item under this Section 4, such determination may be challenged in
good faith by the Holder, and any dispute shall be resolved by an investment
banking firm of recognized national standing selected by the Company and
acceptable to Holder.
4.4 Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets
In case the Company shall reorganize its capital, reclassify its
capital stock, consolidate or merge with or into another corporation (where the
Company is not the surviving corporation or where there is a change in or
distribution with respect to the Common Stock of the Company), or sell, transfer
or otherwise dispose of all or substantially all its property, assets or
business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock
of the Company, then Holder shall have the right thereafter to receive, upon
exercise of the Warrant, the number of shares of common stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and Other Property receivable upon or as a result of such reorganization,
reclassification, consolidation or disposition of assets by a holder of the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined by resolution of the Board of Directors of
the Company) in order to provide for adjustments of shares of Common Stock for
which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 4. For purposes of
this Section 4.4, "common stock of the successor or acquiring corporation" shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Section 4.4 still similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.
4.5 Other Action Affecting Common Stock
In case at any time or from time to time the Company shall take any
action in respect of its Common Stock, other than any action described in this
Section 4, which would have a materially adverse effect upon the rights of
Holder, the number of shares of Common Stock and/or the purchase price thereof
shall be adjusted in such manner as may be equitable in the circumstances, as
determined in good faith by the Board of Directors of the Company.
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4.6 Certain Limitations
Notwithstanding anything herein to the contrary, the Company agrees
not to enter into any transaction which, by reason of any adjustment hereunder,
would cause the Current Warrant Price to be less than the par value per share of
Common Stock.
5. Notices to Holder
5.1 Notice of Adjustments
Whenever the number of shares of Common Stock for which this Warrant
is exercisable, or whenever the price at which a share of such Common Stock may
be purchased upon exercise of the Warrants, shall be adjusted pursuant to
Section 4, the Company shall forthwith prepare a certificate to be executed by
the chief financial officer of the Company setting forth, in reasonable detail,
the event requiring the adjustment and the method by which such adjustment was
calculated (including a description of the basis on which the Board of Directors
of the Company determined the fair value of any evidences of indebtedness,
shares of stock, other securities or property or warrants or other subscription
or purchase rights referred to in Section 4.2), specifying the number of shares
of Common Stock for which this Warrant is exercisable and (if such adjustment
was made pursuant to Section 4.4 or 4.5) describing the number and kind of any
other shares of stock or Other Property for which this Warrant is exercisable,
and any change in the purchase price or prices thereof, after giving effect to
such adjustment or change. The Company shall promptly cause a signed copy of
such certificate to be delivered to the Holder in accordance with Section 14.2.
The Company shall keep at its office or agency designated pursuant to Section 12
copies of all such certificates and cause the same to be available for
inspection at said office during normal business hours by the Holder or any
prospective purchaser of a Warrant designated by Holder.
5.2 Notice of Corporate Action
If at any time:
(a) the Company shall take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend or other distribution, or any
right to subscribe for or purchase any evidences of its indebtedness, any shares
of stock of any class or any other securities or property, or to receive any
other right; or
(b) there shall be any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
consolidation or merger of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of the
Company to, another corporation; or
(c) there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company;
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then, in any one or more of such cases, the Company shall give to Holder (i) at
least 10 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, and (ii) in the case of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, at least 10 days' prior written notice of the date when the same shall take
place. Such notice in accordance with the foregoing clause also shall specify
(i) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, the date on which the holders of Common Stock
shall be entitled to any such dividend, distribution or right, and the amount
and character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently given if addressed to Holder
at the last address of Holder appearing on the books of the Company and
delivered in accordance with Section 14.2.
6. No Impairment
The Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or 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
actions as may be necessary or appropriate to protect the rights of Holder
against impairment. Without limiting the generality of the foregoing, the
Company will (a) not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the amount payable therefor
upon such exercise immediately prior to such increase in par value, (b) 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 Common Stock
upon the exercise of this Warrant, and (c) use its best efforts to obtain all
such authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof as may be necessary to enable the Company to perform
its obligations under this Warrant.
Upon the request of Holder, the Company will at any time during the
period this Warrant is outstanding acknowledge in writing, in form satisfactory
to Holder, the continuing validity of this Warrant and the obligations of the
Company hereunder.
7. Reservation and Authorization of Common Stock
From and after the Closing Date, the Company shall at all times
reserve and keep available for issue upon the exercise of Warrants such number
of its authorized but unissued shares of Common Stock as will be sufficient to
permit the exercise in full of all outstanding Warrants. All shares of Common
Stock which shall be so issuable, when issued upon exercise of any Warrant and
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payment therefor in accordance with the terms of such Warrant, shall be duly and
validly issued and fully paid and nonassessable and not subject to preemptive
rights.
Before taking any action which would cause an adjustment reducing
the Current Warrant Price below the then par value, if any, of the shares of
Common Stock issuable upon exercise of the Warrants, the Company shall take any
corporate action which may be necessary in order that the Company may validly
and legally issue fully paid and nonassessable shares of such Common Stock at
such adjusted Current Warrant Price.
Before taking any action which would result in an adjustment in the
number of shares of Common Stock for which this Warrant is exercisable or in the
Current Warrant Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
8. Taking of Record; Stock and Warrant Transfer Books
In the case of all dividends or other distributions by the Company
to the holders of its Common Stock with respect to which any provision of
Section 4 refers to the taking of record of such holders, the Company will in
each case take such a record and will take such record as of the close of
business on a Business Day. The Company will not at any time, except upon
dissolution, liquidation or winding up of the Company, close its stock transfer
books or Warrant transfer books so as to result in preventing or delaying the
exercise or transfer of any Warrant.
9. Restrictions on Transferability
The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in this
Section 9, which conditions are intended to ensure compliance with the
provisions of the Securities Act with respect to the Transfer of any Warrant or
any Warrant Stock. Holder, by acceptance of this Warrant, agrees to be bound by
the provisions of this Section 9.
9.1 Restrictive Legend
(a) Holder, by accepting this Warrant and any Warrant Stock, agrees
that this Warrant and the Warrant Stock issuable upon exercise hereof may not be
assigned or otherwise transferred unless and until (i) the Company has received
an opinion of counsel for Holder acceptable to the Company that such securities
may be sold pursuant to an exemption from registration under the Securities Act
or (ii) a registration statement relating to such securities has been filed by
the Company and declared effective by the Commission.
Each certificate for Warrant Stock issuable hereunder shall bear a
legend as follows until such securities have been sold pursuant to an effective
registration statement under the Securities Act:
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"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT")
OR THE SECURITIES LAWS OF ANY STATE. THE SHARES MAY NOT BE PLEDGED,
HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
COVERING THE SECURITIES REPRESENTED BY THIS CERTIFICATE, AND OTHER
FILINGS UNDER ANY APPLICABLE STATE SECURITIES LAWS, EXCEPT PURSUANT
TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
ACT AND SUCH OTHER LAWS."
(b) Except as otherwise provided in this Section 9, the Warrant
shall be stamped or otherwise imprinted with a legend in substantially the
following form:
"THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT
BE TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS
THEREUNDER OR THE PROVISIONS OF THIS WARRANT."
9.2 Notice of Proposed Transfers
Prior to any Transfer or attempted Transfer of any Warrants or any
shares of Restricted Common Stock, the Holder shall give ten days' prior written
notice (a "Transfer Notice") to the Company of Holder's intention to effect such
Transfer, describing the manner and circumstances of the proposed Transfer, and
obtain from counsel to Holder who shall be reasonably satisfactory to the
Company, an opinion that the proposed Transfer of such Warrants or such
Restricted Common Stock may be effected without registration under the
Securities Act. After receipt of the Transfer Notice and opinion, the Company
shall, within five days thereof, notify the Holder as to whether such opinion is
reasonably satisfactory and, if so, such holder shall thereupon be entitled to
Transfer such Warrants or such Restricted Common Stock, in accordance with the
terms of the Transfer Notice. Each certificate, if any, evidencing such shares
of Restricted Common Stock issued upon such Transfer shall bear the restrictive
legend set forth in Section 9.1(a), and the Warrant issued upon such Transfer
shall bear the restrictive legend set forth in Section 9.1(b), unless in the
opinion of such counsel such legend is not required in order to ensure
compliance with the Securities Act. Holder shall not be entitled to Transfer
such Warrants or such Restricted Common Stock until receipt of notice from the
Company under this Section 9.2(a) that such opinion is reasonably satisfactory.
9.3 Required Registration
Pursuant to the terms and conditions set forth in Registration
Rights Agreement, the Company shall prepare and file with the Commission not
later than the 30th day after the Closing Date, a Registration Statement
relating to the offer and sale of the Common Stock issuable upon exercise of the
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Warrants and shall use its best efforts to cause the Commission to declare such
Registration Statement effective under the Securities Act as promptly as
practicable but no later than 150 days after the Closing Date.
9.4 Termination of Restrictions
Notwithstanding the foregoing provisions of Section 9, the
restrictions imposed by this Section upon the transferability of the Warrants,
the Warrant Stock and the Restricted Common Stock (or Common Stock issuable upon
the exercise of the Warrants) and the legend requirements of Section 9.1 shall
terminate as to any particular Warrant or share of Warrant Stock or Restricted
Common Stock (or Common Stock issuable upon the exercise of the Warrants) (i)
when and so long as such security shall have been effectively registered under
the Securities Act and disposed of pursuant thereto or (ii) when the Company
shall have received an opinion of counsel reasonably satisfactory to it that
such shares may be transferred without registration thereof under the Securities
Act. Whenever the restrictions imposed by Section 9 shall terminate as to this
Warrant, as hereinabove provided, the Holder hereof shall be entitled to receive
from the Company upon written request of the Holder, at the expense of the
Company, a new Warrant bearing the following legend in place of the restrictive
legend set forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN
WARRANT CONTAINED IN SECTION 9 HEREOF TERMINATED ON
__________, _____, AND ARE OF NO FURTHER FORCE AND
EFFECT."
All Warrants issued upon registration of transfer, division or combination of,
or in substitution for, any Warrant or Warrants entitled to bear such legend
shall have a similar legend endorsed thereon. Whenever the restrictions imposed
by this Section shall terminate as to any share of Restricted Common Stock, as
hereinabove provided, the holder thereof shall be entitled to receive from the
Company, at the Company's expense, a new certificate representing such Common
Stock not bearing the restrictive legend set forth in Section 9.1(a).
9.5 Listing on Securities Exchange
If the Company shall list any shares of Common Stock on any
securities exchange or quotation system, it will, at its expense, list thereon,
maintain and, when necessary, increase such listing of, all shares of Common
Stock issued or, to the extent permissible under the applicable securities
exchange rules, issuable upon the exercise of this Warrant so long as any shares
of Common Stock shall be so listed during any such Exercise Period.
10. Supplying Information
The Company shall cooperate with Holder in supplying such
information as may be reasonably necessary for Holder to complete and file any
information reporting forms presently or hereafter required by the Commission as
a condition to the availability of an exemption from the Securities Act for the
sale of any Warrant or Restricted Common Stock.
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11. Loss or Mutilation
Upon receipt by the Company from Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it being
understood that the written agreement of the Holder shall be sufficient
indemnity), and in case of mutilation upon surrender and cancellation hereof,
the Company will execute and deliver in lieu hereof a new Warrant of like tenor
to Holder; provided, in the case of mutilation no indemnity shall be required if
this Warrant in identifiable form is surrendered to the Company for
cancellation.
12. Office of the Company
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency (which may be the principal executive offices of
the Company) where the Warrants may be presented for exercise, registration of
transfer, division or combination as provided in this Warrant.
13. Limitation of Liability
No provision hereof, in the absence of affirmative action by Holder
to purchase shares of Common Stock, and no enumeration herein of the rights or
privileges of Holder hereof, shall give rise to any liability of Holder for the
purchase price of any Common Stock or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.
14. Miscellaneous
14.1 Nonwaiver and Expenses
No course of dealing or any delay or failure to exercise any right
hereunder on the part of Holder shall operate as a waiver of such right or
otherwise prejudice Holder's rights, powers or remedies. If the Company fails to
make, when due, any payments provided for hereunder, or fails to comply with any
other provision of this Warrant, the Company shall pay to Holder such amounts as
shall be sufficient to cover any costs and expenses including, without
limitation, reasonable attorneys' fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due pursuant hereto or
in otherwise enforcing any of its rights, powers or remedies hereunder.
14.2 Notice Generally
Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or, if mailed,
three (3) days after the date of deposit in the United States mails, as follows:
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<TABLE>
<S> <C> <C>
(a) if to the Company, to:
Research Engineers, Inc.
22700 Savi Ranch Parkway
Yorba Linda, CA 92887
Attention: Chief Financial Officer
(714) 974-2500
(714) 921-0683 (Fax)
with a copy to:
Rutan & Tucker, LLP
611 Anton Blvd., 14th Floor
Costa Mesa, CA 92626
Attention: Gregg Amber, Esq.
(714) 641-3425
(714) 546-9035 (Fax)
(b) if to the Holder, to:
The Shaar Fund Ltd.
c/o Levinson Capital Management
2 World Trade Center, Suite 1820
New York, NY 10048
Attention: Samuel Levinson
(212) 432-7771
(212) 432-7771 (Fax)
with a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attention: Dennis J. Block, Esq.
(212) 504-5555
(212) 504-5557 (Fax)
</TABLE>
The Company or the Holder may change the foregoing address by notice given
pursuant to this Section 14.2.
14.3 Indemnification
The Company agrees to indemnify and hold harmless Holder from and
against any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of
any kind which may be imposed upon, incurred by or asserted against Holder in
any manner relating to or arising out of any failure by the Company to perform
or observe in any material respect any of its covenants, agreements,
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undertakings or obligations set forth in this Warrant; provided, however, that
the Company will not be liable hereunder to the extent that any liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, attorneys' fees, expenses or disbursements are found in a final
nonappealable judgment by a court to have resulted from Holder's gross
negligence, bad faith or willful misconduct in its capacity as a stockholder or
warrantholder of the Company.
14.4 Remedies
Holder in addition to being entitled to exercise all rights granted
by law, including recovery of damages, will be entitled to specific performance
of its rights under Section 9 of this Warrant. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of Section 9 of this Warrant and hereby agrees to
waive the defense in any action for specific performance that a remedy at law
would be adequate.
14.5 Successors and Assigns
Subject to the provisions of Sections 3.1 and 9, this Warrant and
the rights evidenced hereby shall inure to the benefit of and be binding upon
the successors of the Company and the successors and assigns of Holder. The
provisions of this Warrant are intended to be for the benefit of all Holders
from time to time of this Warrant and, with respect to Section 9 hereof, holders
of Warrant Stock, and shall be enforceable by any such Holder or holder of
Warrant Stock.
14.6 Amendment
This Warrant and all other Warrants may be modified or amended or
the provisions hereof waived with the written consent of the Company and Holder.
14.7 Severability
Wherever possible, each provision of this Warrant shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Warrant shall be prohibited by or invalid under
applicable law, such provision shall only be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Warrant.
14.8 Headings
The headings used in this Warrant are for the convenience of
reference only and shall not, for any purpose, be deemed a part of this Warrant.
14.9 Governing Law
This Warrant shall be governed by the laws of the State of New York,
without regard to the provisions thereof relating to conflicts of law.
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<PAGE>
In Witness Whereof, the Company has caused this Warrant to be duly
executed and its corporate seal to be impressed hereon and attested by its
Secretary or an Assistant Secretary.
Dated: September 14, 1999
Research Engineers, Inc.
By:
Name: Jyoti Chatterjee
Title: President
[Corporate Seal]
Attest:
By:
Name: Wayne L. Blair
Title: Secretary
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<PAGE>
Exhibit 4.3
THIS COMMON STOCK PURCHASE WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER OR
THE PROVISIONS OF THIS COMMON STOCK PURCHASE WARRANT.
Number of Shares of Common Stock: 10,000
Warrant No. 2
COMMON STOCK PURCHASE WARRANT
To Purchase Common Stock of
Research Engineers, Inc.
This Is To Certify That The Triton Private Equities Fund, L.P., or
registered assigns, is entitled, at any time from the Closing Date (as
hereinafter defined) to the Expiration Date (as hereinafter defined), to
purchase from Research Engineers, Inc., a Delaware Corporation (the "Company"),
10,000 shares of Common Stock (as hereinafter defined and subject to adjustment
as provided herein), in whole or in part, including fractional parts, at a
purchase price set forth herein, all on the terms and conditions and pursuant to
the provisions hereinafter set forth.
1. Definitions
As used in this Common Stock Purchase Warrant (this "Warrant"), the
following terms have the respective meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common
Stock issued by the Company after the Closing Date, other than Warrant Stock.
"Book Value" shall mean, in respect of any share of Common Stock on
any date herein specified, the consolidated book value of the Company as of the
last day of any month immediately preceding such date, divided by the number of
Fully Diluted Outstanding shares of Common Stock as determined in accordance
with GAAP (assuming the payment of the exercise prices for such shares) by KPMG
LLP or any other firm of independent certified public accountants of recognized
national standing selected by the Company and reasonably acceptable to the
Holder.
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"Business Day" shall mean any day that is not a Saturday or Sunday
or a day on which banks are required or permitted to be closed in the State of
New York.
"Closing Date" shall have the meaning set forth in the Securities
Purchase Agreement.
"Commission" shall mean the Securities and Exchange Commission or
any other federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean (except where the context otherwise
indicates) the Common Stock, par value $0.01 per share, of the Company as
constituted on the Closing Date, and any capital stock into which such Common
Stock may thereafter be changed, and shall also include (i) capital stock of the
Company of any other class (regardless of how denominated) issued to the holders
of shares of Common Stock upon any reclassification thereof which is also not
preferred as to dividends or assets over any other class of stock of the Company
and which is not subject to redemption and (ii) shares of common stock of any
successor or acquiring corporation received by or distributed to the holders of
Common Stock of the Company in the circumstances contemplated by Section 4.4.
"Convertible Securities" shall mean evidences of indebtedness,
shares of stock or other securities which are convertible into or exchangeable,
with or without payment of additional consideration in cash or property, for
shares of Common Stock, either immediately or upon the occurrence of a specified
date or a specified event.
"Current Warrant Price" shall mean, in respect of a share of Common
Stock at any date herein specified, one hundred and ten percent (110%) of the
arithmetic mean of the closing bid prices of a share of Common Stock as reported
on the Nasdaq on the ten (10) Trading Days immediately preceding the Closing
Date.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Exercise Period" shall mean the period during which this Warrant is
exercisable pursuant to Section 2.1.
"Expiration Date" shall mean September 14, 2004.
"Fully Diluted Outstanding" shall mean, when used with reference to
Common Stock, at any date as of which the number of shares thereof is to be
determined, all shares of Common Stock Outstanding at such date and all shares
of Common Stock issuable in respect of this Warrant, outstanding on such date,
and other options or warrants to purchase, or securities convertible into,
shares of Common Stock outstanding on such date which would be deemed
outstanding in accordance with GAAP for purposes of determining Book Value or
net income per share.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as from time to time in effect.
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<PAGE>
"Holder" shall mean the Person in whose name the Warrant or Warrant
Stock set forth herein is registered on the books of the Company maintained for
such purpose.
"Market Price" per share of Common Stock shall mean the average of
the closing bid prices of the Common Stock as reported on the Nasdaq, or, if
such security bid is not listed or admitted to trading on the Nasdaq, on the
principal national security exchange or quotation system on which such security
is quoted or listed or admitted to trading, or, if not quoted or listed or
admitted to trading on any national securities exchange or quotation system, the
closing bid price of such security on the over-the-counter market on the day in
question as reported by the National Quotation Bureau Incorporated, or a similar
generally accepted reporting service, or if not so available, in such manner as
furnished by any Nasdaq member firm of the National Association of Securities
Dealers, Inc. selected from time to time by the Board of Directors of the
Company for that purpose, or a price determined in good faith by the Board of
Directors of the Company as being equal to the fair market value thereof, as the
case may be, for the five trading days immediately preceding the Closing Date.
"Nasdaq" shall mean the Nasdaq National Market.
"Other Property" shall have the meaning set forth in Section 4.4.
"Outstanding" shall mean, when used with reference to Common Stock,
at any date as of which the number of shares thereof is to be determined, all
issued shares of Common Stock, except shares then owned or held by or for the
account of the Company or any subsidiary thereof, and shall include all shares
issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock.
"Person" shall mean any individual, sole proprietorship,
partnership, joint venture, trust, incorporated organization, association,
corporation, institution, public benefit corporation, entity or government
(whether federal, state, county, city, municipal or otherwise, including,
without limitation, any instrumentality, division, agency, body or department
thereof).
"Registration Rights Agreement" shall mean the Registration Rights
Agreement dated as of a date even herewith between the Company and The Triton
Private Equities Fund, L.P., as it may be amended from time to time.
"Restricted Common Stock" shall mean shares of Common Stock which
are, or which upon their issuance on their exercise of this Warrant would be,
evidenced by a certificate bearing the restrictive legend set forth in Section
9.1(a).
"Securities Act" shall mean the Securities Act of 1933, as amended,
or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Securities Purchase Agreement" shall mean the Securities Purchase
Agreement dated as of a date even herewith between the Company and The Triton
Private Equities Fund, L.P., as it may be amended from time to time.
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<PAGE>
"Transfer" shall mean any disposition of any Warrant or Warrant
Stock or of any interest in either thereof, which would constitute a sale
thereof within the meaning of the Securities Act.
"Transfer Notice" shall have the meaning set forth in Section 9.2.
"Warrant Price" shall mean an amount equal to (i) the number of
shares of Common Stock being purchased upon exercise of this Warrant pursuant to
Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of such
exercise.
"Warrant Stock" shall mean the shares of Common Stock purchased by
the holders of the Warrants upon the exercise thereof.
"Warrants" shall mean this Warrant and all warrants issued upon
transfer, division or combination of, or in substitution for, any thereof. All
Warrants shall at all times be identical as to terms and conditions and date,
except as to the number of shares of Common Stock for which they may be
exercised.
2. Exercise of Warrant
2.1 Manner of Exercise
From and after the Closing Date and until 5:00 p.m., New York time,
on the Expiration Date, Holder may exercise this Warrant, on any Business Day,
for all or any part of the number of shares of Common Stock purchasable
hereunder.
In order to exercise this Warrant, in whole or in part, Holder shall
deliver to the Company at its principal office at 22700 Savi Ranch Parkway,
Yorba Linda, CA 92887, or at the office or agency designated by the Company
pursuant to Section 12, (i) a written notice of Holder's election to exercise
this Warrant, which notice shall specify the number of shares of Common Stock to
be purchased, (ii) to the extent such exercise is not being effected through a
Cashless Exercise (as defined below), payment of the Warrant Price in cash or
wire transfer or cashier's check drawn on a United States bank and (iii) this
Warrant. Such notice shall be substantially in the form of the subscription form
appearing at the end of this Warrant as Exhibit A, duly executed by Holder or
its agent or attorney. Upon receipt of the items referred to in clauses (i),
(ii) and (iii) above, the Company shall, as promptly as practicable, and in any
event within five Business Days thereafter, execute or cause to be executed and
deliver or cause to be delivered to Holder a certificate or certificates
representing the aggregate number of full shares of Common Stock issuable upon
such exercise, together with cash in lieu of any fraction of a share, as
hereinafter provided. The stock certificate or certificates so delivered shall
be, to the extent possible, in such denomination or denominations as Holder
shall request in the notice and shall be registered in the name of Holder or,
subject to Section 9, such other name as shall be designated in the notice. This
Warrant shall be deemed to have been exercised and such certificate or
certificates shall be deemed to have been issued, and Holder or any other Person
so designated to be named therein shall be deemed to have become a holder of
record of such shares for all purposes, as of the date the notice, together with
the cash or check or checks and this Warrant, is received by the Company as
described above and all taxes required to be paid by Holder, if any, pursuant to
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<PAGE>
Section 2.2 prior to the issuance of such shares have been paid. If this Warrant
shall have been exercised in part, the Company shall, at the time of delivery of
the certificate or certificates representing Warrant Stock, deliver to Holder a
new Warrant evidencing the rights of Holder to purchase the unpurchased shares
of Common Stock called for by this Warrant, which new Warrant shall in all other
respects be identical with this Warrant, or, at the request of Holder,
appropriate notation may be made on this Warrant and the same returned to
Holder. Notwithstanding any provision herein to the contrary, the Company shall
not be required to register shares in the name of any Person who acquired this
Warrant (or part hereof) or any Warrant Stock otherwise than in accordance with
this Warrant.
Simultaneously with the exercise of this Warrant, payment in full of
the Warrant Price may be made, at the option of the Holder, (i) by payment of
the Warrant Price in cash or by wire transfer or cashier's check drawn on a
United States bank, (ii) by the surrender (which surrender shall be evidenced by
cancellation of the number of Warrants represented by any certificate(s)
evidencing the Warrants (the "Warrant Certificate") presented in connection with
a Cashless Exercise of a Warrant or Warrants (represented by one or more Warrant
Certificates), and without payment of the Warrant Price in cash, for such number
of shares equal to the product of (1) the number of shares for which such
Warrant is exercisable with payment in cash of the Warrant Price as of the date
of exercise and (2) the Cashless Exercise Ratio or (iii) by any combination of
(i) and (ii). For purposes of this Agreement, the "Cashless Exercise Ratio"
shall equal a fraction, the numerator of which is the excess of the Current
Market Price per share of the Common Stock on the date of exercise over the
Warrant Price per share as of the date of exercise and the denominator of which
is the Current Market Price per share of the Common Stock on the date of
exercise. An exercise of a Warrant in accordance with the immediately preceding
sentences is herein called a "Cashless Exercise." Upon surrender of a Warrant
Certificate representing more than one Warrant in connection with the Holder's
option to elect a Cashless Exercise, the number of shares deliverable upon a
Cashless Exercise shall be equal to the Cashless Exercise Ratio multiplied by
the product of (a) the number of Warrants that the Holder specifies is to be
exercised pursuant to a Cashless Exercise and (b) the number of shares for which
such Warrant is then exercisable (without giving effect to the Cashless Exercise
option). All provisions of this Agreement shall be applicable with respect to an
exercise of a Warrant Certificate pursuant to a Cashless Exercise for less than
the full number of Warrants represented thereby.
2.2 Payment of Taxes and Charges
All shares of Common Stock issuable upon the exercise of this
Warrant pursuant to the terms hereof shall be validly issued, fully paid and
nonassessable, freely tradable and without any preemptive rights. The Company
shall pay all expenses in connection with, and all taxes and other governmental
charges that may be imposed with respect to, the issue or delivery thereof,
unless such tax or charge is imposed by law upon Holder, in which case such
taxes or charges shall be paid by Holder. The Company shall not be required,
however, to pay any tax or other charge imposed in connection with any transfer
involved in the issue of any certificate for shares of Common Stock issuable
upon exercise of this Warrant in any name other than that of Holder, and in such
case the Company shall not be required to issue or deliver any stock certificate
until such tax or other charge has been paid or it has been established to the
satisfaction of the Company that no such tax or other charge is due.
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<PAGE>
2.3 Fractional Shares
The Company shall not be required to issue a fractional share of
Common Stock upon exercise of any Warrant. As to any fraction of a share which
Holder would otherwise be entitled to purchase upon such exercise, the Company
shall pay a cash adjustment in respect of such final fraction in an amount equal
to the same fraction of the Market Price per share of Common Stock as of the
Closing Date.
2.4 Continued Validity
A holder of shares of Common Stock issued upon the exercise of this
Warrant, in whole or in part (other than a holder who acquires such shares after
the same have been publicly sold pursuant to a Registration Statement under the
Securities Act or sold pursuant to Rule 144 thereunder), shall continue to be
entitled with respect to such shares to all rights to which it would have been
entitled as Holder under Sections 9, 10 and 14 of this Warrant. The Company
will, at the time of exercise of this Warrant, in whole or in part, upon the
request of Holder, acknowledge in writing, in form reasonably satisfactory to
Holder, its continuing obligation to afford Holder all such rights; provided,
however, that if Holder shall fail to make any such request, such failure shall
not affect the continuing obligation of the Company to afford to Holder all such
rights.
3. Transfer, Division and Combination
3.1 Transfer
Subject to compliance with Section 9, transfer of this Warrant and
all rights hereunder, in whole or in part, shall be registered on the books of
the Company to be maintained for such purpose, upon surrender of this Warrant at
the principal office of the Company referred to in Section 2.1 or the office or
agency designated by the Company pursuant to Section 12, together with a written
assignment of this Warrant substantially in the form of Exhibit B hereto duly
executed by Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer. Upon such surrender
and, if required, such payment, the Company shall, subject to Section 9, execute
and deliver a new Warrant or Warrants in the name of the assignee or assignees
and in the denomination specified in such instrument of assignment, and shall
issue to the assignor a new Warrant evidencing the portion of this Warrant not
so assigned, and this Warrant shall promptly be canceled. A Warrant, if properly
assigned in compliance with Section 9, may be exercised by a new Holder for the
purchase of shares of Common Stock without having a new warrant issued.
3.2 Division and Combination
Subject to Section 9, this Warrant may be divided or combined with
other Warrants upon presentation hereof at the aforesaid office or agency of the
Company, together with a written notice specifying the names and denominations
in which new Warrants are to be issued, signed by Holder or its agent or
attorney. Subject to compliance with Section 3.1 and with Section 9, as to any
transfer which may be involved in such division or combination, the Company
shall execute and deliver a new Warrant or Warrants in exchange for the Warrant
or Warrants to be divided or combined in accordance with such notice.
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3.3 Expenses
The Company shall prepare, issue and deliver at its own expense
(other than transfer taxes) the new Warrants or Warrants under this Section 3.
3.4 Maintenance of Books
The Company agrees to maintain, at its aforesaid office or agency,
books for the registration and the registration of transfer of the Warrants.
4. Adjustments
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this Warrant, shall be subject to adjustment from time to time as set forth in
this Section 4. The Company shall give Holder notice of any event described
below which requires an adjustment pursuant to this Section 4 at the time of
such event.
4.1 Stock Dividends, Subdivisions and Combinations
If at any time the Company shall:
(a) take a record of the holders of its Common Stock for the purpose of
entitling them to receive a dividend payable in, or other distribution of,
Additional Shares of Common Stock;
(b) subdivide its outstanding shares of Common Stock into a larger number of
shares of Common Stock; or
(c) combine its outstanding shares of Common Stock into a smaller number of
shares of Common Stock;
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current Warrant Price
shall be adjusted to equal (A) the Current Warrant Price multiplied by the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such adjustment.
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4.2 Certain Other Distributions
If at any time the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive any dividend or other
distribution of:
(a) cash;
(b) any evidences of its indebtedness, any shares of its stock or any other
securities or property of any nature whatsoever (other than cash, Convertible
Securities or Additional Shares of Common Stock); or
(c) any warrants or other rights to subscribe for or purchase any evidences of
its indebtedness, any shares of its stock or any other securities or property of
any nature whatsoever (other than cash, Convertible Securities or Additional
Shares of Common Stock);
then Holder shall be entitled to receive such dividend or distribution as if
Holder had exercised the Warrant. A reclassification of the Common Stock (other
than a change in par value, or from par value to no par value or from no par
value to par value) into shares of Common Stock and shares of any other class of
stock shall be deemed a distribution by the Company to the holders of its Common
Stock of such shares of such other class of stock within the meaning of this
Section 4.2 and, if the outstanding shares of Common Stock shall be changed into
a larger or smaller number of shares of Common Stock as a part of such
reclassification, such change shall be deemed a subdivision or combination, as
the case may be, of the outstanding shares of Common Stock within the meaning of
Section 4.1.
4.3 Other Provisions Applicable to Adjustments under this
Section
The following provisions shall be applicable to the making of
adjustments of the number of shares of Common Stock for which this Warrant is
exercisable and the Current Warrant Price provided for in this Section 4:
(a) When Adjustments to be Made. The adjustments required by this Section 4
shall be made whenever and as often as any specified event requiring an
adjustment shall occur. For the purpose of any adjustment, any specified event
shall be deemed to have occurred at the close of business on the date of its
occurrence.
(b) Fractional Interests. In computing adjustments under this Section 4,
fractional interests in Common Stock shall be taken into account to the nearest
1/10th of a share.
(c) When Adjustment not Required. If the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them to receive a
dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by reason of the taking
of such record and any such adjustment previously made in respect thereof shall
be rescinded and annulled.
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(d) Challenge to Good Faith Determination. Whenever the Board of Directors of
the Company shall be required to make a determination in good faith of the fair
value of any item under this Section 4, such determination may be challenged in
good faith by the Holder, and any dispute shall be resolved by an investment
banking firm of recognized national standing selected by the Company and
acceptable to Holder.
4.4 Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets
In case the Company shall reorganize its capital, reclassify its
capital stock, consolidate or merge with or into another corporation (where the
Company is not the surviving corporation or where there is a change in or
distribution with respect to the Common Stock of the Company), or sell, transfer
or otherwise dispose of all or substantially all its property, assets or
business to another corporation and, pursuant to the terms of such
reorganization, reclassification, merger, consolidation or disposition of
assets, shares of common stock of the successor or acquiring corporation, or any
cash, shares of stock or other securities or property of any nature whatsoever
(including warrants or other subscription or purchase rights) in addition to or
in lieu of common stock of the successor or acquiring corporation ("Other
Property"), are to be received by or distributed to the holders of Common Stock
of the Company, then Holder shall have the right thereafter to receive, upon
exercise of the Warrant, the number of shares of common stock of the successor
or acquiring corporation or of the Company, if it is the surviving corporation,
and Other Property receivable upon or as a result of such reorganization,
reclassification, consolidation or disposition of assets by a holder of the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to such event. In case of any such reorganization,
reclassification, merger, consolidation or disposition of assets, the successor
or acquiring corporation (if other than the Company) shall expressly assume the
due and punctual observance and performance of each and every covenant and
condition of this Warrant to be performed and observed by the Company and all
the obligations and liabilities hereunder, subject to such modifications as may
be deemed appropriate (as determined by resolution of the Board of Directors of
the Company) in order to provide for adjustments of shares of Common Stock for
which this Warrant is exercisable which shall be as nearly equivalent as
practicable to the adjustments provided for in this Section 4. For purposes of
this Section 4.4, "common stock of the successor or acquiring corporation" shall
include stock of such corporation of any class which is not preferred as to
dividends or assets over any other class of stock of such corporation and which
is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Section 4.4 still similarly apply to successive reorganizations,
reclassifications, mergers, consolidations or disposition of assets.
4.5 Other Action Affecting Common Stock
In case at any time or from time to time the Company shall take any
action in respect of its Common Stock, other than any action described in this
Section 4, which would have a materially adverse effect upon the rights of
Holder, the number of shares of Common Stock and/or the purchase price thereof
shall be adjusted in such manner as may be equitable in the circumstances, as
determined in good faith by the Board of Directors of the Company.
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4.6 Certain Limitations
Notwithstanding anything herein to the contrary, the Company agrees
not to enter into any transaction which, by reason of any adjustment hereunder,
would cause the Current Warrant Price to be less than the par value per share of
Common Stock.
5. Notices to Holder
5.1 Notice of Adjustments
Whenever the number of shares of Common Stock for which this Warrant
is exercisable, or whenever the price at which a share of such Common Stock may
be purchased upon exercise of the Warrants, shall be adjusted pursuant to
Section 4, the Company shall forthwith prepare a certificate to be executed by
the chief financial officer of the Company setting forth, in reasonable detail,
the event requiring the adjustment and the method by which such adjustment was
calculated (including a description of the basis on which the Board of Directors
of the Company determined the fair value of any evidences of indebtedness,
shares of stock, other securities or property or warrants or other subscription
or purchase rights referred to in Section 4.2), specifying the number of shares
of Common Stock for which this Warrant is exercisable and (if such adjustment
was made pursuant to Section 4.4 or 4.5) describing the number and kind of any
other shares of stock or Other Property for which this Warrant is exercisable,
and any change in the purchase price or prices thereof, after giving effect to
such adjustment or change. The Company shall promptly cause a signed copy of
such certificate to be delivered to the Holder in accordance with Section 14.2.
The Company shall keep at its office or agency designated pursuant to Section 12
copies of all such certificates and cause the same to be available for
inspection at said office during normal business hours by the Holder or any
prospective purchaser of a Warrant designated by Holder.
5.2 Notice of Corporate Action
If at any time:
(a) the Company shall take a record of the holders of its Common Stock for the
purpose of entitling them to receive a dividend or other distribution, or any
right to subscribe for or purchase any evidences of its indebtedness, any shares
of stock of any class or any other securities or property, or to receive any
other right; or
(b) there shall be any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
consolidation or merger of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of the
Company to, another corporation; or
(c) there shall be a voluntary or involuntary dissolution, liquidation or
winding up of the Company;
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then, in any one or more of such cases, the Company shall give to Holder (i) at
least 10 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, and (ii) in the case of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, at least 10 days' prior written notice of the date when the same shall take
place. Such notice in accordance with the foregoing clause also shall specify
(i) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, the date on which the holders of Common Stock
shall be entitled to any such dividend, distribution or right, and the amount
and character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently given if addressed to Holder
at the last address of Holder appearing on the books of the Company and
delivered in accordance with Section 14.2.
6. No Impairment
The Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or 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
actions as may be necessary or appropriate to protect the rights of Holder
against impairment. Without limiting the generality of the foregoing, the
Company will (a) not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the amount payable therefor
upon such exercise immediately prior to such increase in par value, (b) 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 Common Stock
upon the exercise of this Warrant, and (c) use its best efforts to obtain all
such authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof as may be necessary to enable the Company to perform
its obligations under this Warrant.
Upon the request of Holder, the Company will at any time during the
period this Warrant is outstanding acknowledge in writing, in form satisfactory
to Holder, the continuing validity of this Warrant and the obligations of the
Company hereunder.
7. Reservation and Authorization of Common Stock
From and after the Closing Date, the Company shall at all times
reserve and keep available for issue upon the exercise of Warrants such number
of its authorized but unissued shares of Common Stock as will be sufficient to
permit the exercise in full of all outstanding Warrants. All shares of Common
Stock which shall be so issuable, when issued upon exercise of any Warrant and
payment therefor in accordance with the terms of such Warrant, shall be duly and
validly issued and fully paid and nonassessable and not subject to preemptive
rights.
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Before taking any action which would cause an adjustment reducing
the Current Warrant Price below the then par value, if any, of the shares of
Common Stock issuable upon exercise of the Warrants, the Company shall take any
corporate action which may be necessary in order that the Company may validly
and legally issue fully paid and nonassessable shares of such Common Stock at
such adjusted Current Warrant Price.
Before taking any action which would result in an adjustment in the
number of shares of Common Stock for which this Warrant is exercisable or in the
Current Warrant Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
8. Taking of Record; Stock and Warrant Transfer Books
In the case of all dividends or other distributions by the Company
to the holders of its Common Stock with respect to which any provision of
Section 4 refers to the taking of record of such holders, the Company will in
each case take such a record and will take such record as of the close of
business on a Business Day. The Company will not at any time, except upon
dissolution, liquidation or winding up of the Company, close its stock transfer
books or Warrant transfer books so as to result in preventing or delaying the
exercise or transfer of any Warrant.
9. Restrictions on Transferability
The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in this
Section 9, which conditions are intended to ensure compliance with the
provisions of the Securities Act with respect to the Transfer of any Warrant or
any Warrant Stock. Holder, by acceptance of this Warrant, agrees to be bound by
the provisions of this Section 9.
9.1 Restrictive Legend
(a) Holder, by accepting this Warrant and any Warrant Stock, agrees
that this Warrant and the Warrant Stock issuable upon exercise hereof may not be
assigned or otherwise transferred unless and until (i) the Company has received
an opinion of counsel for Holder acceptable to the Company that such securities
may be sold pursuant to an exemption from registration under the Securities Act
or (ii) a registration statement relating to such securities has been filed by
the Company and declared effective by the Commission.
Each certificate for Warrant Stock issuable hereunder shall bear a
legend as follows until such securities have been sold pursuant to an effective
registration statement under the Securities Act:
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"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT")
OR THE SECURITIES LAWS OF ANY STATE. THE SHARES MAY NOT BE PLEDGED,
HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT
COVERING THE SECURITIES REPRESENTED BY THIS CERTIFICATE, AND OTHER
FILINGS UNDER ANY APPLICABLE STATE SECURITIES LAWS, EXCEPT PURSUANT
TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
ACT AND SUCH OTHER LAWS."
(b) Except as otherwise provided in this Section 9, the Warrant
shall be stamped or otherwise imprinted with a legend in substantially the
following form:
"THIS WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT
BE TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS
THEREUNDER OR THE PROVISIONS OF THIS WARRANT."
9.2 Notice of Proposed Transfers
Prior to any Transfer or attempted Transfer of any Warrants or any
shares of Restricted Common Stock, the Holder shall give ten days' prior written
notice (a "Transfer Notice") to the Company of Holder's intention to effect such
Transfer, describing the manner and circumstances of the proposed Transfer, and
obtain from counsel to Holder who shall be reasonably satisfactory to the
Company, an opinion that the proposed Transfer of such Warrants or such
Restricted Common Stock may be effected without registration under the
Securities Act. After receipt of the Transfer Notice and opinion, the Company
shall, within five days thereof, notify the Holder as to whether such opinion is
reasonably satisfactory and, if so, such holder shall thereupon be entitled to
Transfer such Warrants or such Restricted Common Stock, in accordance with the
terms of the Transfer Notice. Each certificate, if any, evidencing such shares
of Restricted Common Stock issued upon such Transfer shall bear the restrictive
legend set forth in Section 9.1(a), and the Warrant issued upon such Transfer
shall bear the restrictive legend set forth in Section 9.1(b), unless in the
opinion of such counsel such legend is not required in order to ensure
compliance with the Securities Act. Holder shall not be entitled to Transfer
such Warrants or such Restricted Common Stock until receipt of notice from the
Company under this Section 9.2(a) that such opinion is reasonably satisfactory.
9.3 Required Registration
Pursuant to the terms and conditions set forth in Registration
Rights Agreement, the Company shall prepare and file with the Commission not
later than the 30th day after the Closing Date, a Registration Statement
relating to the offer and sale of the Common Stock issuable upon exercise of the
Warrants and shall use its best efforts to cause the Commission to declare such
Registration Statement effective under the Securities Act as promptly as
practicable but no later than 150 days after the Closing Date.
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9.4 Termination of Restrictions
Notwithstanding the foregoing provisions of Section 9, the
restrictions imposed by this Section upon the transferability of the Warrants,
the Warrant Stock and the Restricted Common Stock (or Common Stock issuable upon
the exercise of the Warrants) and the legend requirements of Section 9.1 shall
terminate as to any particular Warrant or share of Warrant Stock or Restricted
Common Stock (or Common Stock issuable upon the exercise of the Warrants) (i)
when and so long as such security shall have been effectively registered under
the Securities Act and disposed of pursuant thereto or (ii) when the Company
shall have received an opinion of counsel reasonably satisfactory to it that
such shares may be transferred without registration thereof under the Securities
Act. Whenever the restrictions imposed by Section 9 shall terminate as to this
Warrant, as hereinabove provided, the Holder hereof shall be entitled to receive
from the Company upon written request of the Holder, at the expense of the
Company, a new Warrant bearing the following legend in place of the restrictive
legend set forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN
WARRANT CONTAINED IN SECTION 9 HEREOF TERMINATED ON
__________, _____, AND ARE OF NO FURTHER FORCE AND
EFFECT."
All Warrants issued upon registration of transfer, division or combination of,
or in substitution for, any Warrant or Warrants entitled to bear such legend
shall have a similar legend endorsed thereon. Whenever the restrictions imposed
by this Section shall terminate as to any share of Restricted Common Stock, as
hereinabove provided, the holder thereof shall be entitled to receive from the
Company, at the Company's expense, a new certificate representing such Common
Stock not bearing the restrictive legend set forth in Section 9.1(a).
9.5 Listing on Securities Exchange
If the Company shall list any shares of Common Stock on any
securities exchange or quotation system, it will, at its expense, list thereon,
maintain and, when necessary, increase such listing of, all shares of Common
Stock issued or, to the extent permissible under the applicable securities
exchange rules, issuable upon the exercise of this Warrant so long as any shares
of Common Stock shall be so listed during any such Exercise Period.
10. Supplying Information
The Company shall cooperate with Holder in supplying such
information as may be reasonably necessary for Holder to complete and file any
information reporting forms presently or hereafter required by the Commission as
a condition to the availability of an exemption from the Securities Act for the
sale of any Warrant or Restricted Common Stock.
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11. Loss or Mutilation
Upon receipt by the Company from Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it being
understood that the written agreement of the Holder shall be sufficient
indemnity), and in case of mutilation upon surrender and cancellation hereof,
the Company will execute and deliver in lieu hereof a new Warrant of like tenor
to Holder; provided, in the case of mutilation no indemnity shall be required if
this Warrant in identifiable form is surrendered to the Company for
cancellation.
12. Office of the Company
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency (which may be the principal executive offices of
the Company) where the Warrants may be presented for exercise, registration of
transfer, division or combination as provided in this Warrant.
13. Limitation of Liability
No provision hereof, in the absence of affirmative action by Holder
to purchase shares of Common Stock, and no enumeration herein of the rights or
privileges of Holder hereof, shall give rise to any liability of Holder for the
purchase price of any Common Stock or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.
14. Miscellaneous
14.1 Nonwaiver and Expenses
No course of dealing or any delay or failure to exercise any right
hereunder on the part of Holder shall operate as a waiver of such right or
otherwise prejudice Holder's rights, powers or remedies. If the Company fails to
make, when due, any payments provided for hereunder, or fails to comply with any
other provision of this Warrant, the Company shall pay to Holder such amounts as
shall be sufficient to cover any costs and expenses including, without
limitation, reasonable attorneys' fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due pursuant hereto or
in otherwise enforcing any of its rights, powers or remedies hereunder.
14.2 Notice Generally
Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or, if mailed,
three (3) days after the date of deposit in the United States mails, as follows:
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<TABLE>
<S> <C> <C>
(a) if to the Company, to:
Research Engineers, Inc.
22700 Savi Ranch Parkway
Yorba Linda, CA 92887
Attention: Chief Financial Officer
(714) 974-2500
(714) 921-0683 (Fax)
with a copy to:
Rutan & Tucker, LLP
611 Anton Blvd., 14th Floor
Costa Mesa, CA 92626
Attention: Gregg Amber, Esq.
(714) 641-3425
(714) 546-9035 (Fax)
(b) if to the Holder, to:
The Triton Private Equities Fund, L.P.
c/o Triton capital Management, L.L.C.
225 North Market Street, Suite 220
Wichita, Kansas 67202
Attention: John C. Tausche
(316) 262-8874
(316) 262-6801 (Fax)
with a copy to:
H. Glen Bagwell, Jr., Esq.
Law Offices of H. Glen Bagwell, Jr.
3005 Anderson Drive, Suite 204
Raleigh, North Carolina 27609
(919) 785-3113
(919) 785-3116 (Fax)
</TABLE>
The Company or the Holder may change the foregoing address by notice given
pursuant to this Section 14.2.
14.3 Indemnification
The Company agrees to indemnify and hold harmless Holder from and
against any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of
any kind which may be imposed upon, incurred by or asserted against Holder in
any manner relating to or arising out of any failure by the Company to perform
or observe in any material respect any of its covenants, agreements,
undertakings or obligations set forth in this Warrant; provided, however, that
the Company will not be liable hereunder to the extent that any liabilities,
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obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, attorneys' fees, expenses or disbursements are found in a final
nonappealable judgment by a court to have resulted from Holder's gross
negligence, bad faith or willful misconduct in its capacity as a stockholder or
warrantholder of the Company.
14.4 Remedies
Holder in addition to being entitled to exercise all rights granted
by law, including recovery of damages, will be entitled to specific performance
of its rights under Section 9 of this Warrant. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of Section 9 of this Warrant and hereby agrees to
waive the defense in any action for specific performance that a remedy at law
would be adequate.
14.5 Successors and Assigns
Subject to the provisions of Sections 3.1 and 9, this Warrant and
the rights evidenced hereby shall inure to the benefit of and be binding upon
the successors of the Company and the successors and assigns of Holder. The
provisions of this Warrant are intended to be for the benefit of all Holders
from time to time of this Warrant and, with respect to Section 9 hereof, holders
of Warrant Stock, and shall be enforceable by any such Holder or holder of
Warrant Stock.
14.6 Amendment
This Warrant and all other Warrants may be modified or amended or
the provisions hereof waived with the written consent of the Company and Holder.
14.7 Severability
Wherever possible, each provision of this Warrant shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Warrant shall be prohibited by or invalid under
applicable law, such provision shall only be ineffective to the extent of such
prohibition or invalidity, without invalidating the remainder of such provision
or the remaining provisions of this Warrant.
14.8 Headings
The headings used in this Warrant are for the convenience of
reference only and shall not, for any purpose, be deemed a part of this Warrant.
14.9 Governing Law
This Warrant shall be governed by the laws of the State of New York,
without regard to the provisions thereof relating to conflicts of law.
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In Witness Whereof, the Company has caused this Warrant to be duly
executed and its corporate seal to be impressed hereon and attested by its
Secretary or an Assistant Secretary.
Dated: September 14, 1999
Research Engineers, Inc.
By:
Name: Jyoti Chatterjee
Title: President
[Corporate Seal]
Attest:
By:
Name: Wayne Blair
Title: Secretary
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