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
April 13, 2000
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Date of Report (Date of earliest event reported)
PRT GROUP INC.
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Exact Name of Registrant as Specified in Charter)
Delaware 0-23315 13-3914972
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(State or other jurisdiction (Commission File Number) (IRS Employer
of Incorporation) Identification No.)
80 Lamberton Road
Windsor, CT 06095
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(Address of Principal Executive Offices) (Zip Code)
(914) 345-3800
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Registrant's telephone number, including area code
Not Applicable
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(Former Name or Former Address, if Changed Since Last Report)
Item 5. Other Events.
As previously announced, PRT Group Inc. ("PRT" or the "Company") has
accepted a proposal designed to allow the Company to receive an immediate
infusion of equity capital (the "Investment"). In connection with the
Investment and as previously disclosed, the Company has received an
exemption from the Nasdaq Stock Market to permit the Company to issue
common stock equivalents in excess of 20% of PRT's outstanding shares
without shareholder approval. With respect to the foregoing, on April 13,
2000 the Company entered into a Securities Purchase Agreement (the
"Securities Purchase Agreement"), a copy of which is attached hereto as
Exhibit 99.1 and is incorporated by reference herein, with the investors
named therein.
The Investment provides for an aggregate of $8 million in working
capital funding from Tudor Investment Corporation and The Travelers
Indemnity Company, two existing shareholders of the Company, and EFG
Eurofinancial Investment Company (collectively, the "Investors") in
exchange for the issuance by the Company of 8,000,000 shares of a new
series of Senior Participating Convertible Preferred Stock (the "Preferred
Stock") and Warrants (the "Warrants") to purchase 4,000,000 shares of the
Company's common stock, par value $.001 per share (the "Common Stock").
Under the terms of the Securities Purchase Agreement, the Investors will
purchase the Preferred Stock at a price of $1.00 per share. The Preferred
Stock is convertible at any time into an equal number of shares of Common
Stock, subject to adjustment under certain circumstances. The Company
will further issue to the Investors Warrants to purchase 4,000,000 million
shares of Common Stock, subject to adjustment under certain circumstances,
at an exercise price of $1.00 per share. The Investment is scheduled to
close on April 14, 2000. The form of Certificate of Designations for the
Preferred Stock and form of Warrant are each attached hereto as Exhibits
99.2 and 99.3, respectively, and are incorporated by reference herein.
Item 7. Financial Statements and Exhibits.
(c) Exhibits.
99.1 Securities Purchase Agreement, dated as of April 13, 2000, by and
among PRT Group Inc. and the Investors named therein.
99.2 Form of Certificate of Designations.
99.3 Form of Warrant.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this Report to be signed on its behalf by
the undersigned hereunto duly authorized.
PRT GROUP INC.
Date: April 13, 2000 By: /s/ RICHARD ROSENFELD
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Richard Rosenfeld
General Counsel and Secretary
EXHIBIT INDEX
Exhibit
No. Description
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99.1 Securities Purchase Agreement, dated as of April 13, 2000, by and
among PRT Group Inc. and the Investors named therein.
99.2 Form of Certificate of Designations.
99.3 Form of Warrant.
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PRT GROUP INC.
SECURITIES PURCHASE AGREEMENT
SERIES A SENIOR PARTICIPATING CONVERTIBLE PREFERRED STOCK
AND
WARRANTS
dated as of April 13, 2000
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TABLE OF CONTENTS
Page
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ARTICLE I Purchase and Sale of Stock . . . . . . . . . . . . . . . 1
Section 1.1 Sale and Issuance of Preferred Stock and
Warrants . . . . . . . . . . . . . . . . . . . . 1
Section 1.2 Closing . . . . . . . . . . . . . . . . . . . . . . 2
ARTICLE II Representations and Warranties of the Company . . . . . . 3
Section 2.1 Organization, Good Standing and Qualification . . . 3
Section 2.2 Capitalization and Voting Rights . . . . . . . . . 3
Section 2.3 Subsidiaries . . . . . . . . . . . . . . . . . . . 6
Section 2.4 Authorization . . . . . . . . . . . . . . . . . . . 6
Section 2.5 Valid Issuance of the Securities and Conversion
Shares . . . . . . . . . . . . . . . . . . . . . 7
Section 2.6 Governmental and Third Party Consents . . . . . . . 7
Section 2.7 Litigation; Compliance with Laws . . . . . . . . . 7
Section 2.8 Patents and Trademarks . . . . . . . . . . . . . . 8
Section 2.9 Proprietary Information of Third Parties . . . . . 9
Section 2.10 Compliance with Other Instruments . . . . . . . . . 10
Section 2.11 Interested Party Agreements . . . . . . . . . . . . 10
Section 2.12 Disclosure . . . . . . . . . . . . . . . . . . . . 10
Section 2.13 Title to Property and Assets; Leases . . . . . . . 11
Section 2.14 Changes . . . . . . . . . . . . . . . . . . . . . . 12
Section 2.15 Employee Benefit Plans . . . . . . . . . . . . . . 14
Section 2.16 Tax Matters . . . . . . . . . . . . . . . . . . . . 14
Section 2.17 Insurance . . . . . . . . . . . . . . . . . . . . . 15
Section 2.18 Labor Agreements and Actions . . . . . . . . . . . 15
Section 2.19 Financial Statements; Filed SEC Documents . . . . . 16
Section 2.20 Absence of Undisclosed Liabilities . . . . . . . . 17
Section 2.21 Other Agreements . . . . . . . . . . . . . . . . . 17
Section 2.22 Loans and Advances . . . . . . . . . . . . . . . . 21
Section 2.23 Employees and Officers; Employee Matters . . . . . 21
Section 2.24 Potential Conflicts of Interest . . . . . . . . . . 22
Section 2.25 Environmental Protection . . . . . . . . . . . . . 22
Section 2.26 Foreign Corrupt Practices Act . . . . . . . . . . . 23
Section 2.27 Federal Reserve Regulations . . . . . . . . . . . . 23
Section 2.28 Offering of the Shares . . . . . . . . . . . . . . 23
Section 2.29 Returns . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.30 Related-Party Transactions . . . . . . . . . . . . 24
Section 2.31 Permits . . . . . . . . . . . . . . . . . . . . . . 24
Section 2.32 Manufacturing and Marketing Rights . . . . . . . . 24
Section 2.33 Registration Rights . . . . . . . . . . . . . . . . 25
Section 2.34 Minute Books . . . . . . . . . . . . . . . . . . . 25
Section 2.35 Representations and Warranties . . . . . . . . . . 25
ARTICLE III Covenants of the Company . . . . . . . . . . . . . . . . 26
Section 3.1 Financial Statements, Reports, Etc. . . . . . . . . 26
Section 3.2 Properties, Business, Insurance . . . . . . . . . . 27
Section 3.3 Inspection, Consultation and Advice . . . . . . . . 27
Section 3.4 Restrictive Agreements Prohibited . . . . . . . . . 28
Section 3.5 Transactions with Affiliates . . . . . . . . . . . 28
Section 3.6 Expenses of Directors . . . . . . . . . . . . . . . 28
Section 3.7 Board of Directors Meetings . . . . . . . . . . . . 28
Section 3.8 By-laws . . . . . . . . . . . . . . . . . . . . . . 29
Section 3.9 Performance of Contracts . . . . . . . . . . . . . 29
Section 3.10 Employment Agreements . . . . . . . . . . . . . . . 29
Section 3.11 Compliance with Laws . . . . . . . . . . . . . . . 29
Section 3.12 Keeping of Records and Books of Account . . . . . . 30
Section 3.13 Compensation and Audit Committees . . . . . . . . . 30
Section 3.14 Corporate Existence . . . . . . . . . . . . . . . . 30
Section 3.15 Number of Securities . . . . . . . . . . . . . . . 31
Section 3.16 Survival . . . . . . . . . . . . . . . . . . . . . 31
Section 3.17 Use of Proceeds . . . . . . . . . . . . . . . . . . 31
Section 3.18 Preemptive Rights . . . . . . . . . . . . . . . . . 31
Section 3.19 Reservation of Shares . . . . . . . . . . . . . . . 33
Section 3.20 Employee Stock Options . . . . . . . . . . . . . . 33
Section 3.21 Increase in Expenses . . . . . . . . . . . . . . . 34
Section 3.22 Use of Name and Management Responsibility . . . . . 34
Section 3.23 Board Size . . . . . . . . . . . . . . . . . . . . 34
Section 3.24 U.S. Real Property Holding Corporation . . . . . . 34
ARTICLE IV Representations, Warranties and Covenants of the
Investors . . . . . . . . . . . . . . . . . . . . . . . . 35
Section 4.1 Authorization . . . . . . . . . . . . . . . . . . . 35
Section 4.2 Purchase Entirely for Own Account . . . . . . . . . 35
Section 4.3 Disclosure of Information . . . . . . . . . . . . . 35
Section 4.4 Restricted Securities . . . . . . . . . . . . . . . 35
Section 4.5 Limitations on Disposition . . . . . . . . . . . . 36
Section 4.6 Legends . . . . . . . . . . . . . . . . . . . . . . 36
Section 4.7 Accredited Investor . . . . . . . . . . . . . . . . 36
ARTICLE V Conditions of Each Investor's Obligations at Closing . . 37
Section 5.1 Representations and Warranties . . . . . . . . . . 37
Section 5.2 Compliance Certificate . . . . . . . . . . . . . . 37
Section 5.3 Proceedings and Documents . . . . . . . . . . . . . 37
Section 5.4 Opinion of Company Counsel . . . . . . . . . . . . 37
Section 5.5 Performance . . . . . . . . . . . . . . . . . . . . 37
Section 5.6 Purchase by Other Investors . . . . . . . . . . . . 38
Section 5.7 Supporting Documents . . . . . . . . . . . . . . . 38
Section 5.8 Certificate of Incorporation . . . . . . . . . . . 38
Section 5.9 Fees of Investors' Counsel . . . . . . . . . . . . 39
Section 5.10 Deliveries . . . . . . . . . . . . . . . . . . . . 39
ARTICLE VI Conditions of the Company's Obligations at Closing . . . 39
ARTICLE VII Registration . . . . . . . . . . . . . . . . . . . . . . 39
Section 7.1 Definitions . . . . . . . . . . . . . . . . . . . . 39
Section 7.2 Shelf Registration . . . . . . . . . . . . . . . . 40
Section 7.3 Obligations of the Company . . . . . . . . . . . . 43
Section 7.4 Indemnification . . . . . . . . . . . . . . . . . . 43
Section 7.5 Reports Under Exchange Act . . . . . . . . . . . . 46
Section 7.6 Assignment of Registration Rights . . . . . . . . . 47
Section 7.7 Limitations on Subsequent Registration Rights . . . 47
Section 7.8 Amendment of Registration Rights . . . . . . . . . 48
ARTICLE VIII Miscellaneous . . . . . . . . . . . . . . . . . . . . . . 48
Section 8.1 Survival of Warranties . . . . . . . . . . . . . . 48
Section 8.2 Successors and Assigns . . . . . . . . . . . . . . 48
Section 8.3 Governing Law . . . . . . . . . . . . . . . . . . . 49
Section 8.4 Counterparts; Facsimile Counterparts . . . . . . . 49
Section 8.5 Titles and Subtitles . . . . . . . . . . . . . . . 49
Section 8.6 Notices . . . . . . . . . . . . . . . . . . . . . . 49
Section 8.7 Finder's Fee . . . . . . . . . . . . . . . . . . . 50
Section 8.8 Expenses . . . . . . . . . . . . . . . . . . . . . 50
Section 8.9 Amendments and Waivers . . . . . . . . . . . . . . 50
Section 8.10 Severability . . . . . . . . . . . . . . . . . . . 51
Section 8.11 Entire Agreement . . . . . . . . . . . . . . . . . 51
Section 8.12 Further Assurances . . . . . . . . . . . . . . . . 51
Section 8.13 Equitable Relief . . . . . . . . . . . . . . . . . 51
Section 8.14 Publicity . . . . . . . . . . . . . . . . . . . . . 51
Schedule 1.1 - Investors . . . . . . . . . . . . . . . . . . . . 54
Schedule 2.21 - Certain Agreements . . . . . . . . . . . . . . . . 55
Exhibit A - Form of Certificate of Amendment to the Certificate of
Incorporation
Exhibit B - Form of Warrant Certificate
Exhibit C - Form of Opinion of Skadden, Arps, Slate, Meagher & Flom LLP
Exhibit D - Form of Opinion of Richard Rosenfeld, General Counsel of the
Company
SECURITIES PURCHASE AGREEMENT
THIS SECURITIES PURCHASE AGREEMENT (the "Agreement") is made as
of the 13th day of April, 2000, by and among PRT Group Inc., a Delaware
corporation (the "Company"), and the investors listed on Schedule 1.1
hereto, each of which is herein referred to as an "Investor"; provided;
however, that any covenant or provision herein that is for the benefit of
any Tudor Entity (as hereinbelow defined) shall also be for the benefit of
each other Tudor Entity. Any reference herein to an "Investor" shall
further include all mutual funds or other pooled investment vehicles or
entities under the control or management of such Investor, or the general
partner or investment advisor thereof, or any affiliate of any of the
foregoing. In addition, for the purposes of this Agreement, the terms
"Tudor" or "Tudor Entity" shall mean Tudor Investment Corporation and its
Affiliates (including all mutual funds or other pooled investment vehicles
or entities under the control or management of Tudor Investment Corporation
or any of its affiliates, including without limitation any of the
following: Altar Rock Fund, L.P., Tudor Private Equity Fund, L.P., Tudor
Arbitrage Partners, L.P., Tudor BVI Futures, Ltd., Raptor Global Portfolio,
L.P., Raptor Global Portfolio, Ltd., Raptor Global Fund, L.P. and Raptor
Global Fund Ltd., or any funds or other investment vehicles or entities of
which any of the foregoing entities are Affiliates, or any Affiliate or
Affiliated Group of Tudor Investment Corporation and/or Tudor Global
Trading, Inc.) and members of its Affiliated Group, collectively.
THE PARTIES HEREBY AGREE AS FOLLOWS:
ARTICLE I
Purchase and Sale of Stock
Section 1.1 Sale and Issuance of Preferred Stock and Warrants.
(a) Subject to the terms and conditions of this Agreement
each Investor agrees, severally and not jointly, to purchase at the Closing
(as defined below) and the Company agrees to sell and issue to each such
Investor at the Closing, the number of shares (the "Shares"), of the
Company's Series A Senior Participating Convertible Preferred Stock, par
value $.001 per share (the "Series A Preferred Stock"), set forth opposite
such Investor's name on Schedule 1.1 hereto (subject to adjustment on the
occurrence of an Adjustment Event (as defined herein)). The rights,
privileges and preferences of the Series A Preferred Stock are as stated in
the Certificate of Designations attached hereto as Exhibit A (the
"Certificate of Amendment").
(b) Subject to the terms and conditions of this Agreement,
each Investor agrees, severally and not jointly, to purchase at the
Closing, and the Company agrees to sell and issue to each such Investor at
the Closing, a warrant (the "Warrant", and, collectively with the Shares,
the "Securities") to purchase the number of shares of the Company's common
stock, par value $.001 per share (the "Common Stock"), set forth opposite
such Investor's name on Schedule 1.1 hereto, at an initial exercise price
of $1.00 per share of Common Stock, subject to adjustment as set forth in
and pursuant to the terms of the Warrant. The form of Warrant is attached
hereto as Exhibit B.
(c) Each Investor agrees, severally and not jointly, to
pay, subject to the other terms hereof, an aggregate purchase price for all
Securities purchased hereunder by such Investor as set forth opposite such
Investor's name on Schedule 1.1 hereto (subject to adjustment on the
occurrence of an Adjustment Event), such consideration to be payable by
certified or bank cashier's check in immediately available funds or by wire
transfer payable to the order of the Company. The per share purchase price
for each Share shall be $1.00 per Share (as adjusted on the occurrence of
an Adjustment Event); no additional consideration shall be payable in
respect of the Warrants being purchased by the Investors pursuant to this
Agreement.
(d) As used herein, the term "Adjustment Event" means the
occurrence of any of the following with respect to any relevant Person
and/or any relevant class of its equity securities: a stock dividend,
stock split, exchange, combination or division of shares or other equity
interests, recapitalization, reclassification, merger, consolidation,
reorganization, or the like, and the term "Securities" as used in this
Agreement also includes any securities issued or issuable with respect to
the Shares, Conversion Shares, Warrants or other Securities upon the
occurrence of an Adjustment Event and any securities into which any of such
securities are converted or convertible, directly or indirectly, or for
which any of such securities are exchanged or exchangeable, directly or
indirectly, or which are issued in respect thereof upon exercise thereof.
The term "Transaction Documents" as used in this Agreement means this
Agreement, the Warrants, the Certificate of Amendment and the Certificate
of Incorporation.
Section 1.2 Closing. The closing of the purchase and sale of
the Securities shall be on a date by mutual agreement of the parties but,
without the consent of the Company, in no event later than April 14, 2000
and shall take place at the offices of Skadden, Arps, Slate, Meagher &
Flom, 919 Third Avenue, New York, New York 10022 (which time and place are
designated as the "Closing"). At the Closing, the Company shall deliver to
each Investor certificates representing the number of Securities such
Investor is purchasing as specified on Schedule 1.1 hereto.
ARTICLE II
Representations and Warranties of the Company
The Company, on behalf of itself and each of its Subsidiaries (as
hereinafter defined), hereby represents, warrants and covenants to each
Investor that on the date hereof and as of the date on which the Closing
shall occur:
Section 2.1 Organization, Good Standing and Qualification.
The Company and each Subsidiary is a corporation duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and each has all requisite corporate power and authority
necessary to own and operate its properties and to carry on its business as
now conducted and as proposed to be conducted. The Company has the
corporate power and authority to execute, deliver and perform this
Agreement and the other Transaction Documents, to issue, sell and deliver
the Securities, and to issue and deliver the Common Stock issuable upon
conversion of the Shares and upon exercise of the Warrants (collectively,
the "Conversion Shares"). The Company and each Subsidiary is duly
qualified to transact business and is in good standing in each jurisdiction
in which the failure so to qualify would have a material adverse effect on
its business, affairs, financial condition, properties or prospects.
Section 2.2 Capitalization and Voting Rights. The authorized
capital of the Company consists, and will consist immediately prior to the
Closing, of:
(a) Preferred Stock. Ten million (10,000,000) shares of
Preferred Stock, par value $.001 per share (the "Preferred Stock"), of
undesignated preferred stock, none of which have been issued.
(b) Common Stock. Fifty million (50,000,000) shares of
Common Stock, of which 18,355,005 shares are outstanding as of the date
hereof and were duly and validly issued, and are fully paid and non-
assessable, with no personal liability attaching to the ownership thereof.
An appropriate number of shares of Common Stock have been reserved for
issuance upon the (i) exercise of options issued, and issuable, pursuant to
the Company's 1996 Stock Incentive Plan, as amended (the "Option Plan"), a
copy of which has been filed with the Company's Filed SEC Documents (as
defined herein), (ii) conversion of the Series A Preferred Stock, and (iii)
exercise of the Warrants.
(c) Non Voting Common Stock. One million (1,000,000)
shares of Non-Voting Common Stock, par value $.001 per share (the "Non-
Voting Common Stock"), of which 46,500 shares are outstanding as of the
date hereof and were duly and validly issued, and are fully paid and non-
assessable, with no personal liability attaching to the ownership thereof.
(d) Options, Etc. As of the date hereof, options (the
"Options") to purchase 2,733,494 shares of Common Stock were outstanding
under the Option Plan. There are no other outstanding options, warrants,
convertible securities or other rights (contingent or otherwise) to
purchase or otherwise acquire equity securities of the Company or any
Subsidiary.
(e) Post-Closing Capitalization. Upon the Closing, the
Company will have issued and outstanding (i) 18,355,538 shares of Common
Stock, (ii) 46,500 shares of Non-Voting Common Stock, (iii) between
7,500,000 and 10,000,000 shares of Series A Preferred Stock, depending upon
the number of shares thereof purchased by the Investors hereunder, and
Warrants to purchase between 3,750,000 and 5,000,000 shares of Common
Stock, which number will be equal to the number of shares of Series A
Preferred Stock purchased hereunder multiplied by 1/2 (one-half), and (iv)
Options to purchase 2,733,494 shares of Common Stock, and no other
securities of the Company will be outstanding. The result of the
investments contemplated hereby would be an increase in the number of
shares of Common Stock outstanding (on a fully-diluted basis and assuming
the exercise of all outstanding Options and the Warrants, conversion of all
of the Series A Preferred Stock issued hereunder, and exercise of the
warrant being issued to Carter Capital under the Carter Capital Engagement
Letter (each as defined in Section 2.2(f) hereof)) from 18,355,005 to
32,730,435 if 7,500,000 shares of Series A Preferred Stock and Warrants to
purchase 3,750,000 shares of Common Stock are issued hereunder, or from
18,355,005 to 36,499,184 if 10,000,000 shares of Series A Preferred Stock
and Warrants to purchase 5,000,000 shares of Common Stock are issued
hereunder. Based on the foregoing, (i) if 7,500,000 shares of Series A
Preferred Stock and Warrants to purchase 3,750,000 shares of Common Stock
are issued hereunder, the Investors would collectively be issued Securities
hereunder representing approximately 34.4% of the fully-diluted number of
shares of Common Stock then outstanding, and (ii) if 10,000,000 shares of
Series A Preferred Stock and Warrants to purchase 5,000,000 shares of
Common Stock are issued hereunder, the Investors would collectively be
issued Securities hereunder representing approximately 41.1% of the fully-
diluted number of shares of Common Stock then outstanding.
(f) Rights, Powers, Etc. The designations, powers,
preferences, rights, qualifications, limitations and restrictions in
respect of each class and series of authorized capital stock of the Company
(i) as of the date hereof are as set forth in the Company's Amended and
Restated Certificate of Incorporation, a copy of which has been filed with
the Filed SEC Documents, and, (ii) at the Closing will be as set forth in
the Company's Amended and Restated Certificate of Incorporation and in the
Certificate of Amendment (collectively, the "Certificate of Incorporation")
and at the Closing all such designations, powers, preferences, rights,
qualifications, limitations and restrictions shall be valid, binding and
enforceable and in accordance with all applicable laws (subject, as to
enforcement, to the discretion of the courts in awarding equitable relief
and to applicable bankruptcy, reorganization, insolvency, moratorium and
similar laws affecting the rights of creditors generally). Except as
provided for in this Agreement, other than pursuant to the Nomination
Agreement, dated as of the June 30, 1999 (the "Mellinger Agreement"), by
and among Douglas Mellinger, Gregory Mellinger, Paul Mellinger, Jerome
Mellinger and Barbara Mellinger (hereinafter collectively referred to as
the "Mellingers") and the Company, a copy of which has been filed with the
Filed SEC Documents, the rights under which have been waived by the
Mellingers with respect to the issuance of the Securities hereunder, and
other than the Engagement Letter (the "Carter Capital Engagement Letter")
dated as of February 8, 2000, between the Company and Carter Capital
Corporation ("Carter Capital"), pursuant to which Carter Capital will be
issued a warrant to purchase (x) 167,279 shares of Common Stock if
7,500,000 shares of Series A Preferred Stock and Warrants to purchase
3,750,000 shares of Common Stock are issued hereunder, or (y) 188, 287
shares of Common Stock if 10,000,000 shares of Series A Preferred Stock and
Warrants to purchase 5,000,000 shares of Common Stock are issued hereunder,
(i) no subscription, warrant, option, convertible security or other right
(contingent or otherwise and including without limitation preemptive rights
or any other rights to acquire equity securities of the Company, whether
pursuant to any "anti-dilution" provision or otherwise) to purchase or
otherwise acquire equity securities of the Company is authorized or
outstanding (whether contractual or otherwise), (ii) there is no commitment
by the Company to issue shares, subscriptions, warrants, options,
convertible securities, or other such rights or to distribute to holders of
any of its equity securities, any evidence of indebtedness or asset, and
(iii) all of the outstanding shares of capital stock and other securities
of the Company have been offered, issued and sold in compliance with all
applicable preemptive rights of all persons and all applicable provisions
of the Securities Act (as such term is defined in Section 2.5(b), below).
(g) With respect to the Subsidiaries, all of the issued and
outstanding equity securities of each Subsidiary are owned by the Company,
and, other than the Company, (i) no person owns of record or beneficially
any share of capital stock of any Subsidiary, (ii) no subscription,
warrant, option, convertible security or other right (contingent or
otherwise) to purchase or otherwise acquire equity securities of the
Subsidiaries is authorized or outstanding, and (iii) there is no commitment
by the Company or any Subsidiary to issue shares, subscriptions, warrants,
options, convertible securities, or other such rights or to distribute to
holders of any of the equity securities, any evidence of indebtedness or
asset of any Subsidiary.
(h) Outstanding Agreements. Neither the Company nor the
Subsidiaries have any obligation (contingent or otherwise) to pay any
dividend or make any other distribution in respect of any of its capital
stock. Neither the Company nor any Subsidiary is a party to any, and, to
the Company's knowledge, there are no, voting trusts or agreements,
stockholders' agreements, pledge agreements, buy-sell agreements, rights of
first refusal or proxies relating to any securities of the Company or any
Subsidiary (whether or not the Company or any Subsidiary is a party
thereto) and (other than the Mellinger Agreement) neither the Company nor
any Subsidiary is a party to any such agreement. All of the outstanding
securities of the Company and each Subsidiary were issued in compliance
with all applicable federal and state securities laws. Except as set forth
in (i) the Certificate of Incorporation or the Certificate of Amendment,
(ii) the certificate of incorporation of each Subsidiary, or (iii) this
Agreement, neither the Company nor any Subsidiary has any obligation
(contingent or otherwise) to repurchase, redeem or otherwise acquire any
shares of its capital stock.
Section 2.3 Subsidiaries. The Company owns directly or
indirectly all of the capital stock of PRT (Barbados) Ltd. ("PRT
Barbados"); PRT Solutions, SRL; PRT Solutions International, Ltd.; PRT
Europe Limited; Computer Management Resources, Inc.; PRT International
Ltd.; and PRT Mauritius Ltd. (collectively, the "Subsidiaries"). Other
than the Subsidiaries, neither the Company nor any Subsidiary presently
owns or controls, directly or indirectly, any interest in any other
corporation, association, or other business entity.
Section 2.4 Authorization. All corporate action on the part
of the Company and its shareholders, officers and directors necessary for
the authorization, execution and delivery of this Agreement and the other
Transaction Documents, the performance of all obligations of the Company
thereunder and the authorization, issuance, sale and delivery of the
Securities (including the Warrants) and reservation, issuance and delivery
of the Conversion Shares has been taken, and each of the Transaction
Documents constitutes a valid and legally binding obligation of the
Company, enforceable in accordance with its terms. The Company has
obtained any authorization, consent or approval or other action by, or made
any filing with any court or administrative body that is required under the
applicable state securities laws in connection with the issuance of the
Securities (including the Warrants) and the Conversion Shares.
Section 2.5 Valid Issuance of the Securities and Conversion
Shares.
(a) The Securities (including the Warrants), when issued,
sold and delivered in accordance with the terms hereof for the
consideration expressed herein, will be duly and validly issued, fully paid
and non-assessable with no personal liability attaching to the ownership
thereof, and will be free and clear of all liens, charges, restrictions,
claims and encumbrances imposed by or through the Company and, in reliance
upon the representations of the Investors in this Agreement, will be issued
in compliance with all applicable federal and state securities laws. The
Conversion Shares have been duly and validly reserved for issuance and,
upon issuance in accordance with the terms of the Certificate of
Incorporation or the Warrants, as applicable, shall be duly and validly
issued, fully paid and nonassessable, with no personal liability attaching
to the ownership thereof and will be free and clear of all liens, charges,
restrictions, claims and encumbrances imposed by or through the Company,
and shall be issued in compliance with all applicable federal and state
securities laws, as presently in effect.
(b) In reliance upon the representations of the Investors,
neither the offer, sale or delivery of the Securities or Warrants nor the
issuance and delivery of the Conversion Shares upon conversion of any of
the Securities in conformity with the terms of this Agreement and the other
Transaction Documents will violate the Securities Act of 1933, as amended,
and the rules and regulations promulgated thereunder (collectively, the
"Securities Act").
Section 2.6 Governmental and Third Party Consents. As of the
Closing, no further permit, consent, approval, order or authorization of,
or registration, qualification, designation, declaration or filing with,
any federal, state or local governmental authority or any third party on
the part of the Company or any Subsidiary will be required in connection
with the execution, delivery and performance by the Company of this
Agreement or any of the other Transaction Documents and the consummation of
the transactions contemplated hereby or thereby, other than the
registration of the Conversion Shares as contemplated by Article VII
hereof.
Section 2.7 Litigation; Compliance with Laws. There is no
action, suit, proceeding or investigation pending or currently threatened
against the Company or any Subsidiary which (i) questions the validity of
this Agreement or any of the other Transaction Documents or the right of
the Company to execute and deliver this Agreement or any of the other
Transaction Documents, or to consummate the transactions contemplated
hereby or thereby, or, (ii) might result, either individually or in the
aggregate, in any material adverse change in the assets, condition, affairs
or prospects of the Company or any Subsidiary, financial or otherwise, or
any change in the current equity ownership of the Company. The Company and
each Subsidiary is not in default under the material provisions of any law,
regulation or order, is not under any order of any court or federal, state,
municipal or other governmental department, commission, board, bureau,
agency or instrumentality wherever located, and there are no (i) claims,
actions, suits or proceedings pending, or to its knowledge threatened
against or affecting the Company or any Subsidiary at law or in equity, or
before or by any federal, state, municipal or other governmental
department, commission, board, bureau, agency or instrumentality wherever
located, except as disclosed in the Filed SEC Documents; (ii) arbitration
proceedings relating to the Company or any Subsidiary pending under
collective bargaining agreements or otherwise; or (iii) governmental
inquiries pending or, to the Company's or any Subsidiary's knowledge,
threatened against or affecting the Company or any Subsidiary (including
without limitation any inquiry as to the qualification of the Company or
any Subsidiary to hold or receive any license or permit). The Company and
each Subsidiary have not taken any action which has resulted in, or is
reasonably likely to result in, the Company or any Subsidiary incurring any
liability which may be material to its business, prospects, financial
condition, operations, property or affairs, other than as reflected in the
Financial Statements (as defined in Section 2.19 hereof) of the Company at
December 31, 1999, copies of which have been provided to the Investors;
provided, that, if, the Common Stock fails to maintain a minimum bid price
of $1.00 per share on the Nasdaq Stock Market, the Common Stock could be
delisted from the Nasdaq Stock Market as a result of the Company failing to
meet the Nasdaq continuing listing requirements. There is no action or
suit by the Company or any Subsidiary pending or threatened against others.
Section 2.8 Patents and Trademarks. The Company and its
Subsidiaries have sufficient title and ownership of, or license rights to,
all patents, patent applications, trademarks, trademark applications,
service marks, service mark applications, trade names, copyrights, trade
secrets, information, proprietary rights and processes (collectively,
"Intellectual Property") necessary for their business as now conducted. No
claim is pending or, to the Company's or any Subsidiary's knowledge,
threatened to the effect that the use by the Company or any Subsidiary of
any Intellectual Property, or the operations of the Company or any
Subsidiary, infringe upon or conflict with the asserted rights of any other
person with respect to any Intellectual Property and neither the Company
nor any Subsidiary knows of any basis for any such claim. No claim is
pending or threatened to the effect that any Intellectual Property owned or
licensed by the Company or any Subsidiary, or otherwise necessary or used
in the business of the Company or any Subsidiary as presently conducted or
proposed to be conducted is invalid or unenforceable by the Company or any
Subsidiary and neither the Company nor any Subsidiary knows of any basis
for any such claim. The Company and each Subsidiary have used reasonable
efforts to maintain the confidentiality of all proprietary information
developed by and belonging to them which has not been patented. To the
Company's and each Subsidiary's knowledge, all scientific and technical
information developed by and belonging to the Company or any Subsidiary
which has not been patented has been kept confidential. All employees and
consultants of the Company involved in software development have executed
nondisclosure and confidentiality agreements with the Company; to the
extent that the Company has any rights therein, such agreements also
provide for the assignment to the Company of any and all rights that
employees of the Company might have with respect to technology, inventions,
developments, etc., developed in connection with such employees employment
with the Company, it being understood that nearly all engagement agreements
with Company customers contain "work for hire" clauses vesting all right,
title, interest and ownership of Intellectual Property developed for such
customer in such customer.
Section 2.9 Proprietary Information of Third Parties. To the
Company's and each Subsidiary's knowledge, no third party has claimed that
any person employed by or under the control of the Company or any
Subsidiary has (a) violated or may be violating any of the terms or
conditions of his employment, non-competition or non-disclosure agreement
with such third party, (b) disclosed or may be disclosing or utilized or
may be improperly utilizing any trade secret or proprietary information or
documentation of such third party or (c) interfered or may be interfering
in the employment relationship between such third party and any of its
present or former employees and no third party has requested information
from the Company or any Subsidiary which suggests that, or otherwise
indicated that, such a claim might be contemplated. To the Company's and
each Subsidiary's knowledge, none of the execution or delivery of this
Agreement or any of the other Transaction Documents, or the carrying on of
the business of the Company or any Subsidiary by any officer, director or
key employee of the Company and each Subsidiary, or the conduct or proposed
conduct of the business of the Company and each Subsidiary as previously
disclosed to the Investors, will conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default under, any
contract, covenant or instrument under which any such person is obligated.
To the Company's and each Subsidiary's knowledge, no person employed by or
under the control of the Company or any Subsidiary has, in connection with
such person's performance of any employment or other services rendered to
the Company or any Subsidiary, employed any trade secret or any information
or documentation proprietary to any former employer, and to the Company's
and each Subsidiary's knowledge, no person employed by or under the control
of the Company or any Subsidiary has, in connection with such person's
performance of any employment or other services rendered to the Company or
any Subsidiary, violated any confidentiality obligation which such person
may have owed to any third party.
Section 2.10 Compliance with Other Instruments. The Company
and each Subsidiary are not in violation or default of any provisions of
(i) its certificate of incorporation or by-laws or other organizational or
charter documents or (ii) any instrument, judgment, order, writ, decree,
contract or other agreement to which it is a party or by which it is bound
which violation or default, in the case of clause (ii), above, only, would
either individually or in the aggregate have a material adverse effect on
the condition, financial or otherwise, or operation of the Company and its
Subsidiaries taken as a whole, and neither the Company nor any Subsidiary
has received notice alleging any material violation thereof. The
execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated hereby, including but not limited to the
issuance, sale and delivery of the Securities (including the Warrants) or
the Conversion Shares, will not result in any such violation or be in
conflict with or constitute, with or without the passage of time and giving
of notice, either a default under any such provision, instrument, judgment,
order, writ, decree, contract or other agreement or an event which results
in the creation of any lien, charge or encumbrance upon any assets of the
Company or any Subsidiary or the suspension, revocation, impairment,
forfeiture, or nonrenewal of any permit, license, authorization or approval
applicable to the Company or any Subsidiary, except (i) for pledges or
liens which either individually or in the aggregate are not material to the
Company and its Subsidiaries taken as a whole, or (ii) a violation or
conflict with any permit, license, authorization or approval which would
not have a material adverse effect on the condition, financial or
otherwise, or operation of the Company and its Subsidiaries taken as a
whole. The Securities (including the Warrants) and Conversion Shares are
not subject to any preemptive rights.
Section 2.11 Interested Party Agreements. Except for the
Mellinger Agreement and the related separation agreements with Douglas
Mellinger and Greg Mellinger filed with the Securities and Exchange
Commission (the "SEC") along with the Mellinger Agreement, and except as
otherwise disclosed in the Filed SEC Documents, there are no agreements,
understandings or proposed transactions between the Company or any
Subsidiary and any of their stockholders, officers, directors, affiliates,
or any affiliate thereof.
Section 2.12 Disclosure. Neither this Agreement nor any of the
other Transaction Documents, nor any schedule or exhibit to this Agreement
or any of the other Transaction Documents, taken together as a whole,
contains an untrue statement of a material fact or omits a material fact
necessary, in light of the circumstances under which they were made, to
make the statements contained herein or therein not untrue or misleading;
provided, that the Company has not made, and will not make, any statement
regarding the tax consequences of an investment in the Securities or the
Conversion Shares, and the Investors hereby acknowledge that no such
statement has been or will be made and such Investors have not relied upon
any disclosure (or non-disclosure) by the Company regarding such tax
consequences in making their decision to invest in the Shares or the
Conversion Shares. None of the statements, documents, certificates or
other items prepared or supplied by the Company with respect to the
transactions contemplated hereby contains an untrue statement of a material
fact or omits a material fact necessary to make the statements contained
therein not untrue or misleading. There is no fact which the Company has
not disclosed to the Investors or their counsel of which the Company is
aware which materially and adversely affects or could reasonably be
expected to materially and adversely affect the business, prospects,
financial condition, operations, property or affairs of the Company or any
of its Subsidiaries.
Section 2.13 Title to Property and Assets; Leases. Other than
those security interests of Bank of America Commercial Finance ("Bank of
America"), as successor in interest to NationsCredit Commercial Corporation
("Nations Credit"), pursuant to the Loan and Security Agreement and related
agreements with NationsCredit (the "Credit Facility"), copies of which have
been made available to the Investors, the Company and each Subsidiary owns
its property and assets free and clear of all mortgages, liens and
encumbrances, except such encumbrances and liens which arise in the
ordinary course of business and do not materially impair the Company's or
such Subsidiary's ownership, or use of such property or assets or the
Company's or such Subsidiary's ability to obtain financing by using such
property as collateral. To the Company's and each Subsidiary's knowledge,
there are no condemnation, environmental, zoning or other land use
regulation proceedings, either instituted or planned to be instituted,
which would adversely affect the use or operation of the Company's or any
Subsidiary's properties and assets for their respective intended uses and
purposes, or the value of such properties, and the Company and each
Subsidiary has not received notice of any special assessment proceedings
which would affect such properties and assets. With respect to the
property and assets it leases, the Company and each Subsidiary is in
compliance with such leases and, to the Company's and each Subsidiary's
knowledge, holds a valid leasehold interest free of any liens, claims or
encumbrances. The Company's and each Subsidiary's possession of such
property has not been disturbed and, to the Company's and each Subsidiary's
knowledge, no claim has been asserted against the Company or any Subsidiary
adverse to its rights in such leasehold interests. Each lease or agreement
to which the Company or any Subsidiary is a party under which it is a
lessee of any property, real or personal, is a valid and subsisting
agreement of the Company or such Subsidiary, duly authorized and entered
into by the Company or such Subsidiary, without any material default of the
Company or any Subsidiary thereunder and, to the Company's and each
Subsidiary's knowledge, without any default thereunder of any other party
thereto. No event has occurred and is continuing which, with due notice or
lapse of time or both, would constitute a default or event of default by
the Company or any Subsidiary under any such lease or agreement or, to the
Company's or any Subsidiary's knowledge, by any other party thereto.
Section 2.14 Changes. Except as previously disclosed to and
agreed upon by the Investors, from December 31, 1999 until the date hereof,
there has not been, and from the date hereof until the Closing, there will
not be:
(a) any adverse change in the assets, liabilities,
financial condition or operating results of the Company and each
Subsidiary, except changes in the ordinary course of business which have
not been, individually or in the aggregate, materially adverse, including
the expenditure of funds for research and development and otherwise in
connection with the Company's and each Subsidiary's operations;
(b) any damage, destruction or loss, whether or not covered
by insurance, materially and adversely affecting the assets, properties,
financial condition, operating results, prospects or business of the
Company and each Subsidiary (as such business is presently conducted and as
it is proposed to be conducted);
(c) any waiver or compromise by the Company or any
Subsidiary of a valuable right or of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim or
encumbrance or payment of any obligation by the Company or any Subsidiary,
except in the ordinary course of business and which is not material to the
assets, properties, financial condition, operating results, prospects or
business of the Company;
(e) any change or amendment to a contract or arrangement by
which the Company, any Subsidiary or any of their assets or properties are
bound or subject which has a material effect on the Company and its
Subsidiaries taken as a whole, except as set forth in this Agreement;
(f) any changes in the identity of, or material information
regarding, any of the Company's or its Subsidiaries' officers or directors
or any material increases in the compensation, including the grant of
options to purchase a material number of shares of Common Stock, of any of
the Company's or any Subsidiaries' employees, officers or directors;
(g) any incurrence, assumption or guarantee by the Company
or any Subsidiary of any material obligation for borrowed money, except for
borrowings under the Credit Facility and current liabilities incurred in
the ordinary course of business;
(h) other than in connection with the Credit Facility, any
mortgage, pledge, lien, charge or other encumbrance placed on or incurred
with respect to any of the Company's or any Subsidiary's properties or
assets;
(i) to the Company's knowledge, any other event or
condition of any character which can reasonably be expected to materially
and adversely affect the assets, properties, financial condition, operating
results, prospects or business of the Company and its Subsidiaries taken as
a whole;
(j) any declaration or payment of any dividend or other
distribution of the assets of the Company or any Subsidiary or any direct
or indirect redemption or other acquisition of any equity security of the
Company or any Subsidiary;
(k) except as contemplated hereby, any change in the
authorized capital of the Company or any Subsidiary;
(l) a sale, assignment or transfer by the Company or any
Subsidiary of any of its tangible assets except in the ordinary course of
business;
(m) a sale, assignment, transfer or grant of any exclusive
license with respect to any of the Company's or any Subsidiary's
Intellectual Property;
(n) any material change in the manner of business or
operations of the Company or any Subsidiary;
(o) any transaction with respect to the Company or any
Subsidiary except in the ordinary course of business or as otherwise
contemplated hereby;
(p) any resignation or termination of employment of any
executive officer or key employee of the Company or any Subsidiary;
(q) receipt of notice that there has been a loss of, or
material order cancellation by, any major customer of the Company or any
Subsidiary;
(r) any loan or guarantee made by the Company or any
Subsidiary to or for the benefit of its employees, officers, directors or
stockholders, or any members of their immediate families, other than travel
advances and other advances made in the ordinary course of its business;
(s) any commitment (contingent or otherwise) to do any of
the foregoing; or
(t) any material adverse change, or, to the best of the
Company's and each Subsidiary's knowledge, the existence of any fact that
would indicate a material adverse change is likely to occur, in the
arrangements between PRT Barbados and the government of Barbados.
Section 2.15 Employee Benefit Plans. Except for the Company's
Option Plan and 401(k) plan, the Company does not have any Employee Benefit
Plan as defined in the Employee Retirement Income Security Act of 1974, as
amended, other than those providing for health and medical benefits.
Section 2.16 Tax Matters. (a) (i) the Company and each
Subsidiary has filed or has had filed on its behalf in a timely manner
(within any applicable extension periods) all Tax Returns (as defined
herein) required to be filed with respect to Taxes (as defined herein) of
the Company and each Subsidiary, and (ii) all Taxes with respect to the
Company and each Subsidiary which are due and payable or on any assessment
received by the Company or a Subsidiary, as the case may be, and all other
Taxes due and payable by the Company and each Subsidiary on or before the
Closing have been paid in full or have been adequately provided for by the
Company and each Subsidiary, respectively. The Tax Returns filed by the
Company and each Subsidiary are, to the Company's and each Subsidiary's
knowledge, true and correct in all material respects. The Company and each
Subsidiary have never waived any statute of limitations on the assessment
or collection of any tax or governmental charge. Neither the Company nor
any of its present or former stockholders has ever filed an election
pursuant to Section 1362 of the Internal Revenue Code of 1986, as amended
(the "Code"), that the Company be taxed as an S corporation. The federal
income tax returns of the Company have never been audited, with the
exception of the tax returns for the taxable year of 1995 which were
audited by the Internal Revenue Service; such audit was completed in 1999.
The tax returns of each Subsidiary have never been subject to audit by any
taxing authority.
(b) For purposes of this Agreement, (i) "Taxes" shall mean
all taxes, charges, fees, levies or other assessments, including, without
limitation, income, gross receipts, sales, use, ad valorem, goods and
services, capital, transfer, franchise, profits, license, withholding,
payroll, employment, employee health, excise, estimated, severance, stamp,
occupation, property or other taxes, customs duties, fees, assessments or
charges of any kind whatsoever, together with any interest and any
penalties, additions to tax or additional amounts imposed by any taxing
authority and (ii) "Tax Return" shall mean any report, return, document,
declaration or other information or filing required to be supplied to any
taxing authority or jurisdiction with respect to Taxes.
Section 2.17 Insurance. Schedule 2.17 hereto lists the
material policies of theft, fire, liability, worker's compensation, life,
property and casualty, directors' and officers', medical malpractice, and
other insurance owned or held by the Company. Such policies of insurance
are maintained with, to the knowledge of the Company, financially sound and
reputable insurance companies, funds, or underwriters, are of the kinds and
cover such risks, and are in such amounts and with such deductibles and
exclusions, as are consistent with prudent business practice in light of
the Company's business. All such policies are in full force and effect,
are sufficient for compliance in all respects by the Company with all
requirements of law and of all agreements to which it is a party, and will
not terminate or lapse or otherwise be affected in any way by reason of the
transactions contemplated hereby.
Section 2.18 Labor Agreements and Actions. The Company and
each Subsidiary is not bound by or subject to (and none of their assets or
properties is bound by or subject to) any written or oral, express or
implied, contract, commitment or arrangement with any labor union, and no
labor union has requested or, to the knowledge of the Company and each
Subsidiary, has sought to represent any of the employees, representatives
or agents of the Company or any Subsidiary. There is no strike or other
labor dispute involving the Company or any Subsidiary pending, or to the
Company's or any Subsidiary's knowledge, threatened, that has had or would
reasonably be expected to have a material adverse effect on the business
affairs, financial condition, properties or prospects of the Company and
its Subsidiaries taken as a whole, nor is the Company or any Subsidiary
aware of any labor organization activity involving its employees. Except
as otherwise disclosed to and agreed upon by the Investors, the Company and
each Subsidiary are not aware that any officer or key employee, or that any
group of key employees, intends to terminate their employment with the
Company or any Subsidiary, nor does the Company or any Subsidiary have a
present intention to terminate the employment of any of the foregoing. The
employment of each officer and employee of the Company and each Subsidiary
is terminable at the will of the Company or the Subsidiary, except as
provided in the Employment Agreements (as defined in Section 2.23 hereof).
The Company and each Subsidiary has complied in all material respects with
all applicable state and federal equal employment opportunity and other
laws related to employment.
Section 2.19 Financial Statements; Filed SEC Documents. (a)
The Company has furnished to the Investors the (i) audited consolidated
balance sheet of the Company as at December 31, 1999, the related audited
statements of operations, stockholders' equity and cash flows of the
Company for the period from January 1, 1999 through December 31, 1999, and
the related audited statements of income, stockholders' equity and cash
flows of the Company for the year ended December 31, 1999, and (ii)
unaudited consolidated balance sheet of the Company as at January 31 and
February 29, 2000, the related unaudited statements of operations,
stockholders' equity and cash flows of the Company for the period from
January 1, 2000 through February 29, 2000, and the related unaudited
statements of income, stockholders' equity and cash flows of the Company
for the months ended January 31 and February 29, 2000 (collectively, the
"Financial Statements"). All such Financial Statements have been prepared
in accordance with generally accepted accounting principles consistently
applied (except that such unaudited financial statements do not contain all
of the required footnotes) and fairly present the financial position of the
Company and its Subsidiaries as of such dates, and the results of their
operations and cash flows for the periods indicated therein. As the
Investors have been made aware, the Company's independent public auditors
have completed their audit of the Financial Statements as at and for the
year ending December 31, 1999, but will not render their final opinion as
to the Financial Statements until the investments contemplated hereby have
been made. The Investors have been made aware of all material aspects of
the discussions of the Company and its independent auditors with respect to
the foregoing.
(b) The Company has filed all required reports, schedules,
forms, statements and other documents with the SEC as and when any such
documents were required to be filed (such reports, schedules, forms,
statements and other documents, and the exhibits thereto, being hereinafter
referred to as the "Filed SEC Documents") and no Filed SEC Documents were
filed after the filing deadline therefor or otherwise in an untimely
manner. As of their respective dates, the Filed SEC Documents complied in
all material respects with the requirements of the Securities Act, or the
Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder (the "Exchange Act"), as applicable, and the rules
and regulations of the SEC promulgated thereunder applicable to such Filed
SEC Documents, and none of the Filed SEC Documents as of such dates,
contained any untrue statements 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. The consolidated financial statements of Company
included in the Filed SEC Documents comply as to form in all material
respects with applicable accounting requirements and the published rules
and regulations of the SEC with respect thereto, have been prepared in
accordance with generally accepted accounting principles (except, in the
case of unaudited consolidated quarterly statements, as permitted by Form
10-Q of the SEC) applied on a consistent basis during the periods involved
(except as may otherwise be indicated in the notes thereto) and fairly
present the consolidated financial position of Company and its consolidated
Subsidiaries as of the dates thereof and the consolidated results of their
operations and cash flows for the periods then ended (subject, in the case
of unaudited quarterly statements, to normal year-end audit adjustments).
Section 2.20 Absence of Undisclosed Liabilities. The Company
does not have any material liabilities or obligations (whether accrued,
absolute, contingent, unliquidated or otherwise, whether due or to become
due) which are not reflected in this Agreement, the Filed SEC Documents or
the Financial Statements. Except as disclosed in the Financial Statements
or the Filed SEC Documents, the Company and each Subsidiary is not a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation. The Company and each Subsidiary maintain and will continue to
maintain a system of accounting established and administered in accordance
with generally accepted accounting principles.
Section 2.21 Other Agreements. Neither the Company nor any
Subsidiary is a party to or otherwise bound by any written or oral:
(a) service, distributor, dealer, manufacturer's
representative or sales agency agreement which is not terminable on less
than ninety (90) days' notice without cost or other liability to the
Company or any Subsidiary, as applicable, except for those agreements that
involve less than (x) $100,000 as to any revenue-producing staff
augmentation and/or project agreements entered into by the Company in the
ordinary course, or (y) $50,000 as to any such agreement not described by
clause (x) of this Section 2.21(a);
(b) agreement which entitles any customer to a rebate or
right of set-off, to return any product to the Company or any Subsidiary
after acceptance thereof or to delay the acceptance thereof, except for
those agreements which individually or in the aggregate do not have and are
not reasonably expected to have a material adverse effect on the business,
affairs, financial condition, properties or prospects of the Company and
its Subsidiaries taken as a whole;
(c) agreement with any labor union (and, to the knowledge
of the Company and each Subsidiary, no organizational effort is being made
with respect to any of its employees);
(d) agreement containing any provision permitting any party
other than the Company or any Subsidiary to renegotiate the price or other
terms, or containing any payback or other similar provision, upon the
occurrence of a failure by the Company or any Subsidiary to meet its
obligations under the agreement when due or the occurrence of any other
event, except for those agreements which individually or in the aggregate
do not have and are not reasonably expected to have a material adverse
effect on the business, affairs, financial condition, properties or
prospects of the Company and its Subsidiaries taken as a whole;
(e) agreement for the future purchase of fixed assets or
for the future purchase of materials, supplies or equipment, except for
those agreements that involve less than (x) $100,000 as to any revenue-
producing staff augmentation and/or project agreements entered into by the
Company in the ordinary course, or (y) $50,000 as to any such agreement not
described by clause (x) of this Section 2.21(e);
(f) except as previously disclosed to and approved by the
Investors, agreement for the employment of any officer, employee or other
person (whether of a legally binding nature or in the nature of informal
understandings) on a full-time or consulting basis which is not terminable
on notice without cost or other liability to the Company, except normal
severance arrangements and accrued vacation pay;
(g) except as disclosed in Section 2.15 hereof, bonus,
pension, profit-sharing, retirement, hospitalization, insurance, stock
purchase, stock option or other plan, agreement or understanding pursuant
to which benefits are provided to any employee of the Company or any
Subsidiary (other than group insurance plans applicable to employees
generally);
(h) except for the Credit Facility, agreement relating to
the borrowing of money or to the mortgaging or pledging of, or otherwise
placing a lien or security interest on, any asset of the Company or any
Subsidiary;
(i) except in connection with the Credit Facility, guaranty
of any obligation for borrowed money or otherwise;
(j) agreement, or group of related agreements with the same
party or any group of affiliated parties, under which the Company or any
Subsidiary has advanced or agreed to advance money or has agreed to lease
any property as lessee or lessor, except for those leases involving less
than $50,000 individually or $250,000 in the aggregate;
(k) except in the ordinary course of business, assignment,
license, indemnification or other agreement with respect to any form of
intangible property;
(l) except as previously disclosed to and approved by the
Investors, and other than as contemplated by this Agreement, agreement
under which it has granted any person any registration rights;
(m) agreement under which it has limited or restricted its
right to compete with any person in any respect, except for certain
restrictive covenants in contracts with customers which prevent the Company
from providing services to the competitors of such customers (for
confidentiality reasons), and which restrictions do not materially
adversely affect the Company and its Subsidiaries, taken as a whole;
(n) except as previously disclosed to and approved by the
Investors, other agreement or group of related agreements with the same
party involving more than $50,000 or continuing over a period of more than
one year from the date or dates thereof (including renewals or extensions
optional with another party), which agreement or group of agreements is not
terminable by the Company or any Subsidiary, as applicable, without penalty
upon notice of thirty (30) days or less, but excluding any agreement or
group of agreements with a customer of the Company for the sale, lease or
rental of the Company's products or services if such agreement or group of
agreements was entered into by the Company or any Subsidiary in the
ordinary course of business;
(o) except as disclosed in the Filed SEC Documents, other
agreement, instrument, commitment, plan or arrangement, a copy of which
would be required to be filed with the SEC pursuant to the Securities Act
or Exchange Act;
(p) agreement for the purchase, sale, lease, or license by
or from it of services, products, or assets, requiring total payments by or
to it in excess of $50,000 in any instance, entered into other than in the
ordinary course of business;
(q) other than as set forth on Schedule 2.21 hereto, the
agreements set forth in Section 2.33 hereof and this Agreement, agreement
or other commitment pursuant to which it has agreed to indemnify or hold
harmless any other person;
(r) other than as set forth on Schedule 2.21 hereto,
(i) employment agreement, (ii) consulting agreement, or (iii) agreement
providing for severance payments or other additional rights or benefits
(whether or not optional) in the event of the sale or other change in
control of it;
(s) other than the Mellinger Agreement, agreement with any
current or former Affiliate, stockholder, officer, director, employee, or
consultant of the Company, or with any person in which any such Affiliate
has an interest;
(t) agreement imposing non-competition or exclusive dealing
obligations on it, other than any agreement entered into in the ordinary
course of business with any Company customer that prohibits the Company
from providing similar services to such customer's competitors; or
(u) agreement the performance of which is reasonably likely
to result in a loss to it.
Except for the contracts, agreements and other arrangements
listed in Schedule 2.21 and contracts, agreements, or other arrangements
that have been fully performed and with respect to which the Company has no
further obligations or liabilities, the Company is not a party to or
otherwise bound by (i) any agreement, instrument, or commitment that may
materially affect its ability to consummate the transactions contemplated
hereby or by the other Transaction Documents, or (ii) any other material
agreement, instrument, or commitment; including without limitation any of
the types of agreements set forth in clauses (a) through (u), above, of
this Section 2.21. The Company has delivered or caused to be delivered to
the Purchasers correct and complete copies (or written summaries of the
material terms of oral agreements or understandings) of each agreement,
instrument, and commitment listed in Schedule 2.21, each as amended to
date. Each such agreement, instrument, and commitment is a valid, binding
and enforceable obligation of the Company and, to the Company's knowledge,
of the other party or parties thereto, and is in full force and effect.
The Company is not nor, to the Company's knowledge, is any other party
thereto, (nor is the Company considered by any other party thereto to be)
in breach of, default under or noncompliance with any term of any such
agreement, instrument, or commitment (nor is there any basis for any of the
foregoing), except for any breaches or noncompliances that singly or in the
aggregate would not have a material adverse effect on the business affairs,
financial condition, properties or prospects of the Company and its
Subsidiaries taken as a whole. No claim, change order, request for
equitable adjustment, or request for contract price or schedule adjustment,
between the Company and any supplier or customer, relating to any
agreement, instrument, or commitment listed in Schedule 2.21 is pending or,
to the Company's knowledge, threatened, nor is there any basis for any of
the foregoing. Other than under the Credit Agreement, pursuant to which
Bank of America has consented to the transactions contemplated hereby, and
other than the employment agreements described therein, no agreement,
instrument, or commitment listed in Schedule 2.21 includes or incorporates
any provision, the effect of which may be to enlarge or accelerate any of
the obligations of the Company or to give additional rights to any other
party thereto (other than certain preemptive rights of the Mellingers under
the Mellinger Agreement, which rights have been waived with respect to the
transactions contemplated hereby), or will terminate, lapse, or in any
other way be affected, by reason of the transactions contemplated by this
Agreement.
With respect to the foregoing, disclosure to or approval by an
"Investor" shall mean a disclosure to and approval by the representatives
of the Investors who serve as directors of the Company. To the Company's
and each Subsidiary's knowledge, each party other than the Company or any
Subsidiary to all such agreements has in all material respects performed
the obligations required to be performed by such party to date. The
Company and each Subsidiary have no knowledge of any breach or anticipated
breach by any other party to any of material agreement, instrument,
commitment, plan or arrangement.
Section 2.22 Loans and Advances. The Company and each
Subsidiary does not have any outstanding loans or advances to any person
and is not obligated to make any such loans or advances, except, in each
case, for advances to employees of the Company or any Subsidiary in respect
of reimbursable business expenses anticipated to be incurred by them in
connection with their performance of services for the Company or any
Subsidiary.
Section 2.23 Employees and Officers; Employee Matters. Each of
the executive officers and each key employee of the Company and each
Subsidiary (the "Key Personnel") has executed an employment agreement
(collectively, the "Employment Agreements"), and such agreements are in
full force and effect. Each of the Key Personnel have agreed in their
respective Employment Agreement, to, among other things, dedicate
substantially their full working schedule to the Company or the respective
Subsidiary employing such person, as applicable, and not to pursue outside
business activities during the Company's or any Subsidiary's business
hours, consistent with the Company's or such Subsidiary's personnel
policies, as they exist on the date hereof, until such person shall no
longer be employed by the Company or such Subsidiary. No executive officer
or key employee of the Company or any Subsidiary has advised the Company or
any Subsidiary (orally or in writing) that he or she intends to terminate
employment with the Company or such Subsidiary.
The Company and each Subsidiary has complied in all material
respects with all applicable laws relating to the employment of labor,
including provisions relating to wages, hours, equal opportunity,
collective bargaining and the payment of Social Security and other taxes,
and with the Employee Retirement Income Security Act of 1974, as amended
("ERISA"). Neither the Company, any Subsidiary nor any entity required to
be aggregated with the Company under Sections 414(b), (c), (m) or (n) of
the Code sponsors, maintains, has any obligation to contribute to, has any
liability under, or is otherwise a party to, any Benefit Plan. For
purposes of this Agreement, "Benefit Plan" shall mean any plan, fund,
program, policy, arrangement or contract, whether formal or informal, which
is in the nature of (i) an employee pension benefit plan (as defined in
Section 3(2) of ERISA) or (ii) an employee welfare benefit plan (as defined
in Section 3(1) of ERISA).
Section 2.24 Potential Conflicts of Interest. Neither the
Company nor, to the knowledge of the Company, any of its officers,
directors, or employees, (i) owns, directly or indirectly, any interest
(excepting passive holdings for investment purposes of not more than 1% of
the securities of any publicly held and traded company) in, or is an
officer, director, employee, or consultant of, any person that is a
competitor, lessor, lessee, customer, or supplier of the Company;
(ii) owns, directly or indirectly, any interest in any tangible or
intangible property used in or necessary to the business of the Company; or
(iii) has any cause of action or other claim whatsoever against the
Company, or owes any amount to the Company, except for claims in the
ordinary course of business, such as for accrued vacation pay, accrued
benefits under employee benefit plans, and similar matters and agreements
or under any employment agreements.
Section 2.25 Environmental Protection. The Company and each
Subsidiary has not caused or allowed, or contracted with any party for, the
generation, use, transportation, treatment, storage or disposal of any
Hazardous Substances (as defined below) in connection with the operation of
its business or otherwise. The Company and each Subsidiary, the operation
of their business, and, to the knowledge of the Company and each Subsidiary
any real property that the Company or any Subsidiary leases or otherwise
occupies or uses (the "Premises") are in compliance with all applicable
Environmental Laws (as defined below) and orders or directives of any
governmental authorities having jurisdiction under such Environmental Laws,
including, without limitation, any Environmental Laws or orders or
directives with respect to any cleanup or remediation of any release or
threat of release of Hazardous Substances. The Company and each Subsidiary
has not received any citation, directive, letter or other communication,
written or oral, or any notice of any proceeding, claim or lawsuit, from
any person arising out of the ownership or occupation of the Premises, or
the conduct of its operations, and the Company and each Subsidiary is not
aware of any basis therefor. The Company and each Subsidiary has obtained
and is maintaining in full force and effect all necessary permits, licenses
and approvals required by all Environmental Laws applicable to the Premises
and the business operations conducted thereon (including operations
conducted by tenants on the Premises), and is in compliance with all such
permits, licenses and approvals. The Company and each Subsidiary has not
caused or allowed a release, or a threat of release, of any Hazardous
Substance unto, at or near the Premises, and, to the Company's and each
Subsidiary's knowledge, neither the Premises nor any property at or near
the Premises has ever been subject to a release, or a threat of release, of
any Hazardous Substance. For the purposes of this Agreement, the term
"Environmental Laws" shall mean any federal, state, local or foreign law,
ordinance or regulation pertaining to the protection of human health or the
environment, including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. Sections 9601, et seq.,
the Emergency Planning and Community Right-to-Know Act, 42 U.S.C. Sections
11001, et seq. and the Resource Conservation and Recovery Act, 42 U.S.C.
Sections 6901, et seq. For purposes of this Agreement, the term "Hazardous
Substances" shall include oil and petroleum products, asbestos,
polychlorinated biphenyls, urea formaldehyde and any other materials
classified as hazardous or toxic under any Environmental Laws.
Section 2.26 Foreign Corrupt Practices Act. The Company and
each Subsidiary has not taken any action which would cause it to be in
violation of the Foreign Corrupt Practices Act of 1977, as amended, or any
rules and regulations thereunder. To the Company's and each Subsidiary's
knowledge, there is not now, and there has never been, any employment by
the Company or any Subsidiary of, or beneficial ownership in the Company or
any Subsidiary by, any governmental or political official in any country in
the world.
Section 2.27 Federal Reserve Regulations. The Company is not
engaged in the business of extending credit for the purpose of purchasing
or carrying margin securities (within the meaning of Regulation G of the
Board of Governors of the Federal Reserve System), and no part of the
proceeds of the Shares will be used to purchase or carry any margin
security or to extend credit to others for the purpose of purchasing or
carrying any margin security or in any other manner which would involve a
violation of any of the regulations of the Board of Governors of the
Federal Reserve System.
Section 2.28 Offering of the Shares. Neither the Company nor
any Subsidiary has authorized, paid, hired or employed any person or entity
to act as agent, broker, dealer or otherwise in connection with the
offering or sale of the Shares, Conversion Shares, Warrants or any other
Securities. Except as otherwise disclosed to and approved by the Investors,
neither the Company nor any Subsidiary has offered the Shares, Conversion
Shares, Warrants or any other Securities or any such similar security for
sale to, or solicited any offer to buy the Shares, Conversion Shares,
Warrants or any other Securities or any such similar security from, or
otherwise approached or negotiated with respect thereto with, any person or
persons, and none of the Company, any Subsidiary or any person authorized
to act on their behalf has taken or will take any other action (including,
without limitation, any offer, issuance or sale of any security of the
Company) under circumstances which might require the integration of the
sale of such security with the Securities under the Securities Act or the
rules and regulations of the Commission thereunder, in either case so as to
subject the offering, issuance or sale of the Securities, Conversion Shares
or other securities into which such securities may be converted, to the
registration provisions of the Securities Act. The Company has no
contract, arrangement or understanding with any broker, finder or similar
agent with respect to the transactions contemplated by this Agreement,
other than the Carter Capital Engagement Letter.
Section 2.29 Returns. The Company and the Subsidiaries have
not had any of their products returned by the purchasers thereof, which
returns collectively taken together have had or would reasonably be
expected to have a material adverse effect on the business, affairs,
financial condition, properties or prospects of the Company and the
Subsidiaries taken as a whole.
Section 2.30 Related-Party Transactions. Except as otherwise
disclosed to and approved by the Investors, no employee, officer, director
or stockholder of the Company or any Subsidiary or member of his or her
immediate family is indebted to the Company or any Subsidiary, nor is the
Company or any Subsidiary indebted (or committed to make loans or extend or
guarantee credit) to any of them. To the Company's and each Subsidiary's
knowledge, none of such persons has any direct or indirect ownership
interest in any firm or corporation with which the Company or any
Subsidiary is affiliated or with which the Company or any Subsidiary has a
business relationship, or any firm or corporation that competes with the
Company or any Subsidiary, except that employees, officers, directors or
stockholders of the Company and the Subsidiaries and members of their
immediate families may own stock in publicly traded companies that may
compete with the Company and the Subsidiaries. No member of the immediate
family of any employee, officer, director or stockholder of the Company or
any Subsidiary is directly or indirectly interested in any material
contract with the Company or any Subsidiary.
Section 2.31 Permits. The Company and each Subsidiary have all
franchises, permits, licenses, and any similar authority necessary for the
conduct of its business as now being conducted by it, the lack of which has
had or would reasonably be expected to have a material adverse effect on
business, affairs, financial condition, properties or prospects of the
Company and its Subsidiaries taken as a whole, and the Company and each
Subsidiary believes it can obtain, without undue burden or expense, any
similar authority for the conduct of its business as planned to be
conducted. The Company and each Subsidiary are not in default in any
material respect under any of such franchises, permits, licenses, or other
similar authority.
Section 2.32 Manufacturing and Marketing Rights. The Company
and each Subsidiary have not granted rights to manufacture, produce,
assemble, license, market, or sell its products to any other person and is
not bound by any agreement that affects the Company's or any Subsidiary's
exclusive right to develop, manufacture, assemble, distribute, market or
sell its products.
Section 2.33 Registration Rights. Except as provided herein,
or by (i) the Preferred Stock Purchase Agreement, dated as of November 21,
1996, among the Company and the investors named therein, (ii) the Unit
Purchase Agreement, dated as of November 21, 1996, among the Company and
the investors named therein, (iii) the Stock Purchase Agreement, dated as
of July 1, 1997, by and among Robert Marchetti, Stephen Michaelson and the
Company, (iv) the Registration Rights Agreement, dated as of September 16,
1997 by and among the Company and the Mellingers, each of which has been
filed as exhibits to the Filed SEC Documents, and (v) the Carter Capital
Engagement Letter, the Company has not granted or agreed to grant any
registration rights, including piggyback rights, to any person or entity.
Each of the parties to the foregoing agreements (to the extent that they
still own securities of the Company and have registration rights with
respect thereto) have agreed to waive their respective registration rights
under such agreements for a period of 90 days from and after the date of
the Closing.
Section 2.34 Minute Books. The minute books of the Company and
each Subsidiary provided to the Investors contain a summary of all meetings
of directors and stockholders since the time of incorporation and reflect
all transactions referred to in such minutes accurately in all material
respects.
Section 2.35 Representations and Warranties. No representation
or warranty by the Company in this Agreement, in any schedule to this
Agreement, or in the other Transaction Documents, contains or will contain
any untrue statement of a material fact or omits or will omit to state a
material fact required to be stated herein or therein or necessary to make
the statements contained herein or therein not false or misleading. There
is no fact or circumstance relating specifically to the current business
operations or condition of the Company that could reasonably be expected to
result in a material adverse effect on business, affairs, financial
condition, properties or prospects of the Company and its Subsidiaries
taken as a whole that is not disclosed herein or in a Schedule attached
hereto.
ARTICLE III
Covenants of the Company
Section 3.1 Financial Statements, Reports, Etc.
(a) The Company shall furnish to each Investor, as soon as
available but in no case later than ninety (90) days after the end of each
fiscal year of the Company, a consolidated balance sheet of the Company and
its subsidiaries as of the end of such fiscal year and the related
consolidated statements of income, stockholders' equity and cash flows for
the fiscal year then ended, prepared in accordance with generally accepted
accounting principles and certified by a firm of independent public
accountants of recognized national standing selected by the Board of
Directors of the Company; provided, that for so long as the Company is
subject to the reporting requirements of the Exchange Act, the Company may
satisfy its obligations under this Section 3.1(a) by providing to each
Investor a copy of the Company's Annual Report on Form 10-K or 10-KSB and
any proxy statement and other annual report to shareholders provided to
other shareholders of the Company, as applicable.
(b) The Company shall furnish to each Investor as soon as
available, but in no case later than forty-five (45) days after the end of
each fiscal quarter in each fiscal year (other than the last fiscal quarter
in each fiscal year), a consolidated balance sheet of the Company and its
subsidiaries and the related consolidated statements of income,
stockholders' equity and cash flows, unaudited but prepared in accordance
with generally accepted accounting principles and certified by the Chief
Financial Officer of the Company, such consolidated balance sheet to be as
of the end of such fiscal quarter and such consolidated statements of
income, stockholders' equity and cash flows to be for such fiscal quarter
and for the period from the beginning of the fiscal year to the end of such
fiscal quarter, in each case with comparative statements for the
corresponding period of the prior fiscal year; provided, that for so long
as the Company is subject to the reporting requirements of the Exchange Act
the Company may satisfy its obligations under this Section 3.1(b)(i) by
providing each Investor with a copy of the Company's quarterly report on
Form 10-Q or 10-QSB and any Form 8-K filed in such fiscal quarter, as
applicable.
(c) The Company shall further furnish to each Investor:
(i) promptly upon sending, making available or filing
the same, all press releases, reports and financial statements that the
Company sends or makes available to its stockholders or files with the SEC;
and
(ii) promptly, from time to time, such other
information regarding the business, prospects, financial condition,
operations, property or affairs of the Company and its subsidiaries as such
Investor reasonably may request.
All such financial statements, reports or other information
(other than publicly available information) provided to any Investor
pursuant to this Section 3.1 shall be deemed to be confidential information
of the Company. Each Investor agrees to use reasonable efforts to prevent
the disclosure of such confidential information to any other person
(excluding its and its subsidiaries' and affiliates' officers, employees,
agents or counsel) except (i) as may be necessary or desirable in
connection with a request by a governmental agency, regulatory or
supervisory authority or court having or claiming jurisdiction over such
Investor including, without limitation, the National Association of
Insurance Commissioners, or as otherwise required by applicable law, (ii)
information obtained from a third party which is not subject to the
provisions of any confidentiality agreement in favor of the Company, (iii)
in connection with the enforcement of such Investor's rights hereunder or
under the Certificate of Incorporation and (iv) disclosure to other
Investors.
Section 3.2 Properties, Business, Insurance. The Company
shall maintain and cause each of its subsidiaries to maintain as to their
respective properties and businesses, with financially sound and reputable
insurers, insurance against such casualties and contingencies and of such
types and in such amounts as is customary for companies similarly situated,
which insurance shall be deemed by the Company to be sufficient.
Section 3.3 Inspection, Consultation and Advice. The Company
shall permit and cause its subsidiaries to permit each Investor and such
persons as it may designate and reasonably acceptable to the Company, at
such Investor's expense, to visit and inspect any of the properties of the
Company and its subsidiaries, examine their books and make copies and
extracts therefrom, discuss the affairs, finances and accounts of the
Company and its subsidiaries with their executive officers, key employees
and public accountants (and the Company hereby authorizes said accountants
to discuss with such Investor and such designees such affairs, finances and
accounts), all at reasonable times and upon reasonable notice, and with due
regard for the Company's ongoing operations; provided, that the Investors
shall have no right to receive any confidential information from any
customer of the Company or its Subsidiaries; provided, further, that no
information shall be supplied hereunder to the extent that such information
is subject to confidentiality provisions in a given customer's contract
with the Company. Any information or documentation (other than publicly
available information) provided to any such Investor or any such designee
pursuant to this Section 3.3 shall be deemed to be confidential information
of the Company. Each Investor agrees to use reasonable efforts to prevent
the disclosure of such confidential information to any other person
(excluding its and its subsidiaries' and affiliates' officers, employees,
agents or counsel) except (i) as may be necessary or desirable in
connection with a request by a governmental agency, regulatory or
supervisory authority or court having or claiming jurisdiction over such
Investor including, without limitation, the National Association of
Insurance Commissioners, or as otherwise required by applicable law, (ii)
information obtained from a third party which is not subject to the
provisions of any confidentiality agreement in favor of the Company, (iii)
in connection with the enforcement of such Investor's rights hereunder or
under the Certificate of Incorporation and (iv) disclosure to other
Investors.
Section 3.4 Restrictive Agreements Prohibited. Neither the
Company nor its subsidiaries shall become a party to any agreement which by
its terms restricts the Company's performance of this Agreement, any of the
other Transaction Documents or the Certificate of Incorporation.
Section 3.5 Transactions with Affiliates. Except for the
arrangements between the Company and its Subsidiaries, and the transactions
contemplated by this Agreement or as otherwise approved by the Board of
Directors, neither the Company nor any of its subsidiaries shall enter into
any transaction with any director, officer, employee or holder of more than
5% of the outstanding capital stock of any class or series of capital stock
of the Company or any of its subsidiaries, member of the family of any such
person, or any corporation, partnership, trust or other entity in which any
such person, or member of the family of any such person, is a director,
officer, trustee, partner or holder of more than 5% of the outstanding
capital stock thereof, except for transactions on customary terms related
to such person's employment.
Section 3.6 Expenses of Directors. The Company shall promptly
reimburse in full each director of the Company if he or she is not an
employee of the Company for all of his or her reasonable out-of-pocket
expenses incurred in attending each meeting of the Board of Directors of
the Company or any Committee thereof.
Section 3.7 Board of Directors Meetings. The Company shall
use its best efforts to ensure that meetings of its Board of Directors are
held at least four times each year and at least once each quarter. The
Company shall provide to each Investor copies of all notices, reports
(including all materials distributed at the meeting and in the board
books), minutes and consents at the time and in the manner as they are
provided to the members of the Board of Directors or committee. Any
information or documentation (other than publicly available information)
provided to any such Investor pursuant to this Section 3.7 shall be deemed
to be confidential information of the Company. Each Investor agrees to use
reasonable efforts to prevent the disclosure of such confidential
information to any other person (excluding its and its subsidiaries' and
affiliates' officers, employees, agents or counsel) except (i) as may be
necessary or desirable in connection with a request by a governmental
agency, regulatory or supervisory authority or court having or claiming
jurisdiction over such Investor including, without limitation, the National
Association of Insurance Commissioners, or as otherwise required by
applicable law, (ii) information obtained from a third party which is not
subject to the provisions of any confidentiality agreement in favor of the
Company, (iii) in connection with the enforcement of such Investor's rights
hereunder, under any of the other Transaction Documents or under the
Certificate of Incorporation and (iv) disclosure to other Investors.
Section 3.8 By-laws. The Company shall at all times cause its
By-laws to provide that the number of directors fixed in accordance
therewith shall in no event conflict with any of the terms or provisions of
the Series A Preferred Stock as set forth in the Certificate of Amendment.
The Company shall at all times maintain provisions in its By-laws and/or
Certificate of Incorporation indemnifying all directors against liability
and absolving all directors from liability to the Company and its
stockholders to the maximum extent permitted under the laws of the State of
Delaware.
Section 3.9 Performance of Contracts. The Company shall not
amend, modify, terminate, waive or otherwise alter, in whole or in part,
any of the employment agreements in effect on the date hereof without the
affirmative vote of both of the directors who represent the Investors.
Section 3.10 Employment Agreements. The Company shall obtain,
and shall cause its Subsidiaries to obtain, an employment agreement from
all future executive officers and key employees of the Company or any of
its Subsidiaries upon their employment by the Company or any of such
subsidiaries, which employment agreements shall include reasonable and
customary nondisclosure and non-solicitation provisions.
Section 3.11 Compliance with Laws. The Company shall comply,
and use its best efforts to cause each Subsidiary to comply, with all
applicable laws, rules, regulations and orders, noncompliance with which
could materially adversely affect its business or condition, financial or
otherwise. The Company will pay and discharge, or cause to be paid and
discharged, before they become delinquent, all taxes, assessments, and
other governmental charges imposed upon the Company or any of the
properties, sales, or activities of the Company, or any part thereof, or
upon the income or profits therefrom, as well as all claims for labor,
materials, or supplies, which, if unpaid might by law give rise to a Lien
upon any of its properties; provided, however, that any such tax,
assessment, charge, levy, or claim need not be paid if the validity or
amount thereof is currently being contested in good faith by appropriate
proceedings and if the Company has set aside on its books adequate reserves
with respect thereto. The Company will comply in all material respects
with (a) its charter documents and by-laws, and (b) any agreement or
instrument to which it is a party or by which it or any of its properties
are subject (including, without limitation, any of the Transaction
Documents). If at any time any authorization, consent, approval, permit,
or license from any officer, agency, or instrumentality of any government
becomes necessary or required in order that the Company may fulfill any of
its obligations hereunder, the Company will, after providing adequate
written notice to the holders of shares of Series A Preferred Stock,
promptly take or cause to be taken all necessary steps within its power to
obtain such authorization, consent, approval, permit, or license and will,
upon written request, promptly furnish each such holder with evidence
thereof.
Section 3.12 Keeping of Records and Books of Account. The
Company shall keep, and use its best efforts to cause its subsidiaries to
keep, adequate records and books of account, in which complete entries will
be made in accordance with generally accepted accounting principles
consistently applied, reflecting all financial transactions of the Company
and such subsidiary.
Section 3.13 Compensation and Audit Committees. The Company
shall maintain a Compensation Committee and an Audit Committee of the Board
of Directors, each of which shall consist of three directors, two of whom
(on each Committee) may be directors elected solely by the holders of
Common Stock or appointed by the members of the Board of Directors
(provided that one of such two committee members is not an employee of the
Company) and one of whom (on each Committee) shall be a director who
represents the Investors (but only if the Investors shall then be
represented on the Board of Directors). No additional employee stock
option plan, or employee stock purchase plan, employee restricted stock
plan or other employee stock plan shall be established without the approval
of the Compensation Committee. The Audit Committee shall select (subject
to the approval of the Board of Directors) and provide instructions to the
Company's auditors. The compensation of all officers and senior management
of the Company will be as determined from time to time by the Compensation
Committee of the Board of Directors.
Section 3.14 Corporate Existence. The Company shall maintain
its corporate existence, rights and franchises in full force and effect.
Section 3.15 Number of Securities. For purposes of determining
the number of Securities or Conversion Shares held by any Investor under
this Agreement, all affiliated holders of Shares or Conversion Shares shall
be treated as if such affiliated holders were a single Investor; provided,
that each such group of affiliated holders of Shares or Conversion Shares
shall designate a single representative who shall be granted authority to
(i) receive all notices and other information required to be provided to
such Investors, and (ii) exercise all rights of an Investor (or Investor,
as applicable) on behalf of such group of affiliated holders. For the
purposes of this Section 3.15, "affiliates" shall include all mutual funds
or other pooled investment vehicles or entities under the control or
management of any Investor (including as to any Tudor Entity, without
limiting the foregoing, every other Tudor Entity and the affiliated
investment vehicles of Tudor and its Affiliates).
Section 3.16 Survival. The covenants set forth in Article III
of this Agreement, to the extent applicable to an Investor, shall survive
with respect to each Investor until the date such Investor no longer holds
Securities (including the Warrants) or Conversion Shares.
Section 3.17 Use of Proceeds. The proceeds of the sale of the
offering of the Securities shall be used for the purposes approved by the
Board of Directors of the Company, including, without limitation,
marketing, expansion, product development, acquisitions and general
operations.
Section 3.18 Preemptive Rights. Subject to the terms and
conditions specified in this Section 3.18, each time the Company proposes
to offer any shares of, or securities convertible into, or exchangeable or
exercisable for any shares of, its capital stock (whether newly issued or
treasury stock) in a private placement (a "Private Placement"), the Company
shall make an offering of such securities to each Investor in accordance
with the following provisions:
(a) The Company shall deliver a notice ("Notice") to each
Investor stating (i) its bona fide intention to offer such securities, (ii)
the number of such securities to be offered, and (iii) the price and terms,
if any, upon which it proposes to make such Private Placement.
(b) By written notification received by the Company, within
twenty (20) calendar days after giving of the Notice, each Investor
(including its Affiliates) may elect to purchase or obtain, at the price
and on the terms specified in the Notice, up to that portion of the
securities to be offered in the Private Placement which equals the
proportion that the number of shares of Common Stock issued and held, or
issuable upon conversion of the Securities then held, by such Investor
bears to the total number of (assuming full conversion of all convertible
securities and the exercise of all outstanding options, warrants or rights
to purchase Common Stock or other securities convertible into or
exercisable for shares of Common Stock exercisable as of the date of such
Notice) held by all of the Investors ("Pro Rata Share"). The Company shall
promptly, in writing, inform each Investor that purchases all of such
securities available to it (a "Fully-Exercising Investor") of any other
Investor's failure to do likewise. During the ten-day period following
delivery of such information, each Fully-Exercising Investor shall be
entitled to purchase that portion of such securities for which Investors
were entitled to subscribe but which were not subscribed by the Investors,
which is equal to the proportion that the number of shares of Common Stock
issued and held, or issuable upon conversion of the Securities then held,
by such Fully-Exercising Investor bears to the total number of shares of
Common Stock (assuming full conversion of all convertible securities and
the exercise of all options, warrants or rights to purchase Common Stock or
other securities convertible into or exercisable for shares of Common
Stock) then held by all Fully-Exercising Investors ("Proportional Share").
If any Investor fails to purchase its Pro Rata Share or Proportional Share,
any affiliate of such Investor may purchase the shares available to, but
not purchased by, such Investor.
(c) If all securities referred to in the Notice which
Investors are entitled to obtain pursuant to Section 3.18(b) are not
elected to be obtained as provided in Section 3.18(b) hereof, the Company
may, during the sixty (60) day period following the expiration of the last
notice provision provided in Section 3.18(b) hereof, offer the remaining
unsubscribed portion of such securities to any person or persons at a price
not less than, and upon terms no more favorable to the offeree than those
specified in the Notice. If the Company does not enter into an agreement
for the sale of such securities within such period, or if such agreement is
not consummated within sixty (60) days of the execution thereof, the right
provided hereunder shall be deemed to be revived and such securities shall
not be offered unless first re-offered to the Investors in accordance
herewith.
(d) The preemptive right in this Section 3.18 shall not be
applicable to:
(i) Shares of Common Stock issuable or issued to
employees, advisors, consultants or outside directors of the Company
directly or pursuant to a stock option plan or restricted stock plan
approved by the Board of Directors of the Company, the total number of such
shares not to exceed 4,302,000 (appropriately adjusted for stock splits,
stock dividends or similar recapitalizations);
(ii) Common Stock, or securities convertible into, or
exchangeable or exercisable for shares of Common Stock, issued or issuable
in connection with bona fide research, licensing or corporate partnering
relationships, in connection with equipment lease financing, or in
connection with non-convertible debt financing with institutional lenders,
in each case approved by a majority of the Board of Directors of the
Company including both of the directors who represent the Investors, but
only to the extent that either of the Investors shall then have
representative directors on the Board of Directors of the Company;
provided, that such issuances of Common Stock are for other than primarily
equity financing purposes;
(iii) Common Stock issued or issuable upon
conversion of the Securities;
(iv) Common Stock issued or issuable in connection with
a merger or consolidation as a result of which the holders of the Company's
outstanding securities immediately prior to the consummation of such
transaction hold voting securities in excess of fifty percent (50%) of the
voting power of the surviving or resulting entity; or
(v) Common Stock issued in a public offering.
(e) The preemptive rights set forth in this Section 3.18
may be assigned or transferred by an Investor to a transferee or assignee
of any of its shares of capital stock of the Company, provided such
transferee or assignee agrees in writing to be bound by and subject to the
terms and conditions of this Agreement.
Section 3.19 Reservation of Shares. The Company shall at all
times reserve and keep available out of its authorized but unissued shares
of Common Stock, sufficient numbers of such duly authorized securities for
the purpose of effecting the conversion of the Shares and exercise of the
Warrants and otherwise complying with the terms of this Agreement. If at
any time the number of authorized but unissued shares of such securities
shall not be sufficient to effect the exercise of the conversion of the
Shares or otherwise to comply with the terms of this Agreement, the Company
will forthwith take such corporate action as may be necessary to increase
its authorized but unissued shares of such securities to such number of
shares as shall be sufficient for such purposes. The Company will obtain
any authorization, consent, approval or other action by or make any filing
with any court or administrative body that may be required under applicable
state securities laws in connection with the issuance of shares of Common
Stock upon conversion of the Shares.
Section 3.20 Employee Stock Options. After the Closing, each
Company employee shall be granted a number of additional Options so as to
maintain as near as practicable (it being understood that Options to
purchase only 1,568,506 shares of Common Stock remain ungranted under the
Option Plan and that Options to purchase no more than such number of shares
of Common Stock shall be granted pursuant to this Section 3.20) their
percentage ownership of the Company's Common Stock as of the date of the
Closing (on a fully-diluted basis assuming the exercise of all outstanding
Options and conversion of all of the Series A Preferred Stock issued
hereunder, but without taking into account for such purpose the shares of
Common Stock issuable upon exercise of the Warrant and the warrant to be
granted to Carter Capital under the Carter Capital Engagement Letter) at an
exercise price equal to the market price of the Company's Common Stock at
the close of trading on the third trading day after the Closing.
Section 3.21 Increase in Expenses. The approval of a majority
of the non-employee directors of the Company will be necessary for any
increase in the level of operating expenses to be made by the Company in
excess of ten percent (10%) of the aggregate operating expenses set forth
in the budgets provided to Investors pursuant to Section 3.1(c) hereof.
Section 3.22 Use of Name and Management Responsibility. The
Company shall not use or reference the name of any Investor in any publicly
available document or communication, including but not limited to any press
release, without the prior written approval of such Investor. The Company
acknowledges that each Investor has no responsibility for managing the
Company.
Section 3.23 Board Size. The Company hereby covenants and
agrees that the number of directors which shall comprise the Company's
Board of Directors shall not exceed nine (9) directors.
Section 3.24 U.S. Real Property Holding Corporation. The
Company covenants that it will operate in a manner such that it will not
become a "United States real property holding corporation" as that term is
defined in Section 897(c)(2) of the Internal Revenue Code of 1986, as
amended ("USRPHC"), and the regulations thereunder. The Company agrees to
make determinations as to its status as a USRPHC, and will file statements
concerning those determinations with the Internal Revenue Service, in the
manner and at the times required under Reg. 1.897-2(h), or any
supplementary or successor provision thereto. Within 30 days of a request
from a Purchaser, the Company will inform the requesting party, in the
manner set forth in Reg. 1.897-2(h) or any supplementary or successor
provision thereto, whether that party's interest in the Company constitutes
a United States real property interest (within the meaning of Internal
Revenue Code Section 897(c)(1) and the regulations thereunder) and whether
the Company has provided to the Internal Revenue Service all required
notices as to its USRPHC status.
ARTICLE IV
Representations, Warranties and Covenants
of the Investors
Each of the following representations, warranties and covenants
is made by each Investor severally (as to itself) and not jointly.
Section 4.1 Authorization. Each Investor represents and
warrants that this Agreement when executed shall constitute its valid and
legally binding obligation, enforceable in accordance with its terms except
as enforceability thereof may be limited by bankruptcy, insolvency,
reorganization or moratorium or other similar laws relating to the
enforcement of creditors' rights generally and by general equitable
principles.
Section 4.2 Purchase Entirely for Own Account. This Agreement
is made with each Investor in reliance upon such Investor's representation
to the Company, which by such Investor's execution of this Agreement such
Investor hereby confirms, that the Securities (including any Conversion
Shares) to be received by such Investor hereunder, will be acquired for
investment for such Investor's own account, not as a nominee or agent, and
not with a view to the resale or distribution of any part thereof, and that
such Investor has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, each Investor further represents that such Investor does not
have any contract, undertaking, agreement or arrangement with any person to
sell, transfer or grant participations to such person or to any third
person, with respect to any of the Securities. Each Investor represents
that it has full power and authority to enter into this Agreement.
Notwithstanding the foregoing, this Section 4.2 is qualified in its
entirety with reference to Section 3.15, above.
Section 4.3 Disclosure of Information. Each Investor further
represents that it has had an opportunity to ask questions and receive
answers from the Company regarding the terms and conditions of the sale of
the Securities.
Section 4.4 Restricted Securities. Each Investor understands
that the Securities are characterized as "restricted securities" under the
federal securities laws inasmuch as such securities are being acquired from
the Company in a transaction not involving a public offering and that under
such laws and applicable regulations such securities may be resold without
registration under the Securities Act, only in certain limited
circumstances ; provided, however, that this Section 4.4 shall in no way
diminish or affect the obligations of the Company under Section 7, below.
Section 4.5 Limitations on Disposition. Without in any way
limiting the representations set forth in Section 4.4 above, each Investor
further agrees not to make any disposition of all or any portion of the
Securities being purchased hereunder (or any Conversion Shares issuable
upon the exercise and/or conversion thereof) unless:
(i) there is then in effect a registration statement
under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration statement; or
(ii) such disposition will not require registration of
the Securities under the Securities Act.
Section 4.6 Legends. Until such time as the Conversion Shares
are sold pursuant to a registration statement under Article VII hereof or
pursuant to Rule 144 under the Securities Act, it is understood that the
certificates evidencing the Securities may bear a legend substantially
similar to the following:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR
HYPOTHECATED IN THE ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH
RESPECT TO THE SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED OR
UNLESS SOLD PURSUANT TO RULE 144 PROMULGATED UNDER SUCH ACT. ANY SUCH
TRANSFER MAY ALSO BE SUBJECT TO APPLICABLE STATE SECURITIES LAWS."
The Company covenants to immediately remove the foregoing legend at
such time as the Securities become freely tradable without restriction
thereon.
Section 4.7 Accredited Investor. Each Investor is an
Accredited Investor within the definition set forth in Rule 501(a) under
the Securities Act.
ARTICLE V
Conditions of Each Investor's
Obligations at Closing
The obligations of each Investor under Section 1.1 of this
Agreement are subject to the fulfillment on or before the Closing of each
of the following conditions, the waiver of which shall not be effective
against any Investor who does not consent in writing thereto:
Section 5.1 Representations and Warranties. The
representations and warranties made by the Company in Article II hereof
shall be true and correct in all material respects when made and shall be
true and correct in all material respects on the date of the Closing,
except that the number of issued and outstanding shares of the Company's
Common Stock may be affected by the exercise of Options granted under the
Option Plan.
Section 5.2 Compliance Certificate. The Company shall deliver
to each Investor at the Closing a certificate certifying that (i) the
conditions specified in this Article V that apply to the Company have been
fulfilled and (ii) except as otherwise disclosed to the Investors, there
has been no material adverse change in the business, affairs, prospects,
operations, properties, assets, or financial condition of the Company and
its Subsidiaries taken as a whole since the date of the audited Financial
Statements.
Section 5.3 Proceedings and Documents. All corporate and
other proceedings in connection with the transactions contemplated at the
Closing and all documents incident thereto shall be reasonably satisfactory
in form and substance to the Investors and their counsel and such counsel
shall have received all such counterpart original and certified or other
copies of such documents as the Investors may reasonably request, including
but not limited to a copy of this Agreement executed by the Company.
Section 5.4 Opinion of Company Counsel. Each Investor shall
have received from each of Skadden, Arps, Slate, Meagher & Flom LLP,
special counsel for the Company, and Richard Rosenfeld, General Counsel of
the Company, an opinion, dated as of the Closing, in form and substance
satisfactory to the Investors in substantially the forms of Exhibits C and
D, respectively, attached hereto.
Section 5.5 Performance. The Company shall have performed and
complied with all agreements contained herein required to be performed or
complied with by it prior to or at the Closing, and the Chief Executive
Officer of the Company shall have certified to the Investors in writing to
such effect and to the further effect that all of the conditions set forth
in this Article V have been satisfied.
Section 5.6 Purchase by Other Investors. Each Investor shall
have purchased and paid for the Securities being purchased by it on the
date of the Closing.
Section 5.7 Supporting Documents. The Investors and their
counsel shall have received copies of the following documents at or prior
to the Closing:
(i) (A) the Certificate of Incorporation and
Certificate of Amendment, certified as of a recent date by the Secretary of
State of the State of Delaware and (B) a certificate of said Secretary
dated as of a recent date as to the due incorporation and good standing of
the Company, the payment of all excise taxes by the Company;
(ii) a certificate of the Secretary or an Assistant
Secretary of the Company dated the date of the Closing and certifying: (A)
that attached thereto is a true and complete copy of the By-laws of the
Company as in effect on the date of such certification; (B) that attached
thereto is a true and complete copy of all resolutions adopted by the Board
of Directors or the stockholders of the Company authorizing the execution,
delivery and performance of this Agreement, the issuance, sale and delivery
of the Securities, the reservation of the Conversion Shares, the issuance
and delivery of the Conversion Shares upon conversion of the Securities and
the Certificate of Amendment, and that all such resolutions are in full
force and effect and are all the resolutions adopted in connection with the
transactions contemplated by this Agreement; (C) that the Certificate of
Incorporation has not been amended since the date of the last amendment
referred to in the certificate delivered pursuant to clause (i)(B) above;
and (D) to the incumbency and specimen signature of each officer of the
Company executing this Agreement, the stock certificates representing the
Shares and any certificate or instrument furnished pursuant hereto, and a
certification by another officer of the Company as to the incumbency and
signature of the officer signing the certificate referred to in this clause
(ii); and
(iii) such additional supporting documents and
other information with respect to the operations and affairs of the Company
as the Investors or their counsel reasonably may request.
Section 5.8 Certificate of Incorporation. The Certificate of
Incorporation shall be as previously filed with the Filed SEC Documents,
except as amended by the Certificate of Amendment. The Company shall, at or
before the Closing, deliver to each Investor evidence of filing of the
Certificate of Amendment.
Section 5.9 Fees of Investors' Counsel. The Company shall
have paid, or shall have made provision to pay, in accordance with Section
8.8 hereof, the reasonable fees and disbursements of counsel for the
Investors invoiced at the Closing.
Section 5.10 Deliveries. The Company shall deliver to each
Investor at the Closing certificates representing the Shares and Warrants
being purchased by such Investor hereunder and the Investors shall each
deliver to the Company, by wire transfer, the amounts payable for the
Shares and Warrants being purchased by such Investor. The Investors shall
notify the Company prior to the Closing of the names and addresses in which
to issue such certificates. The Company shall provide the Investors prior
to the Closing bank wire information with respect to the account to receive
the purchase price for the Securities being issued hereunder.
ARTICLE VI
Conditions of the Company's Obligations at Closing
The obligations of the Company to each Investor under this
Agreement are subject to the delivery on or before the Closing of the
purchase price to be paid by such Investor specified in Section 1.1.
ARTICLE VII
Registration
Section 7.1 Definitions. For purposes of this Article VII:
(a) The terms "register", "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act, and
the declaration or ordering of effectiveness of such registration statement
or document;
(b) The term "Registrable Securities" means (x) the
Conversion Shares and (y) on and after the date which is 90 days after the
date of the Closing, any shares of Common Stock that may be issued to
Carter Capital Corporation upon exercise of the warrant issued to Carter
Capital Corporation pursuant to the Carter Capital Engagement Letter;
provided, however, that as to any particular security or securities that
are contained in Registrable Securities, such securities shall cease to be
Registrable Securities when (i) a registration statement with respect to
the sale of such securities shall have become effective under the
Securities Act and such securities shall have been disposed of in
accordance with such registration statement or (ii) such securities shall
have been sold to the public pursuant to Rule 144;
(c) The term "Holder" means any person owning or having the
right to acquire Registrable Securities or any assignee thereof in
accordance with the provisions of Section 7.6 hereof; and
(d) The term "Form S-3" means such form under the
Securities Act as in effect on the date hereof or any registration form
under the Securities Act subsequently adopted by the SEC which permits
inclusion or incorporation of substantial information by reference to other
documents filed by the Company with the SEC.
Section 7.2 Shelf Registration.
(a) As soon as reasonably practicable after the Closing,
but in no event later than April 30, 2000, the Company shall file with the
SEC a shelf registration statement on Form S-3 (or if Form S-3 is not
available, then such other form on which the Registrable Securities may be
registered for resale) under the Securities Act with respect to the
registration of the Conversion Shares, provided that the Company may, with
the prior written approval of the Holders, delay such filing (but not
beyond 90 days after the Closing) if such filing would require the Company
to disclose material non-public information, the disclosure of which would
be detrimental to the Company. The Company may, with the approval of the
Holders, include in such registration statement securities of the Company
to be offered and sold by the Company. The Company shall use its best
efforts to cause such registration statement to be declared effective
within 90 days after the Closing.
(b) The Holders shall promptly notify the Company of the
jurisdictions in which such offering will be made and, if and as required
and subject to the provisions of clause (d)(iv), below, the Company shall
effect the registration and/or qualification of the Conversion Shares under
applicable state securities laws (the "State Laws").
(c) Except as otherwise prohibited by applicable law, the
Company will pay all fees and expenses, including, without limitation,
printing and reproduction costs and fees and expenses of counsel for
Holders, incurred in connection with the registration of the Conversion
Shares pursuant to this Article VII; provided, that transfer taxes, if any,
solely attributable to the sale of the Conversion Shares, shall be borne by
the Holders.
(d) The Company shall further:
(i) prepare and file as soon as reasonably practicable
with the SEC such amendments and supplements to such shelf registration
statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and such prospectus
current and to comply with the provisions of the Securities Act with
respect to the disposition of the Conversion Shares until the earlier of
(A) such time as all of the Conversion Shares have been disposed of; or (B)
such time as the Conversion Shares are otherwise freely tradeable;
(ii) furnish to Holders copies of the preliminary
prospectus and prospectus included in such registration statement and each
amendment and supplement thereto;
(iii) use its best efforts to register or qualify
the Conversion Shares under the State Laws after the filing of the Form S-3
registration statement (or any other registration form for which the
Company then qualifies) with the SEC and to keep such registration or
qualification in effect for so long as the Form S-3 registration statement
(or any other registration form for which the Company then qualifies) filed
with the SEC remains in effect as provided in clause (ii), above, provided
that the Company shall not for any such purpose be required to qualify
generally to do business as a foreign corporation in any jurisdiction in
which it would not otherwise be obligated to be so qualified, or to subject
itself to taxation in any such jurisdiction, or to consent to general
service of process in any such jurisdiction, or to qualify as a dealer in
securities; and
(iv) notify Holders, at any time when a prospectus is
required to be delivered by Holders under the Securities Act, upon
discovery by the Company that the prospectus included in such 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 not misleading in light of the
circumstances then existing, whereupon Holders shall suspend any offers or
sales of the Conversion Shares until such time as such prospectus, as
amended or supplemented from time to time, shall not include an untrue
statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not
misleading in light of the circumstances then existing, and which, except
as otherwise approved by the Holders, period of time shall not exceed
thirty (30) days in any twelve month period.
(e) The Holders agree to cooperate fully with the Company
in connection with effecting the registration pursuant to this Article VII,
including, but not limited to, furnishing such information as the Company
may from time to time reasonably request and as shall be required by law or
by the SEC in connection with such registration.
(f) If such Holders intend to distribute the Registrable
Securities by means of an underwritten offering, they shall so advise the
Company. In such event, the right of any Holder to include his securities
in such underwritten offering shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
securities in the underwriting to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
enter into an underwriting agreement in customary form with the underwriter
or underwriters selected for such underwriting by a majority in interest of
the Holders participating in the underwritten offering. Notwithstanding
any other provision of this Section 7.2, if the underwriter advises the
Holders in writing that marketing factors require a limitation of the
maximum number of Registrable Securities to be underwritten (such maximum
being the "Underwriter's Maximum Number"), then the number of shares of
such securities that may be included in the underwriting shall be allocated
(x) first among all of the respective Holders of Registrable Securities
(other than Carter Capital Corporation) who requested such underwritten
offering whose shares are to be included in such registration by a pro rata
allocation, based upon the number of Securities then held, and then, to the
extent that the Underwriter's Maximum Number has not been exceeded by the
operation of clause (x), (y) on and after the date which is 90 days after
the date of the date of the Closing, to Carter Capital Corporation, and
then, to the extent that the Underwriter's Maximum Number has not been
exceeded by the operation of clauses (x)and (y), (z) among the Company and
any other persons, if any, exercising piggy-back rights by a pro rata
allocation.
In the event of any underwritten public offering, the Company
agrees to enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of
such offering. Each Holder of Registrable Securities participating in such
underwriting shall also enter into and perform its obligations under such
an agreement. It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Agreement with respect to an
underwritten offering of Registrable Securities of any selling Holder (the
"Selling Holder") that such Selling Holder shall furnish to the Company
such information regarding itself, the Registrable Securities held by it,
and the intended method of disposition of such securities as shall be
required to effect the registration of such Selling Holder's Registrable
Securities.
Section 7.3 Obligations of the Company. Whenever required
under this Agreement to maintain a registration statement for the sale of
any Registrable Securities, the Company shall use its best efforts to list
the Registrable Securities covered by such registration statement with any
securities exchange on which the Common Stock of the Company is then listed
and provide a transfer agent and registrar for all Registrable Securities
registered hereunder and a CUSIP number for all such Registrable Securities
within the time frames set forth in Section 7.2 hereof.
Section 7.4 Indemnification.
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder of Registered Securities and such
Holder's officers and directors, and each person, if any, who controls such
Holder within the meaning of the Securities Act or the Exchange Act (each,
an "Indemnitee"), against any losses, claims, damages, or liabilities
(joint or several) to which they may become subject under the Securities
Act, or the Exchange Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any of the following statements, omissions
or violations (collectively a "Violation"): (i) any untrue statement or
alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto, (ii) the
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 (iii) any violation or alleged violation by the Company of
the Securities Act, the Exchange Act, any state securities law or any rule
or regulation promulgated under the Securities Act, or the Exchange Act or
any state securities law; and the Company will pay to each such Indemnitee
any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
Section 7.4(a) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability, or action if such settlement is effected
without the consent of the Company (which consent shall not be unreasonably
withheld), nor shall the Company be liable in any such case for any such
loss, claim, damage, liability, or action to the extent that it arises out
of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in
connection with such registration by any such Indemnitee. Notwithstanding
the above, the foregoing indemnity agreement is subject to the condition
that, insofar as it relates to any such untrue statement, alleged untrue
statement, omission or alleged omission made in a preliminary prospectus,
such indemnity agreement shall not inure to the benefit of any Holder if a
copy of the final prospectus was not furnished to the person asserting the
loss, liability, claim or damage at or prior to the time such action is
required by the Securities Act if the final prospectus corrected the untrue
statement or omission or alleged untrue statement or omission and was (i)
provided to the Holder, and (ii) such Holder was required by applicable law
to deliver such prospectus.
(b) To the extent permitted by law, each Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any,
who controls the Company within the meaning of the Securities Act, any
underwriter, any other Holder selling securities in such registration
statement and any controlling person of any such underwriter or other
Holder, against any losses, claims, damages, or liabilities (joint or
several) to which any of the foregoing persons may become subject, under
the Securities Act, or the Exchange Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in
respect thereto) arise out of or are based upon any Violation, in each case
to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each
such Holder will pay any legal or other expenses reasonably incurred by any
person intended to be indemnified pursuant to this Section 7.4(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement
contained in this Section 7.4(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; further provided, that, in no event
shall any indemnity under this Section 7.4(b) exceed the net proceeds
(excluding underwriting discounts and commissions) from the offering
received by such Holder.
(c) Promptly after receipt by an indemnified party under
this Section 7.4 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section
7.4, deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in,
and, to the extent the indemnifying party so desires, jointly with any
other indemnifying party similarly noticed, to assume the defense thereof
with counsel mutually satisfactory to the parties; provided, however, that
an indemnified party (together with all other indemnified parties which may
be represented without conflict by one counsel) shall have the right to
retain one separate counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate, in the
reasonable judgment of the indemnified party, due to actual or potential
differing interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend
such action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 7.4 to the extent of such prejudice,
but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified
party otherwise than under this Section 7.4.
(d) To provide for just and equitable contribution, if
(i) an indemnified party makes a claim for indemnification pursuant to
Section 7(a) or 7(b) but it is found in a final judicial determination, not
subject to further appeal, that such indemnification may not be enforced in
such case, even though this Agreement expressly provides for
indemnification in such case, or (ii) any indemnified or indemnifying party
seeks contribution under the Securities Act, the Exchange Act, or
otherwise, then the Company (including for this purpose any contribution
made by or on behalf of any officer, director, employee, agent or counsel
of the Company, or any controlling person of the Company), on the one hand,
and the Holders (including for this purpose any contribution by or on
behalf of a Holder), on the other hand, shall contribute to the losses,
liabilities, claims, damages, and expenses to which any of them may be
subject, in such proportions as are appropriate to reflect the relative
fault of the Company and the Holders in connection with the facts which
resulted in such losses, liabilities, claims, damages, and expenses shall
also be considered.
The relative fault, in the case of an untrue statement, alleged
untrue statement, omission, or alleged omission, shall be determined by,
among other things, whether such statement, alleged statement, omission, or
alleged omission relates to information supplied by the Company or by the
Holders, and the parties' relative intent, knowledge, access to
information, and opportunity to correct or prevent such statement, alleged
statement, omission, or alleged omission. The Company and Holders agree
that it would be unjust and inequitable if the respective obligations of
the Company and the Holders for contribution were determined by pro rata or
per capital allocation of the aggregate losses, liabilities, claims,
damages, and expenses or by any other method of allocation that does not
reflect the equitable considerations referred to in this Section 7.4(d).
No person guilty of a fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from
any person who is not guilty of such fraudulent misrepresentation. For
purposes of this Section 7.4(d), each person, if any, who controls a Holder
within the meaning of Section 15 of the Securities Act or Section 20(a) of
the Exchange Act and each officer, director, stockholder, employee, agent,
and counsel of the Holders, shall have the same rights of contribution as
the Holder, and each person, if any, who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20(a) of the
Exchange Act and each officer, director, employee, agent, and counsel of
the Company, shall have the same rights to contribution as the Company,
subject in each case to the provisions of this Section 7.4(d). Anything in
this Section 7.4(d) to the contrary notwithstanding, no party shall be
liable for contribution with respect to the settlement of any claim or
action effected without its written consent. This Section 7.4(d) is
intended to supersede any right to contribution under the Securities Act,
the Exchange Act, or otherwise.
(e) Notwithstanding the foregoing Section 7.4(d), if the
indemnification provided for in the preceding provisions of this Section
7.4 is unavailable to an indemnified party in respect of any expense, loss,
claim, damage or liability referred to therein, then each indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to
the amount paid or payable by such indemnified party as a result of such
expense, loss, claim, damage or liability (i) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the
one hand and the Holder or underwriter, as the case may be, on the other
from the distribution of the Registrable Securities or (ii) if the
allocation provided by clause (i) above is not permitted by applicable law,
in such proportion as is appropriate to reflect not only the relative
benefits referred to in clause (i) above but also the relative fault of the
Company on the one hand and of the Holder or underwriter, as the case may
be, on the other in connection with the statements or omissions which
resulted in such expense, loss, damage or liability, as well as any other
relevant equitable considerations.
Notwithstanding the provisions of subdivision (d) or this
subdivision (e), no Holder of Registrable Securities or underwriter shall
be required to contribute any amount in excess of the amount by which (i)
in the case of any such Holder, the net proceeds received by such Holder
from the sale of Registrable Securities or (ii) in the case of an
underwriter, the total price at which the Registrable Securities purchased
by it and distributed to the public were offered to the public exceeds, in
any such case, the amount of any damages that such holder or underwriter
has otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission.
(f) The obligations of the Company and Holders under this
Section 7.4 shall survive the completion of any offering of Registered
Securities under this Agreement, and otherwise.
Section 7.5 Reports Under Exchange Act. With a view to making
available to the Holders of Registrable Securities the benefits of a
registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those
terms are understood and defined in Rule 144, at all times;
(b) take such action as is necessary to enable the Holders
to utilize Form S-3 (or any other registration form for which the Company
then qualifies) for the sale of their Registrable Securities;
(c) file with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by
the Company that it has complied with the reporting requirements of Rule
144, the Securities Act and the Exchange Act, and that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such
form.
Section 7.6 Assignment of Registration Rights. The rights to
require the Company to register Registrable Securities pursuant to this
Agreement may be assigned (but only with all related obligations) by a
Holder to a transferee or assignee of such Registrable Securities,
provided: (i) the Company is furnished with written notice of the name and
address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; (ii) if immediately
following such transfer the further disposition of such securities by the
transferee or assignee is restricted under the Securities Act; (iii) such
transferee or assignee shall deliver to the Company a written instrument by
which such transferee agrees to be bound by the obligations imposed upon
Holders of Registrable Securities pursuant to this Agreement; (iv) any such
transferee or assignee may not again transfer such rights to any other
person or entity, other than as provided in this Section 7.6; and (v) such
transfer of Registrable Securities is in compliance with applicable federal
and state securities laws.
Section 7.7 Limitations on Subsequent Registration Rights.
From and after the date of this Agreement, the Company shall not, without
the prior written consent of the Holders of 70% of the Registrable
Securities, enter into any agreement with any holder or prospective holder
of any securities of the Company which would allow such holder or
prospective holder to include such securities in any registration filed
under this Agreement, unless under the terms of such agreement, such holder
or prospective holder may include such securities in any such registration
only to the extent that the inclusion of his securities will not reduce the
amount of the Registrable Securities of the Holders which is included.
Section 7.8 Amendment of Registration Rights. Any provision
of this Article VII 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 the Holders
of 70% of the Registrable Securities. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each Holder of any
Registrable Securities then outstanding, each future Holder of all such
Registrable Securities and the Company.
ARTICLE VIII
Miscellaneous
Section 8.1 Survival of Warranties. The warranties,
representations and covenants of the Company and the Investors contained in
or made pursuant to this Agreement shall survive the execution and delivery
of this Agreement and the Closing and shall in no way be affected by any
investigation of the subject matter thereof made by or on behalf of the
Investors or the Company.
Section 8.2 Successors and Assigns. Except as otherwise
provided herein, the terms and conditions of this Agreement shall inure to
the benefit of and be binding upon the respective successors and assigns of
the parties (including transferees of any of the Series A Preferred Stock
or Conversion Shares issued hereunder (except to the extent such Conversion
Shares shall be sold pursuant to any Registration Statement pursuant to
Section 7.2 hereof)). Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly
provided in this Agreement.
Notwithstanding the provisions set forth in this Agreement, this
Agreement, any of the other Transaction Documents and the rights and
obligations hereunder and thereunder, and the Securities may be transferred
by each of the Investors in its sole discretion at any time, in whole or in
part, including without limitation transfers to any of the Tudor Entities,
Affiliates or Affiliated Groups of the transferor, without the consent of
any other party hereto, subject to applicable law.
"Affiliate" means any other person directly or indirectly
controlling, controlled by, or under direct or indirect common control with
the Company (or other referenced person) and includes without limitation,
(a) any person who is an officer, director, or direct or indirect
beneficial holder of at least 5% of the then outstanding capital stock of
the Company (or other referenced person), and any of the Family Members of
any such person, (b) any person of which the Company (or other referenced
person) and/or its Affiliates (as defined in clause (a) above), directly or
indirectly, either beneficially own(s) at least 5% of the then outstanding
equity securities or constitute(s) at least a 5% equity participant, (c) in
the case of a specified person who is an individual, Family Members of such
person, and (d) in the case of the Investors, any entities for which an
Investor or any of its Affiliates serve as general partner and/or
investment adviser or in a similar capacity, and all mutual funds or other
pooled investment vehicles or entities under the control or management of
such Investor or the general partner or investment adviser thereof, or any
person or entity acting in such capacity, or any Affiliate of any of them,
or any Affiliates of any of the foregoing.
"Affiliated Group" has the meaning given to it in Section 1504 of
the Code, and in addition includes any analogous combined, consolidated, or
unitary group, as defined under any applicable state, local, or foreign
income Tax law.
"Family Members" means, as applied to any individual, any parent,
spouse, child, spouse of a child, brother or sister of the individual, and
each trust created for the benefit of one or more of such persons and each
custodian of a property of one or more such persons and the estate of any
such persons.
Section 8.3 Governing Law. This Agreement shall be governed
by and construed under the laws of the State of New York applicable to
contracts made and to be performed in such jurisdiction, without regard to
choice of law principles.
Section 8.4 Counterparts; Facsimile Counterparts. This
Agreement may be executed in two or more counterparts, each of which shall
be deemed an original, but all of which together shall constitute one and
the same instrument. This Agreement may be executed by means of facsimile
transmission; provided, that an original, manually executed copy of such
facsimile counterpart shall be promptly sent by overnight delivery to the
other parties to this Agreement.
Section 8.5 Titles and Subtitles. The titles and subtitles
used in this Agreement are used for convenience only and are not to be
considered in construing or interpreting this Agreement.
Section 8.6 Notices. Unless otherwise provided, any notice
required or permitted under this Agreement shall be given in writing and
shall be deemed effectively given upon personal delivery to the Investor to
be notified or upon deposit with a reputable overnight courier or with the
United States Post Office, by registered or certified mail, postage prepaid
and addressed to the Investor at such address as such Investor may
designate to the other Company.
Section 8.7 Finder's Fee. Each party represents that it
neither is nor will be obligated for any finder's fee or commission in
connection with this transaction, other than the fees payable by the
Company to Carter Capital under the Carter Capital Engagement Letter. Each
Investor agrees to severally and not jointly indemnify and to hold harmless
the Company from any liability for any commission or compensation in the
nature of a finder's fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Investor or any of its
officers, partners, employees, or representatives is responsible.
The Company agrees to indemnify and hold harmless each Investor
from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such
liability or asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.
Section 8.8 Expenses. Irrespective of whether the Closing is
effected, the Company shall pay all costs and expenses that it incurs with
respect to the negotiation, execution, delivery and performance of this
Agreement. In addition, the Company shall pay the reasonable legal
expenses of separate counsel for each of the Investors in connection with
the negotiation, execution and delivery of this Agreement. If any action
at law or in equity is necessary to enforce or interpret the terms of this
Agreement or the Certificate of Incorporation, the prevailing party shall
be entitled to reasonable attorneys' fees, costs and necessary
disbursements in addition to any other relief to which such party may be
entitled.
Section 8.9 Amendments and Waivers. Except for the provisions
of Article VI hereof which may be waived with the written consent of the
Company only, and except as set forth in Section 7.8 hereof, any term 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 with the written consent of
the holders of 67% of the shares of Common Stock issued or issuable upon
conversion of the Series A Preferred Stock and exercise of the Warrants;
provided, however, that the provisions of this Section 8.9 may be amended
only with the written consent of the Company and all of such Holders. Any
amendment or waiver effected in accordance with this Section 8.9 shall be
binding upon each Holder of any securities purchased under this Agreement
at the time outstanding (including securities into which such securities
are convertible), each future Holder of all such securities, and the
Company; provided, however, that no condition set forth in Article V hereof
may be waived with respect to any Investor who does not consent thereto.
Section 8.10 Severability. If one or more provisions of this
Agreement are held to be unenforceable under applicable law, such provision
shall be excluded from this Agreement and the balance of the Agreement
shall be interpreted as if such provision were so excluded and shall be
enforceable in accordance with its terms.
Section 8.11 Entire Agreement. This Agreement, the other
Transaction Documents and the other documents delivered pursuant hereto and
thereto constitute the full and entire understanding and agreement between
the parties with regard to the subjects hereof and thereof.
Section 8.12 Further Assurances. From time to time on and
after Closing, the Company will promptly execute and deliver all such
further instruments and assurances, and will promptly take all such further
actions, as the Investors or any of them may reasonably request in order
more effectively to effect or confirm the transactions contemplated by this
Agreement and/or any of the other Transaction Documents and to carry out
the purposes hereof and thereof.
Section 8.13 Equitable Relief. Each of the parties
acknowledges that any breach by such party of his, her, or its obligations
under this Agreement or any of the other Transaction Documents would cause
substantial and irreparable damage to one or more of the other parties and
that money damages would be an inadequate remedy therefor. Accordingly,
each party agrees that the other parties or any of them will be entitled to
an injunction, specific performance, and/or other equitable relief to
prevent the breach of such obligations.
Section 8.14 Publicity. The Investors or any of them will have
the right to publicize their investment in the Company as contemplated
hereby by means of a "tombstone" advertisement or other customary
advertisement in newspapers and other media.
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
PRT GROUP INC.
By: /s/ DAN WOODWARD
----------------------------
Name: Dan Woodward
Title: Chief Executive Officer
THE TRAVELERS INDEMNITY COMPANY
By: /s/ F. DENNY VOSS
----------------------------
Name: F. Denny Voss
Title: Senior Vice President
TUDOR INVESTMENT CORPORATION,
as Investment Advisor,
Tudor BVI Futures, Ltd.
By: /s/ ROBERT P. FORLENZA
----------------------------
Name: Robert P. Forlenza
Title: Managing Director
TUDOR GLOBAL TRADING, INC.,
as General Partner,
Tudor Arbitrage Partners L.P.
By: /s/ ROBERT P. FORLENZA
----------------------------
Name: Robert P. Forlenza
Title: Managing Director
TUDOR INVESTMENT CORPORATION,
as Investment Advisor,
The Raptor Global Portfolio Ltd.
By: /s/ ROBERT P. FORLENZA
----------------------------
Name: Robert P. Forlenza
Title: Managing Director
EFG EUROFINANCIAL INVESTMENT
COMPANY
By: /s/ GEORGE CATSIAPIS
----------------------------
Name: George Catsiapis
Title: Managing Director
Schedule 1.1
Investors: Securities Purchased:
--------- --------------------
Tudor BVI Global Portfolio Ltd. 1,942,769 Shares and
Warrants to purchase 971,385
shares of Common Stock
Raptor Global Portfolio Ltd. 1,210,497 Shares and
Warrants to purchase 605,248
shares of Common Stock
Tudor Arbitrage Partners L.P. 596,734 Shares and
Warrants to purchase 298,367
shares of Common Stock
Tudor aggregate price: $3,750,000
----------
The Travelers Indemnity Company
3,750,000 Shares and Warrants to purchase 1,875,000
shares of Common Stock
Travelers aggregate price: $3,750,000
----------
EFG Eurofinancial Investment Company 500,000 Shares and
Warrants to purchase 250,000
shares of Common Stock
Eurofinancial aggregate price: $500,000
--------
Aggregate investment: $8,000,000
==========
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
PRT GROUP INC.
_________________________________________
Pursuant to Section 242 of the General
Corporation Law of the State of Delaware
_________________________________________
PRT Group Inc., a Delaware corporation (hereinafter called the
"Corporation"), does hereby certify as follows:
FIRST: Article FOURTH of the Corporation's Certificate of
Incorporation is hereby amended to read in its entirety as set forth below:
FOURTH: (a) Authorized Capital Stock. The total number of shares
of stock which the Corporation shall have authority to issue is
61,000,000 shares of capital stock, consisting of (i) 50,000,000
shares of voting common stock, par value $.001 per share (the "Voting
Common Stock"), (ii) 1,000,000 shares of non-voting common stock, par
value $.001 per share (the "Non-Voting Common Stock" and, together
with the Voting Common Stock, the "Common Stock"), and (iii)
10,000,000 shares of preferred stock, par value $.001 per share (the
"Preferred Stock"). The Preferred Stock shall consist of (1)
8,000,000 shares of Series A Convertible Preferred Stock, par value
$.001 per share (the "Series A Preferred Stock") with such rights as
are set forth below under "Description and Designation of Series A
Preferred Stock", and (2) 2,000,000 shares of such Preferred Stock,
par value $.001 per share, as may be established by the Board of
Directors as set forth under "Additional Series of Preferred Stock",
below.
Description and Designation of Series A Preferred Stock
Section 1. Designation and Number.
Section 1.1 Designation. There is hereby created out of the
authorized and unissued shares of Preferred Stock a series of preferred
stock designated as the "Series A Senior Participating Convertible
Preferred Stock" (the "Series A Preferred Stock"). The maximum number of
shares constituting the Series A Preferred Stock shall be 8,000,000 shares.
Section 2. Priority.
Section 2.1 Priority. The Series A Preferred Stock shall rank,
with respect to the payment of dividends and other distributions, and
distribution of assets upon liquidation, dissolution, or winding up,
whether voluntary or involuntary, and redemption whether now or hereafter
issued, senior to (a) the common stock, par value $.001 per share, of the
Corporation (the "Common Stock"), (b) the non-voting common stock, par
value $.001 per share, of the Corporation, (c) any other class or series of
preferred stock of the Corporation established by the Board of Directors
and (d) any other equity securities of the Corporation (all of such equity
securities of the Corporation to which the Series A Preferred Stock ranks
senior, including the Common Stock, are at all times collectively referred
to herein as the "Junior Securities").
Section 2.2 Parity Stock. "Parity Stock" shall mean any capital
stock of the Corporation ranking senior to or on a parity (either as to
dividends and other distributions, registration rights, or upon
liquidation, dissolution or winding up of the Corporation or on redemption
thereof) with the Series A Preferred Stock. So long as any Series A
Preferred Stock is outstanding, the Corporation shall not issue any capital
stock of the Corporation ranking senior to or on a parity (either as to
dividends and other distributions, registration rights, upon liquidation,
dissolution or winding up of the Corporation or in any other manner) with
the Series A Preferred Stock.
Section 3. Dividends and Distributions.
Section 3.1 Dividends.
(a) So long as any shares of Series A Preferred Stock are
outstanding, without the prior approval of the holders of 70% of the shares
of Series A Preferred Stock then outstanding (voting or consenting in
writing as a separate class), the Corporation shall not declare, pay or set
apart for payment any dividend on any of the Junior Securities or make any
payment on account of, or set apart for payment, money or establish a
sinking or other similar fund for, the purchase, redemption, retirement or
other acquisition of, or otherwise acquire for value, any of the Junior
Securities or any warrants, rights, calls or options exercisable for any of
the Junior Securities, or make any distribution in respect thereof, either
directly or indirectly, whether in cash, obligations or shares of the
Corporation or other property, and shall not purchase or redeem, or permit
any other entity directly or indirectly controlled by the Corporation to
purchase or redeem, any of the Junior Securities or any warrants, rights,
calls or options exercisable for any of the Junior Securities.
(b) In addition to the provisions of paragraph (a), above, in
case the Corporation shall at any time or from time to time declare, order,
pay or make a dividend or other distribution (including, without
limitation, any dividend or other distribution of stock or other securities
or property or rights, options or warrants to subscribe for or otherwise
acquire securities or other property of the Corporation or any of its
Subsidiaries) on or in respect of its Common Stock, then in each such case,
the holder of shares of Series A Preferred Stock shall be entitled to
receive from the Corporation, with respect to each share of Series A
Preferred Stock held, the same dividend or other distribution (in terms of
the kind and amount of shares of stock and other securities or property,
rights or assets, including cash) received by a holder of the number of
shares of Common Stock into which such share of Series A Preferred Stock is
convertible on the record date for such dividend or other distribution.
Such dividends shall be payable at the earlier of (i) at the close of
business on the date specified as the payment date for such dividend or
distribution by the Board of Directors of the Corporation at the time any
such dividend or distribution is declared, (ii) the time any liquidating
distribution is made to the holders of the Series A Preferred Stock and
(iii) immediately prior to the time the shares of Series A Preferred Stock
are converted pursuant to Section 7 hereof.
Section 3.2 No Additional Dividends. The holders of shares of
Series A Preferred Stock shall not be entitled to receive any dividends or
other distributions, except as provided herein.
Section 4. Liquidation, Dissolution or Winding Up, etc.
Section 4.1 Liquidation Preference.
(a) Upon any voluntary or involuntary liquidation, dissolution
or winding-up of the Corporation, or if the Corporation shall commence a
voluntary case under the Federal bankruptcy laws or any other applicable
bankruptcy, insolvency or similar law, or consent to the entry of an order
for relief in an involuntary case under any such 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, or appointing a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or 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 90 consecutive
days and on account of any such event the Corporation shall liquidate,
dissolve or wind up, no distribution shall be made to the holders of shares
of Junior Securities unless, prior thereto, the holders of shares of Series
A Preferred Stock shall have received the Liquidation Preference, with
respect to each share of Series A Preferred Stock. If, upon any
liquidation, dissolution or winding up of the Corporation, the assets of
the Corporation, or the proceeds thereof, distributable among the holders
of the shares of Series A Preferred Stock shall be insufficient to pay in
full the Liquidation Preference, then such assets, or the proceeds thereof,
shall be distributable ratably among the holders of shares of Series A
Preferred Stock in accordance with the respective amounts that would be
payable on such shares of Series A Preferred Stock if all amounts payable
thereon were paid in full. "Liquidation Preference" shall mean $1.00 per
share (as adjusted from time to time on the occurrence of an Adjustment
Event) of Series A Preferred Stock (the "Stated Value"), plus an amount
equal to all unpaid dividends or other distributions thereon.
(b) After any such payment pursuant to Section 4.1(a) shall have
been made in full to such holders of such securities, or funds necessary
for such payment shall have been set aside by the Corporation in trust for
the exclusive benefit of such holders of such securities so as to be
available for such payment, any assets remaining available for distribution
shall be distributed to the holders of Series A Preferred Stock and Common
Stock of the Corporation, pro rata based on the number of shares of Common
Stock to which the holders of the Series A Preferred Stock would then be
entitled upon conversion of such shares.
(c) Non-Cash Distributions. In the event of a liquidation,
dissolution, or winding-up of the Corporation resulting in the availability
of assets other than cash for distribution to the holders of shares of
Series A Preferred Stock, the holders of Series A Preferred Stock shall be
entitled to a distribution of cash and/or other assets equal in value to
the relative Liquidation Preference and other distribution rights stated in
Sections 4.1(a) and (b). If such distribution to the holders of shares of
Series A Preferred Stock shall include any assets other than cash, the
Board of Directors shall first determine in good faith and with due care
the value of such assets for such purpose, and shall notify all holders of
shares of Series A Preferred Stock of such determination. The value of
such assets for purposes of the distribution under this Section 4.1(c)
shall be the value as so determined by the Board of Directors, unless the
holders of a majority of the outstanding shares of Series A Preferred Stock
shall object thereto in writing within 15 days after the date of such
notice.
(d) Dispute Resolution Procedures. In the event of such
objection pursuant to the provisions of the last sentence of Section
4.1(c), above, the valuation of such assets for purposes of such
distribution shall be determined by an arbitrator mutually agreed upon and
selected by the objecting stockholders and the Board of Directors, or in
the event a single arbitrator cannot be agreed upon within 10 days after
the written objection sent by the objecting stockholders in accordance with
subsection (c), the valuation of such assets shall be determined by an
arbitration in which (i) the objecting stockholders shall name in their
notice of objection one arbitrator, (ii) the Board of Directors shall name
a second arbitrator within 15 days from the receipt of such notice,
(iii) the two arbitrators thus selected shall select a third arbitrator
within 15 days thereafter, and (iv) the three arbitrators thus selected
shall determine by majority vote the valuation of such assets within 15
days thereafter for purposes of such distribution. In the event the third
arbitrator is not selected as provided herein, then such arbitrator shall
be selected by the President of the American Arbitration Association
("AAA"). The costs of such arbitration shall be borne by the Corporation
or by the holders of Series A Preferred Stock (on a pro rata basis out of
the assets otherwise distributable to them) as follows: (i) if the
valuation as determined by the arbitrators is greater than 90% of the
valuation as determined by the Board of Directors, the holders of Series A
Preferred Stock shall pay the costs of the arbitration, and (ii) otherwise,
the Corporation shall bear the costs of the arbitration. The arbitration
shall be held in New York, New York, in accordance with the rules of the
AAA. The award made by the arbitrators shall be binding upon the
Corporation and the holders of all shares of Common Stock and Series A
Preferred Stock, no appeal may be taken from such award, and judgment
thereon may be entered in any court of competent jurisdiction.
Section 4.2 Deemed Liquidations by Holders of Series A Preferred
Stock. Upon the written election of the holders of seventy percent (70%)
of the outstanding shares of Series A Preferred Stock, (i) a consolidation
or merger of the Corporation with or into any other person(s) or
entity(ies) (other than a consolidation or merger in which the Corporation
is the surviving corporation and upon consummation of which the holders of
voting securities of the Corporation immediately prior to such transaction
continue to own, directly or indirectly, not less than a majority of the
voting securities of the Corporation, as the surviving corporation,
immediately following such transaction), (ii) a sale of all or
substantially all of the assets of the Corporation, (iii) a sale or other
disposition of more than 50% of the voting capital stock (in a single
transaction or series of related transactions) of the Corporation (whether
issued and outstanding, newly issued or from treasury, or any combination
thereof), or (iv) any other similar transaction, shall be regarded as a
liquidation, dissolution, or winding-up of the affairs of the Corporation
within the meaning of Section 4.1. Notwithstanding the foregoing, each
holder of Series A Preferred Stock shall have the right to elect the
benefits of the applicable provisions of Section 7 hereof in lieu of
receiving payment in liquidation, dissolution, or winding-up of the
Corporation pursuant to Section 4.1; and if the holders of seventy percent
(70%) of the outstanding shares of Series A Preferred Stock, as a class,
shall elect to avail themselves of the benefits of Section 4.1, such
holders may require that the holders of all outstanding shares of Series A
Preferred Stock shall be bound by the same election. For purposes of this
Section 4.2, a sale (whether in a single transaction or a series of related
transactions) of substantially all of the assets of the Corporation shall
mean the sale or other disposition, other than in the ordinary course of
business, of more than 50% of such assets, as determined by reference to
the fair market value of the Corporation.
Section 4.3 Deemed Partial Liquidations. The Corporation shall
give each holder of the Series A Preferred Stock at least ten (10) days
prior written notice of any sale, whether in a single transaction or in a
series of related transactions, of any asset or assets of the Corporation
(other than in the ordinary course of business) which constitute less than
all or substantially all of the assets of the Corporation (any such
transaction being a "Partial Liquidation"). Upon the written election of
the holders of seventy percent (70%) of the outstanding shares of Series A
Preferred Stock, the proceeds of any such Partial Liquidation shall be
distributed as provided in Section 4.1, above; provided, however, that (x)
the Liquidation Preference attributable to each share of Series A Preferred
Stock shall be reduced to the extent of any distributions to the holder
thereof by operation of this Section 4.3; and (y) except as set forth in
the immediately preceding clause (x), the provisions of this Section 4.3
shall not in any way impair the rights of the holders of shares of Series
Preferred Stock pursuant to the provisions of Section 4.1, above.
Section 5. Voting Rights.
The holder of each share of Series A Preferred Stock shall be
entitled to notice of any shareholders' meeting in accordance with the
regulations of the Corporation. In addition to any voting rights provided
by law, the holders of shares of Series A Preferred Stock shall have the
following voting rights:
Section 5.1 With Common Stock. So long as the Series A
Preferred Stock is outstanding, each share of Series A Preferred Stock
shall entitle the holder thereof to vote on all matters voted on by holders
of Common Stock, voting together as a single class with all other shares
entitled to vote at all meetings of the stockholders of the Corporation.
With respect to any such vote, each share of Series A Preferred Stock shall
entitle the holder thereof to cast the number of votes equal to the number
of votes which could be cast in such vote by a holder of the number of
shares of Common Stock of the Corporation into which each such share of
Series A Preferred Stock is convertible on the record date for such vote.
Section 5.2 As a Class.
(a) The affirmative vote of the holders of at least 70% of
the outstanding shares of Series A Preferred Stock, voting as a separate
class, in person or by proxy, at a special or annual meeting of
stockholders called for the purpose, shall be necessary to (i) authorize,
increase the authorized number of shares of, or issue (including on
conversion or exchange of any convertible or exchangeable securities or by
reclassification), any shares of any class or series of capital stock of
the Corporation ranking senior to, or on a parity with (as to dividends or
other distributions or the distribution of assets upon voluntary or
involuntary liquidation, dissolution or winding up or redemption), the
Series A Preferred Stock; (ii) increase the authorized number of shares of,
or issue (including on conversion or exchange of any convertible or
exchangeable securities or by reclassification) any shares of Series A
Preferred Stock; (iii) authorize, adopt or approve an amendment to the
Amended and Restated Certificate of Incorporation of the Corporation which
would decrease the aggregate number of authorized shares of Series A
Preferred Stock, increase or decrease the par or Stated Value of the shares
of Series A Preferred Stock, or alter or change the powers, preferences or
special rights of the shares of Series A Preferred Stock so as to affect
such shares of Series A Preferred Stock adversely; or (iv) reclassify any
Junior Securities into shares having any preference or priority as to
dividends or other distributions, registration rights or distribution of
assets upon liquidation, dissolution or winding up or any similar
transaction or as to redemption senior to or on a parity with any such
preference or priority of the Series A Preferred Stock.
(b) So long as any shares of Series A Preferred Stock are
outstanding, the Corporation shall not do nor shall it cause any of its
subsidiaries, if any, to do any of the following, nor alter, amend, modify
or terminate any provision of this Section 5.2(b), without the affirmative
vote or written consent of the holders of seventy percent (70%) of the
shares of Series A Preferred Stock (on an as converted basis), in addition
to the right of any other class or classes of capital stock to vote on such
matters and any other vote required by law, and any attempt to do so will
be null and void:
(i) Create or authorize the creation of, or authorize the
issuance of, any additional class(es) or series or shares of capital
stock, or any shares of any existing class(es) or series of capital
stock, senior or pari passu to the Series A Preferred Stock as to any
one or more of liquidation, dividends, redemption or registration
rights ("Senior Shares"), or create or authorize any obligation or
security convertible into Senior Shares.
(ii) Amend the Corporation's Certificate of Incorporation or the
bylaws of the Corporation so as to adversely affect the rights and
preferences of the Series A Preferred Stock (it being understood that
the authorization and/or issuance of any shares of any series of stock
or securities of the Corporation with preference or priority senior to
or on a parity with the Series A Preferred Stock as to any one or more
of dividends, redemption or the distribution of assets on liquidation,
dissolution or winding-up of the Corporation (as provided in Section
4.1 hereof) shall be deemed to affect adversely the rights and
preferences of the Series A Preferred Stock).
(iii) Become subject to any agreement that would restrict the
Corporation's performance of its obligations under the terms of this
Certificate of Designation, its bylaws, the Securities Purchase
Agreement or under any of the other "Transaction Documents" (as such
term is defined in the Securities Purchase Agreement).
(iv) Obligate itself to do any of the foregoing.
Section 5.3 Exercise. The foregoing rights of holders of shares
of Series A Preferred Stock to take any actions as provided in this Section
5 may be exercised at any annual meeting of stockholders or at a special
meeting of stockholders held for such purpose as hereinafter provided or at
any adjournment thereof, or by the written consent, delivered to the
Secretary of the Corporation, of the holders of the minimum number of
shares required to take such action.
So long as such right to vote continues (and unless such right
has been exercised by written consent of the minimum number of shares
required to take such action), the Chairman of the Board of the Corporation
may call, and, upon the written request of holders of record of 20% of the
outstanding shares of Series A Preferred Stock addressed to the Secretary
of the Corporation at the principal office of the Corporation, shall call a
special meeting of the holders of shares entitled to vote as provided
herein. Such meeting shall be held within 30 days after delivery of such
request to the Secretary, at the place and upon the notice provided by law
and in the By-laws of the Corporation for the holding of meetings of
stockholders.
Section 5.4 Quorum. At each meeting of stockholders at which
the holders of shares of Series A Preferred Stock shall have the right,
voting separately as a single class, to take any action, the presence in
person or by proxy of the holders of record of seventy percent (70%) of the
total number of shares of Series A Preferred Stock then outstanding shall
be necessary and sufficient to constitute a quorum. In the absence of a
quorum of the holders of shares of Series A Preferred Stock, if the holders
of Series A Preferred Stock are to vote separately as a single class, a
majority of the holders of such shares present in person or by proxy shall
have the power to adjourn the meeting as to the actions to be taken by the
holders of shares of Series A Preferred Stock from time to time and place
to place without notice other than announcement at the meeting until a
quorum shall be present.
Section 5.5 Votes. For the taking of any action as provided in
Section 5.2 by the holders of shares of Series A Preferred Stock, each such
holder shall have one vote for each share of such stock standing in his
name on the transfer books of the Corporation as of any record date fixed
for such purpose or, if no such date be fixed, at the close of business on
the Business Day (as defined in Section 11) next preceding the day on which
notice is given, or if notice is waived, at the close of business on the
Business Day next preceding the day on which the meeting is held or, if
such vote is by written consent, the date of such consent.
Section 6. Reacquired Shares. Any shares of Series A Preferred
Stock converted, purchased or otherwise acquired by the Corporation in any
manner whatsoever shall be retired and canceled promptly after the
acquisition thereof. All such shares of Series A Preferred Stock shall
upon their cancellation, and upon the filing of an appropriate certificate
with the Secretary of State of the State of Delaware, become authorized but
unissued shares of Preferred Stock of the Corporation, undesignated as to
series, and may be reissued as part of another series of Preferred Stock of
the Corporation subject to the conditions or restrictions on issuance set
forth herein.
Section 7. Conversion of Series A Preferred Stock.
Section 7.1 Right to Convert. Subject to and upon compliance
with the provisions of this Certificate of Designation, the holder of any
shares of Series A Preferred Stock shall have the right, at his option, at
any time (and from time to time) to convert each such share into a number
of fully paid and nonassessable shares of Common Stock (as such shares
shall then be constituted) determined by dividing the Stated Value for each
such share so converted by the Conversion Price (as hereinafter defined) in
effect at such time, by surrender of the shares so to be converted in the
manner provided in Section 7.2. Except as otherwise set forth herein, a
holder of Series A Preferred Stock is not entitled to any rights of a
holder of Common Stock until such holder has converted his Series A
Preferred Stock to Common Stock, and then only to the extent such Series A
Preferred Stock is deemed to have been converted to Common Stock under this
Section 7. Notwithstanding any other provisions hereof, no shares of Series
A Preferred Stock shall be converted into shares of Common Stock pursuant
to the provisions hereof without the consent of the holder thereof.
Section 7.2 Exercise of Conversion Privilege; Issuance of Common
Stock on Conversion; No Adjustment for Dividends. In order to exercise the
conversion privilege with respect to any Series A Preferred Stock, the
holder of any such share of Series A Preferred Stock to be converted in
whole or in part shall surrender such share of Series A Preferred Stock (or
mutually satisfactory affidavit of loss thereof), duly endorsed, at the
principal office of the Corporation, and shall give written notice of
conversion in a form which is acceptable to the Corporation to the office
or agency that the holder elects to convert such shares specified in said
notice. Such notice shall also state the name or names (with address) in
which the certificate or certificates for shares of Common Stock which
shall be issuable on such conversion shall be issued and shall be
accompanied by transfer taxes, if required pursuant to Section 7.7. Each
such share surrendered for conversion shall, unless the shares issuable on
conversion are to be issued in the same name as the registration of such
share of Series A Preferred Stock, be duly endorsed by, or be accompanied
by instruments of transfer in form satisfactory to the Corporation duly
executed by, the holder or his duly authorized attorney.
As promptly as practicable after satisfaction of the requirements
for conversion set forth above, subject to compliance with any restrictions
on transfer if shares issuable on conversion are to be issued in a name
other than that of the shareholder (as if such transfer were a transfer of
the shares so converted), the Corporation shall issue and shall deliver to
such holder at the address designated in the notice of conversion, a
certificate or certificates for the number of full shares issuable upon the
conversion of such shares in accordance with the provisions of this
Section 7 and a check or cash in respect of any fractional interest in
respect of a share of Common Stock arising upon such conversion, as
provided in Section 7. In case any certificate shall be surrendered for
partial conversion, the Corporation shall issue and deliver to the holder
of the certificate so surrendered, without charge to him, a new certificate
or certificates in an aggregate share amount equal to the unconverted
portion of the surrendered certificate.
Each conversion shall be deemed to have been effected as to any
such certificate on the date on which the requirements set forth above in
this Section 7.2 have been satisfied as to such certificate, and the person
in whose name any certificate or certificates for shares of Common Stock
shall be issuable upon such conversion shall be deemed to have become on
said date the holder of record of the shares represented thereby; provided,
however, that any such surrender on any date when the stock transfer books
of the Corporation shall be closed shall constitute the person in whose
name the certificates are to be issued as the record holder thereof for all
purposes on the next succeeding day on which such stock transfer books are
open, but such conversion shall be at the Conversion Price in effect on the
date upon which such Series A Preferred Stock shall have been surrendered.
Section 7.3 Cash Payments in Lieu of Fractional Shares. No
fractional shares of Common Stock or scrip representing fractional shares
shall be issued upon conversion of Series A Preferred Stock. If more than
one certificate for shares of Series A Preferred Stock shall be surrendered
for conversion at one time by the same holder, the number of full shares
which shall be issuable upon conversion shall be computed on the basis of
the aggregate shares of Series A Preferred Stock (or specified portions
thereof to the extent permitted hereby) so surrendered. If any fractional
share of stock would be issuable upon the conversion of any Series A
Preferred Stock, the Corporation shall make an adjustment therefor in cash
at the current market value thereof. The current market value of a share
of Common Stock shall be the Closing Price on the first Trading Day
immediately preceding the day on which the Series A Preferred Stock is
deemed to have been converted and such Closing Price shall be determined as
provided in Section 7.5.3.
Section 7.4 Conversion Price. The conversion price shall be
$1.00 (herein called the "Conversion Price") subject to adjustment as
provided in this Section 7 and as adjusted from time to time on the
occurrence of an Adjustment Event.
Section 7.5 Adjustment of Conversion Price. The Conversion
Price shall be adjusted from time to time by the Corporation as follows:
Section 7.5.1 In case outstanding shares of Common Stock shall
be subdivided into a greater number of shares of Common Stock, or if there
shall be any dividend on the outstanding Common Stock of shares of Common
Stock, the Conversion Price in effect on the day upon which such
subdivision becomes effective shall be proportionately reduced, and
conversely, in case outstanding shares of Common Stock shall be combined
into a smaller number of shares of Common Stock, the Conversion Price in
effect on the day upon which such combination becomes effective shall be
proportionately increased, such reduction or increase, as the case may be,
to become effective immediately upon the effectiveness of such subdivision
or combination. The circumstances under which adjustments to the Conversion
Price are to be made under this Section 7.5.1 are referred to herein as
"Extraordinary Common Stock Events."
Section 7.5.2 Except for adjustments made pursuant to Section
7.5.1 in the case of a combination of the shares of Common Stock into a
smaller number of shares, notwithstanding any other provision of the terms
of the Series A Preferred Stock, no adjustment made pursuant to this
Section 7.5 shall have the effect of increasing the then current Conversion
Price of the Series A Preferred Stock or decreasing the number of shares of
Common Stock issuable upon conversion of the Series A Preferred Stock.
Section 7.5.3 No adjustment to the Conversion Price need be made
for a change in the par value, or to or from no par value, of the Common
Stock.
Section 7.5.4 Adjustments for Dilutive Issues.
(i) (A) Except as otherwise provided below in this Section
7.5.4, and except with respect to an Extraordinary Common Stock Event,
adjustments in respect of which are provided for in Section 7.5.1, if at
any time while there are any shares of Series A Preferred Stock outstanding
the Company issues or is deemed to issue any additional shares of Common
Stock at a Net Consideration Per Share (as hereinafter defined) less than
the Conversion Price in effect immediately prior to such issuance or deemed
issuance, then, and in each such case, such Conversion Price will be
adjusted to equal the Net Consideration Per Share at which such additional
shares of Common Stock are issued and/or deemed issued.
(B) For the purposes of this Section 7.5.4, the
Corporation's issuance of shares of Common Stock upon exercise or
conversion of outstanding shares of Series A Preferred Stock, the Warrants
being issued pursuant to the Securities Purchase Agreement, or Derivative
Securities (as hereinafter defined) issued and outstanding as of the date
of filing of this Certificate of Designation (or Derivative Securities
which may hereinafter be issued with the unanimous approval of the holders
of the Series A Preferred Stock) shall not be deemed issuances of
additional shares of Common Stock.
For purposes of this Section 7.5.4, if a part or all of the
consideration received by the Corporation in connection with the issuance
or deemed issuance of shares of Common Stock or the issuance or deemed
issuance of any of the securities described below in paragraph (ii) of this
Section 7.5.4 consists of property other than cash, such consideration
shall be deemed to have the same value as is recorded on the books of the
Corporation with respect to receipt of such property so long as such
recorded value was determined reasonably and in good faith and with due
care by the Board of Directors of the Corporation, and shall otherwise be
deemed to have a value equal to its fair market value.
The Conversion Price, as so reduced, shall be further
reduced in the same manner upon the happening of any successive event or
events that cause reduction under this Section 7.5.4.
(ii) For purposes of this Section 7.5.4, the issuance of any
Derivative Securities shall be deemed an issuance of shares of Common Stock
if the Net Consideration Per Share that may be received by the Corporation
for such Common Stock is less than the Conversion Price in effect
immediately prior to the time of such issuance, and, except as hereinafter
provided, an adjustment in the Conversion Price shall be made upon each
such issuance of Derivative Securities as if such deemed issued shares of
Common Stock were issued for such Net Consideration Per Share. No
adjustment of the Conversion Price shall be made under this Section 7.5.4
upon the issuance of any additional shares of Common Stock that are issued
upon the exercise, conversion, or exchange of any Derivative Securities if
any such adjustment was previously made upon the issuance of such
Derivative Securities. Any adjustment of the Conversion Price with respect
to this Section 7.5.4 shall be disregarded if, as, and to the extent that
the Derivative Securities that gave rise to such adjustment expire or are
canceled without having been exercised, so that the Conversion Price
effective immediately upon such cancellation or expiration shall be equal
to the Conversion Price that otherwise would have been in effect
immediately prior to the time of the issuance of the expired or canceled
Derivative Securities, with such additional adjustments as subsequently
would have been made to that Conversion Price had the expired or canceled
Derivative Securities not been issued. In the event that the terms of any
Derivative Securities previously issued by the Corporation are changed
(whether by their terms or for any other reason, including without
limitation, as a result of the effects of any anti-dilution adjustments
contained therein) so as to lower the Net Consideration Per Share payable
with respect thereto (whether or not the issuance of such Derivative
Securities originally gave rise to an adjustment of the Conversion Price),
the Conversion Price shall be recomputed as of the date of such change, so
that the Conversion Price effective immediately upon such change shall be
equal to the Conversion Price in effect at the time of the issuance of the
Derivative Securities subject to such change, adjusted for the issuance
thereof in accordance with the terms thereof after giving effect to such
change, and with such additional adjustments as subsequently would have
been made to that Conversion Price had the Derivative Securities been
issued on such changed terms. For purposes of this Section 7.5.4, the Net
Consideration Per Share that may be received by the Corporation shall be
determined as follows:
(A) "Net Consideration Per Share" shall mean the amount equal to
the total amount of consideration, if any, received by the Corporation for
the issuance of such Derivative Securities or Common Stock, as the case may
be, plus, in the case of Derivative Securities, the minimum amount of
additional consideration, if any, payable to the Corporation upon exercise,
conversion, and/or exchange thereof for shares of Common Stock, divided by
the number of shares of Common Stock issued or the maximum number of shares
of Common Stock that would be issued if all such Derivative Securities were
exercised or converted, as the case may be.
(B) The Net Consideration Per Share that may be received by the
Corporation shall be determined in each instance as of the date of issuance
of Derivative Securities or Common Stock, as the case may be, without
giving effect to any possible future price adjustments or rate adjustments
that may be applicable with respect to such Derivative Securities and which
are contingent upon future events; provided, that in the case of an
adjustment to be made as a result of a change in terms of such Derivative
Securities, including such changes as may result from the effects of any
anti-dilution adjustments contained therein, the Net Consideration Per
Share shall be determined as of the date of such change.
For purposes of this Section 7.5.4, the term "Derivative
Securities" means (i) all shares of stock and other securities that are
convertible into or exchangeable for shares of Common Stock and (ii) all
options, warrants, and other rights to acquire shares of Common Stock or
securities convertible into or exchangeable for shares of Common Stock.
Section 7.6 Effect of Reclassification, Consolidation, Merger or
Sale. If any of the following events occur, namely (i) any
reclassification or change of outstanding shares of Common Stock (other
than a change in par value, or to or from no par value, as a result of a
subdivision or combination), (ii) any consolidation, merger, or combination
of the Corporation with another corporation as a result of which holders of
Common Stock shall be entitled to receive stock, securities or other
property or assets (including cash) with respect to or in exchange for such
Common Stock or (iii) any sale, lease or conveyance of the properties and
assets of the Corporation as, or substantially as, an entirety to any other
corporation as a result of which holders of Common Stock shall be entitled
to receive stock, securities or other property or assets (including cash)
with respect to or in exchange for such Common Stock, (each of the
foregoing being referred to as a "Transaction"), each share of Series A
Preferred Stock then outstanding shall thereafter be convertible into the
kind and amount of shares of stock and other securities or property or
assets (including cash) receivable upon such Transaction by a holder of a
number of shares of Common Stock issuable upon conversion of such share of
Series A Preferred Stock (assuming, for such purposes, a sufficient number
of authorized shares of Common Stock available to convert all such Series A
Preferred Stock) immediately prior to such Transaction.
Notwithstanding anything contained herein to the contrary, the
Corporation will not enter into or effect any Transaction unless, prior to
the consummation thereof, (i) the Surviving Person (as defined herein)
thereof shall assume, by written instrument mailed to each holder of shares
of Series A Preferred Stock if such shares are held by 50 or fewer holders
or groups of affiliated holders or to each transfer agent for the shares of
Series A Preferred Stock if such shares are held by a greater number of
holders, the obligation to deliver to such holder such stock, securities or
other property or assets (including cash) with respect to or in exchange
for Common Stock to which, in accordance with the foregoing provisions,
such holder is entitled and (ii) proper provision is made to ensure that
the holders of shares of Series A Preferred Stock will be entitled to
receive the benefits afforded by this Section 7.6. Such written instrument
should provide for adjustments and other rights and provisions which shall
be equivalent to the adjustments and other rights and provisions provided
for in this Section 7.6.
The above provisions of this Section shall similarly apply to
successive reclassifications, changes, consolidations, mergers,
combinations, sales, leases and conveyances.
Section 7.7 Transfer or Similar Taxes on Shares Issued. The
issue of stock certificates on conversions of Series A Preferred Stock
shall be made without charge to the converting holder of Series A Preferred
Stock for any transfer or similar tax in respect of the issue thereof. The
Corporation shall not, however, be required to pay any such tax which may
be payable in respect of any transfer involved in the issue and delivery of
stock in any name other than that of the holder of any Series A Preferred
Stock converted, and the Corporation shall not be required to issue or
deliver any such stock certificate unless and until the person or persons
requesting the issue thereof shall have paid to the Corporation the amount
of such tax or shall have established to the satisfaction of the
Corporation that such tax has been paid.
Section 7.8 Reservation of Shares; Shares to Be Fully Paid;
Registration and Listing of Common Stock. The Corporation shall provide,
free from preemptive rights, out of its authorized but unissued shares or
shares held in treasury, sufficient shares to provide for the conversion of
the Series A Preferred Stock from time to time as such Series A Preferred
Stock is presented for conversion.
Before taking any action which would cause an adjustment reducing
the Conversion Price below the then par value, if any, of the shares of
Common Stock issuable upon conversion of the Series A Preferred Stock, the
Corporation will take all corporate action which may be necessary in order
that the Corporation may validly and legally issue shares of such Common
Stock at such adjusted Conversion Price.
The Corporation covenants that all shares of Common Stock which
may be issued upon conversion of Series A Preferred Stock will, upon issue,
be fully paid and nonassessable by the Corporation and free from all
transfer or similar taxes as described in Section 7.7 or liens and charges
with respect to the issue thereof.
The Corporation covenants that all shares of Common Stock which
may be issued upon conversion of Series A Preferred Stock constitute
"Registrable Securities" under Article VII of the Securities Purchase
Agreement. The Corporation further covenants that, if at any time the
Common Stock shall be listed on the Nasdaq National Market or any other
securities exchange, the Corporation will use its best efforts to list and
keep listed, so long as the Common Stock shall be so listed on such
exchange, all Common Stock issuable upon conversion of the Series A
Preferred Stock.
Section 7.9 Notice to Stockholders Prior to Certain Actions. In
case:
(a) the Corporation takes any action that would result in a
Transaction or declares any dividend or other distribution or takes any
other action that would result in an adjustment to the Conversion Price; or
(b) of the voluntary or involuntary dissolution, liquidation or
winding up of the Corporation,
the Corporation shall cause to be mailed to each holder of Series A
Preferred Stock at his address appearing on the books of the Corporation,
as promptly as possible but in any event at least 15 days prior to the
record date with respect to such action, a notice stating the date on which
any Transaction, dividend or other distribution, or transaction requiring
such an adjustment or dissolution, liquidation or winding up, is expected
to become effective or occur and the date as of which it is expected that
holders of record of Common Stock shall be entitled to exchange their
Common Stock for securities or other property deliverable upon such
Transaction or dissolution, liquidation or winding up, or receive any such
dividend or other distribution or the date on which any such adjustment is
expected to become effective.
Section 8. Reports as to Adjustments. Upon any adjustment
of the Conversion Price then in effect and any increase or decrease in the
number of shares of Common Stock issuable upon the operation of the
conversion set forth in Section 7 then, and in each such case, the
Corporation shall promptly deliver to the transfer agent for the Series A
Preferred Stock and the transfer agent for the Common Stock, a certificate
signed by the President or a Vice President and by the Treasurer or an
Assistant Treasurer or the Secretary or an Assistant Secretary of the
Corporation setting forth in reasonable detail the event requiring the
adjustment and the method by which such adjustment was calculated and
specifying the Conversion Price then in effect following such adjustment
and the increased or decreased number of shares issuable upon the
conversion set forth in Section 7. The Corporation shall also promptly
after the making of such adjustment give written notice to the registered
holders of the Series A Preferred Stock at the address of each holder as
shown on the books of the Corporation maintained by the transfer agent
thereof, which notice shall state the Conversion Price then in effect, as
adjusted, and the increased or decreased number of shares issuable upon the
exercise of the right of conversion granted by Section 7, and shall set
forth in reasonable detail the method of calculation of each with a brief
statement of the facts requiring such adjustment. Where appropriate, such
notice to holders of the Series A Preferred Stock may be given in advance
and included as part of the notice required under the provisions of Section
7.9.
Section 9. Certain Covenants. Any registered holder of
Series A Preferred Stock may proceed to protect and enforce its rights and
the rights of such holders by any available remedy by proceeding at law or
in equity to protect and enforce any such rights, whether for the specific
enforcement of any provision in this Certificate of Designation or in aid
of the exercise of any power granted herein, or to enforce any other proper
remedy.
Section 10. Redemption.
(a) The Corporation shall not have the right to redeem any
shares of the Series A Preferred Stock without the prior written consent of
the holder thereof.
(b) On and after April 15, 2005, each holder of Series A
Preferred Stock shall have the right, at such holder's option, to require
the Corporation to redeem from time-to-time all or any part of such
holder's Series A Preferred Stock for cash at a price equal to the
Liquidation Preference (as adjusted from time to time on the occurrence of
an Adjustment Event and subject to reduction pursuant to Section 4.3
hereof) plus all accrued and unpaid dividends thereon (the "Optional
Redemption Rights"). In order for a holder of Series A Preferred Stock to
exercise the Optional Redemption Rights, such holder must deliver an
executed redemption notice, in a form reasonably acceptable to the
Corporation, together with certificates duly endorsed to the Corporation or
in blank of shares of Series A Preferred Stock with respect to which a
holder has exercised the Optional Redemption Right to the Corporation.
(c) Insufficient Funds. If the Corporation does not have
sufficient funds legally available to redeem the shares of Series A
Preferred Stock for which redemption is required pursuant to Section 10(b),
above, then it shall, prior to redeeming any other series or class of the
equity securities of the Corporation, to the maximum lawful extent redeem
such shares of Series A Preferred Stock on a pro rata basis among the
Series A Preferred stockholders in proportion to the number of shares held
by each of them, and shall redeem the remaining shares to be redeemed as
soon as sufficient funds are legally available.
(d) Mechanics of Redemption. Each holder of outstanding
shares of Series A Preferred Stock shall promptly surrender the certificate
or certificates (or affidavit(s) of loss thereof) representing such shares
to the Corporation at the Corporation's principal executive office, and
thereupon the Corporation shall pay the portion of the redemption price for
such shares to be paid as described in Section 10(b), above, in immediately
available funds, by wire transfer to an account designated by the holder of
such shares or by certified or bank check payable to the order of such
holder. Each stock certificate surrendered for redemption shall be
canceled and retired.
(e) Ranking. At no time shall the Corporation redeem shares
of any other series of equity securities (including without limitation any
shares of Preferred Stock, Junior Securities, or Parity Stock) of the
Corporation or pay the applicable redemption price for or make any other
payment on shares of any other series of equity securities of the
Corporation to holders of such other series of equity securities so long as
any shares of Series A Preferred Stock are outstanding and have not been
redeemed.
Section 11. Definitions. For the purposes of this
Certificate of Designation of Series A Preferred Stock, the following terms
shall have the meanings indicated:
Adjustment Event shall have the meaning ascribed to such term
in the Securities Purchase Agreement.
Business Day shall mean a day, other than a Saturday, a
Sunday or other day on which the banking institutions in the State of New
York or Delaware are authorized or obligated by law or executive order to
close or a day which is declared a national or New York, or Delaware state
holiday.
Corporation: The term "Corporation" shall mean PRT Group
Inc. a Delaware corporation.
Conversion Price: The term "Conversion Price" shall have the
meaning specified in Section 7.4.
Junior Securities: The term "Junior Securities" shall have
the meaning set forth in Section 2.1.
Parity Stock: The "Parity Stock" shall have the meaning set
forth in Section 2.2.
person: The terms "person" shall mean a corporation, an
association, a partnership, an individual, a joint venture, a joint stock
company, a trust, an unincorporated organization or a government or an
agency or a political subdivision thereof.
Securities Purchase Agreement shall mean the Securities
Purchase Agreement to be entered into between the Corporation and the
Investors named therein providing for, among other things, the issuance of
shares of the Series A Preferred Stock authorized hereby.
subsidiary: The term "subsidiary" of any specified person
shall mean (i) a corporation a majority of whose capital stock with voting
power under ordinary circumstances, to elect directors is at the time
directly or indirectly owned by such person or (ii) any other person (other
than a corporation) in which such person or a subsidiary or subsidiaries of
such person directly or indirectly, at the date of determination thereof,
has at least majority ownership.
Surviving Person shall mean the continuing or surviving
person of a merger, consolidation or other corporate combination, the
person receiving a transfer of all or substantially all of the properties
and assets of the Corporation, or the person consolidating with or merging
into the Corporation in a merger, consolidation or other combination in
which the Corporation is the continuing or surviving person, but in
connection with which Series A Preferred Stock or Common Stock of the
Corporation is exchanged, converted or reinstated into the securities of
any other person or cash or any other property.
SECOND: The foregoing amendment was duly adopted in
accordance with Section 242 of the General Corporation Law of the State of
Delaware.
IN WITNESS WHEREOF, PRT Group Inc. has caused this
Certificate to be duly executed in its corporate name this 12th day of
April, 2000.
PRT GROUP INC.
By: __________________________
Name: Dan S. Woodward
Title: Chief Executive Officer
THE WARRANT REPRESENTED HEREBY HAS NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE SECURITIES LAWS AND
NEITHER SUCH WARRANT NOR ANY INTEREST HEREIN MAY BE TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT AND
SUCH LAWS AND THE RULES AND REGULATIONS THEREUNDER.
WARRANT EXERCISABLE FOR
SHARES OF COMMON STOCK
OF PRT GROUP INC.
THIS CERTIFICATE REPRESENTS A WARRANT EXERCISABLE FOR
________ SHARES OF COMMON STOCK
This certifies that _________, a _________ corporation
("Holder"), for value received, is entitled to receive from PRT Group Inc.,
a Delaware corporation (the "Company"), upon exercise of this Warrant up to
______shares of common stock, par value $.001 per share, of the Company
(the "Common Stock") upon the terms and subject to the conditions set forth
herein. This Warrant has been issued pursuant to the Securities Purchase
Agreement, dated as of April 13, 2000, among the Company and the Investors
named therein (the "Purchase Agreement"). The total number of shares of
Common Stock issuable hereunder is ________, subject to adjustment as set
forth herein.
This Warrant is subject to the following terms and conditions:
Section 1. Exercise; Issuance of Certificates. This Warrant is
exercisable at the option of Holder at any time and from time to time on or
after the date hereof but not later than April 15, 2005 (the "Expiration
Date") for all or a portion of the shares of Common Stock which may be
received hereunder. Upon any exercise of this Warrant, the Company shall
issue and deliver to Holder such number of shares of Common Stock as may be
determined pursuant to the terms hereof. Subject to the provisions of
Section 2 hereof, certificates for such shares of Common Stock, together
with any other securities or property to which Holder is entitled upon such
exercise, shall be delivered to Holder by the Company or the Company's
transfer agent at the Company's expense within a reasonable time (but in no
event more than five days) after the rights represented by this Warrant
have been exercised. Each stock certificate so delivered shall be in such
denominations of Common Stock as may be requested by Holder and in such
names as shall be designated by Holder. Upon such exercise any portion of
this Warrant so exercised shall no longer be deemed to be outstanding.
Section 2. Exercise of Warrant.
Section 2.1 Right to Exercise. Subject to and upon compliance
with the provisions of this Warrant, the holder of this Warrant shall have
the right, at its option, at any time (and from time to time) to exercise
such Warrant for up to _____ fully paid and nonassessable shares of Common
Stock (as such shares shall then be constituted), or any portion thereof,
subject to adjustment as set forth in Section 2.5 hereof, by surrender of
this Warrant to be exercised in the manner provided in Section 2.2 hereof.
Except as otherwise set forth herein, a holder of this Warrant shall not be
entitled to any rights of a holder of Common Stock until such holder has
exercised this Warrant in accordance with its terms, and only to the extent
this Warrant is deemed to have been exercised for shares of Common Stock
under this Section 2.
Section 2.2 Exercise; Issuance of Common Stock on Exercise; No
Adjustment for Dividends. In order to exercise this Warrant, or any
portion thereof, the holder shall surrender this Warrant, along with a
completed form of the Notice of Exercise attached hereto, duly executed, at
the principal office of the Company, along with a check in the amount of
the Exercise Price for the number of shares of Common Stock being acquired
hereunder, or by cashless exercise pursuant to Section 4 hereof, and the
amount of any transfer taxes, if required pursuant to Section 2.7 hereof.
Unless the shares issuable upon exercise are to be issued in the same name
as that upon the face of this Warrant, this Warrant must be duly endorsed
by, or be accompanied by instruments of transfer in form satisfactory to
the Company duly executed by, the original holder hereof or its duly
authorized attorney.
As promptly as practicable after satisfaction of the requirements
for exercise set forth above, subject to compliance with any restrictions
on transfer if shares issuable on exercise which are to be issued in a name
other than that of the holder, the Company shall issue and shall deliver to
such holder at the address designated in the Notice of Exercise, a
certificate or certificates for the number of full shares issuable upon the
exercise hereof in accordance with the provisions of this Section 2 and a
check or cash in respect of any fractional interest in respect of a share
of Common Stock arising upon such exercise, as provided below. In case any
certificate shall be surrendered for partial exercise, the Company shall
issue and deliver to the holder of this Warrant certificate so surrendered,
without charge to him, a new certificate or certificates in an aggregate
share amount equal to the unexercised portion hereof.
Each exercise shall be deemed to have been effected on the date
on which the requirements set forth above in this Section 2.2 have been
satisfied, and the person in whose name any certificate or certificates for
shares of Common Stock shall be issuable upon such exercise shall be deemed
to have become on said date the holder of record of the shares represented
thereby; provided, however, that any such exercise on any date when the
stock transfer books of the Company shall be closed shall constitute the
person in whose name the certificates are to be issued as the record holder
thereof for all purposes on the next succeeding day on which such stock
transfer books are open, but such exercise shall be at the Exercise Price
in effect on the date upon which this Warrant shall have been surrendered.
Section 2.3 Cash Payments in Lieu of Fractional Shares. No
fractional shares of Common Stock or scrip representing fractional shares
shall be issued upon exercise of this Warrant. If any fractional share of
stock would be issuable upon the exercise hereof, the Company shall make an
adjustment therefor in cash at the current market value thereof. The
current market value of a share of Common Stock shall be the closing
trading price of the Common Stock on the NASDAQ National Market, or any
other exchange or market on which the Common Stock may then trade, on the
first Trading Day immediately preceding the day on which this Warrant is
deemed to have been exercised.
Section 2.4 Exercise Price. The Exercise Price shall be $1.00
per share of Common Stock, subject to adjustment as provided in Section
2.5.
Section 2.5 Adjustment of Exercise Price and Number of Shares
Issuable Hereunder. The Exercise Price and number of shares of Common
Stock issuable hereunder shall be adjusted from time to time by the Company
as follows:
Section 2.5.1 Upon the occurrence of an "Adjustment Event" (as
such term is defined in the Purchase Agreement), (i) the Exercise Price in
effect at the opening of business on the day following the day upon which
such subdivision becomes effective shall be proportionately adjusted, and
(ii) the number of shares of Common Stock issuable hereunder shall be
proportionately adjusted. Such reduction or increase, as the case may be,
shall become effective immediately after the opening of business on the day
following the day upon which such subdivision or combination becomes
effective.
Section 2.5.2 Except for adjustments made pursuant to Section
2.5.1 in the case of a combination of the shares of Common Stock into a
smaller number of shares, notwithstanding any other provision of the terms
hereof, no adjustment made pursuant to this Section 2.5 shall have the
effect of increasing the then current Exercise Price or decreasing the
number of shares of Common Stock issuable upon exercise of this Warrant.
Section 2.5.3 No adjustment to the Exercise Price need be made
for a change in the par value, or to or from no par value, of the Common
Stock.
Section 2.5.4 To the extent this Warrant becomes exercisable for
cash, assets, property or securities (other than Common Stock of the
Company), no adjustment need be made thereafter as to the cash, assets,
property or such securities (except as such securities may otherwise by
their terms provide), and interest shall not accrue on such cash.
Section 2.6 Effect of Reclassification, Consolidation, Merger or
Sale. If any of the following events occur, namely (i) any
reclassification or change of outstanding shares of Common Stock (other
than a change in par value, or to or from no par value, as a result of a
subdivision or combination), (ii) any consolidation, merger, or combination
of the Company with another corporation as a result of which holders of
Common Stock shall be entitled to receive stock, securities or other
property or assets (including cash) with respect to or in exchange for such
Common Stock or (iii) any sale, lease or conveyance of the properties and
assets of the Company as, or substantially as, an entirety to any other
corporation as a result of which holders of Common Stock shall be entitled
to receive stock, securities or other property or assets (including cash)
with respect to or in exchange for such Common Stock, (each of the
foregoing being referred to as a "Transaction"), this Warrant shall
thereafter be exercisable into the kind and amount of shares of stock and
other securities or property or assets (including cash) receivable upon
such Transaction by a holder of the total number of shares of Common Stock
issuable upon exercise of this Warrant (assuming, for such purposes, a
sufficient number of authorized shares of Common Stock available for such
exercise) immediately prior to such Transaction, assuming each holder of
Common Stock did not exercise its rights of election, if any, as to the
kind or amount of securities, cash or other property receivable upon such
Transaction (provided that, if the kind or amount of securities, cash or
other property receivable upon such Transaction is not the same for each
share of Common Stock in respect of which such rights of election shall not
have been exercised ("non-electing share"), then for the purposes of this
Section 2.6 the kind and amount of securities, cash or other property
receivable upon such Transaction for each non-electing share shall be
deemed to be the kind and amount so receivable per share by a plurality of
the non-electing shares).
Notwithstanding anything contained herein to the contrary, the
Company will not enter into or effect any Transaction unless, prior to the
consummation thereof, (i) the Surviving Person (as defined herein) thereof
shall assume, by written instrument mailed to the holder of this Warrant,
the obligation to deliver to such holder such stock, securities or other
property or assets (including cash) with respect to or in exchange for
Common Stock to which, in accordance with the foregoing provisions, such
holder is entitled and (ii) proper provision is made to ensure that the
holder of this Warrant will be entitled to receive the benefits afforded by
this Section 2.6. Such written instrument should provide for adjustments
and other rights and provisions which shall be equivalent to the
adjustments and other rights and provisions provided for in this Section
2.6.
The above provisions of this Section shall similarly apply to
successive reclassifications, changes, consolidations, mergers,
combinations, sales, leases and conveyances.
Section 2.7 Transfer or Similar Taxes on Shares Issued. The
issue of stock certificates on exercise of this Warrant shall be made
without charge to the exercising holder for any transfer or similar tax in
respect of the issue thereof; provided, that the Company shall not,
however, be required to pay any such tax which may be payable in respect of
any transfer involved in the issue and delivery of stock in any name other
than that of the holder of this Warrant, and the Company shall not be
required to issue or deliver any such stock certificate unless and until
the person or persons requesting the issue thereof shall have paid to the
Company the amount of such tax or shall have established to the
satisfaction of the Company that such tax has been paid.
Section 2.8 Reservation of Shares; Shares to Be Fully Paid;
Registration and Listing of Common Stock. The Company shall provide, free
from preemptive rights, out of its authorized but unissued shares or shares
held in treasury, sufficient shares to provide for the exercise of this
Warrant from time to time as such Warrant is presented for exercise.
Before taking any action which would cause an adjustment reducing
the Exercise Price below the then par value, if any, of the shares of
Common Stock issuable upon exercise of this Warrant, the Company will take
all corporate action which may, in the opinion of its counsel, be necessary
in order that the Company may validly and legally issue shares of such
Common Stock at such adjusted Exercise Price.
The Company covenants that all shares of Common Stock which may
be issued upon exercise of this Warrant will, upon issue in accordance
herewith, be fully paid and nonassessable by the Company and free from all
transfer or similar taxes, except as otherwise described in Section 2.7, or
liens and charges with respect to the issue thereof.
The Corporation covenants that all shares of Common Stock which
may be issued upon exercise of this Warrant constitute "Registrable
Securities" under Article VII of the Securities Purchase Agreement. The
Company further covenants that, if at any time the Common Stock shall be
listed on the Nasdaq National Market or any other securities exchange, the
Company will, if permitted by the rules of such exchange, list and keep
listed, so long as the Common Stock shall be so listed on such exchange,
all Common Stock issuable upon exercise of this Warrant.
Section 2.9 Notice to Stockholders Prior to Certain Actions. In
case:
(a) the Company takes any action that would result in a
Transaction or declares any dividend or other distribution or takes any
other action that would result in an adjustment to the Exercise Price or
the number of shares of Common Stock issuable hereunder; or
(b) of the voluntary or involuntary dissolution, liquidation or
winding up of the Company,
the Company shall cause to be mailed to the holder hereof at its address
appearing on the books of the Company, as promptly as possible but in any
event at least 15 days prior to the applicable shareholder record date, a
notice stating the date on which any Transaction dividend or other
distribution, or transaction requiring such an adjustment or dissolution,
liquidation or winding up is expected to become effective or occur and the
date as of which it is expected that holders of record of Common Stock
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon such Transaction or dissolution, liquidation or
winding up, or receive any such dividend or other distribution or the date
on which any such adjustment is expected to become effective.
Section 3. Reports as to Adjustments. Upon any adjustment
of the Exercise Price then in effect and any increase or decrease in the
number of shares of Common Stock issuable upon the exercise hereof then,
and in each such case, the Company shall promptly deliver to the holder
hereof and the transfer agent for the Common Stock, a certificate signed by
the President or a Vice President and by the Treasurer or an Assistant
Treasurer or the Secretary or an Assistant Secretary of the Company setting
forth in reasonable detail the event requiring the adjustment and the
method by which such adjustment was calculated and specifying the Exercise
Price then in effect following such adjustment and the increased or
decreased number of shares issuable upon the exercise hereof. The Company
shall also promptly after the making of such adjustment give written notice
to the holder of this Warrant at the address of each holder as shown on the
books of the Company maintained by the transfer agent thereof, which notice
shall state the Exercise Price then in effect, as adjusted, and the
increased or decreased number of shares issuable upon the exercise hereof,
and shall set forth in reasonable detail the method of calculation of each
with a brief statement of the facts requiring such adjustment. Where
appropriate, such notice may be given in advance and included as part of
the notice required under the provisions of Section 2.9.
Section 4. Cashless Exercise. Notwithstanding any provisions
herein to the contrary, if the fair market value of a share of the
Company's Common Stock is greater than the Exercise Price (at the date of
calculation as set forth below), in lieu of exercising the Warrant for cash,
the holder may elect to receive shares equal to the value (as determined
below) of the Warrant (or portion thereof being exercised) by surrender of
the Warrant at the principal office of the Company together with the duly
executed Notice of Exercise indicating such election in which event the
Company shall issue to the holder a number of shares of the Common Stock
computed using the following formula:
X = Y(A-B)
------
A
WHERE X = the number of shares of Common Stock to be issued to
the Holder;
Y = the number of shares of the Common Stock purchasable under
this Warrant or, if only a portion of the Warrant is being exercised, the
portion of the Warrant being exercised (at the date of such calculation);
A = the fair market value of one share of the Company's Common
Stock (at the date of such calculation); and
B = Exercise Price (at the date of such calculation).
For purposes of the above calculation, fair market value of one share of
the Common Stock shall be equal to the closing trading price of the Common
Stock on the NASDAQ National Market, or any other exchange or market on
which the Common Stock may then trade, on the day immediately prior to the
date the Notice of Exercise is tendered to the Company. However, if the
Common Stock is not listed on a national securities exchange, the Nasdaq
National Market or another nationally recognized trading system as of the
date of exercise of this Warrant, then the fair market value per share of
Common Stock shall be deemed to be the amount most recently determined by
the Board of Directors in good faith to represent the fair market value per
share of the Common Stock (including without limitation a determination for
purposes of granting Common Stock options or issuing Common Stock under an
employee benefit plan of the Company) based on the fair market value of the
Company as a whole, on a going concern basis, using customary and
appropriate valuation methods and the most recent audited financial
statements of the Company (or, if such financial statements are more than
six (6) months old, the most recent unaudited financial statements of the
Company prepared in conformity with generally accepted accounting
principles, except with respect to required footnotes) and not taking into
account any discount for minority ownership or restrictions on transfer of
the capital stock of the Company; and, upon request of the Holder, the
Board of Directors (or a representative thereof) shall promptly notify the
Holder of such fair market value per share of Common Stock.
Notwithstanding the foregoing, if the Board of Directors has not made such
a determination within the three-month period prior to the date of exercise
of this Warrant, then (A) the Board of Directors shall make a determination
of the fair market value per share of Common Stock within 15 days of a
request by the Holder that it do so, and (B) the exercise of this Warrant
shall be delayed until such determination is made.
Section 5. [Reserved]
Section 6. Definitions. For the purposes of this Warrant,
the following terms shall have the meanings indicated:
Business Day shall mean a day, other than a Saturday, a
Sunday or other day on which the banking institutions in the State of New
York or Delaware are authorized or obligated by law or executive order to
close or a day which is declared a national or New York, or Delaware state
holiday.
Company: The term "Company" shall mean PRT Group Inc. a
Delaware corporation.
Exercise Price: The term "Exercise Price" shall have the
meaning specified in Section 2.4.
Surviving Person shall mean the continuing or surviving
person of a merger, consolidation or other corporate combination, the
person receiving a transfer of all or substantially all of the properties
and assets of the Company, or the person consolidating with or merging into
the Company in a merger, consolidation or other combination in which the
Company is the continuing or surviving person, but in connection with which
Series A Preferred Stock, this Warrant, any Common Stock or any other
equity securities of the Company is exchanged, converted or reinstated into
the securities of any other person or cash or any other property.
IN WITNESS WHEREOF, PRT Group Inc. has caused this Warrant
Certificate to be signed by ______________ its ___________________ on this
14th day of April, 2000.
PRT GROUP INC.
By ____________________________
Name:
Title:
ANNEX I
FORM OF NOTICE OF EXERCISE
To Whom it May Concern,
The undersigned, the holder of the within Warrant, hereby
irrevocably elects to exercise such Warrant for _______________ (_____) of
the shares of common stock, par value $.001 per share (the "Common Stock"),
of PRT Group Inc. (the "Company") for which such Warrant may be exercised
pursuant to the terms of such Warrant and requests that the certificates
for such shares be issued in the name of, and delivered to,
_________________________________________, whose address is
__________________________________________________________,
__________________________________________________________.
[ ] The aggregate exercise price for the above described shares of
Common Stock, as set forth in the Warrant, in the amount of
$______, is included herewith.
[ ] The holder of the Warrant hereby elects to exercise the Cashless
Exercise provision set forth in Section 4 of the Warrant.
The undersigned represents, unless the sale of the Common
Stock has been registered under the Securities Act of 1933, as amended (the
"Securities Act"), that the undersigned is acquiring such Common Stock for
its own account for investment and not with a view to or for sale in
connection with any distribution thereof (except for any resale pursuant to
an effective Registration Statement under the Securities Act).
DATED:_____________________
By:________________________________
Name:
Title:
The above signed individual represents and warrants to the Company that he
has all necessary authority, corporate or otherwise, to execute this Notice
of Exercise.
The person or entity exercising the Warrant must conform in all respects to
name of holder as specified on the face of the Warrant, or be accompanied
by instruments of assignment reasonably acceptable to the Company as set
forth in the Warrant.
