SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (date of earliest event reported): February 3, 2000
EDUCATIONAL VIDEO CONFERENCING, INC.
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(Exact name of registrant as specified in its charter)
Delaware 001-14827 06-1488212
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
35 East Grassy Sprain Road, Suite 200, Yonkers, New York 10710
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(Address of principal executive offices)
Registrant's telephone number, including area code (914) 787-3500
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Item 2. Acquisition or Disposition of Assets.
Educational Video Conferencing, Inc. ("EVCI") and The Shaar Fund Ltd.
("Shaar"), a private international investment fund, completed a private
placement on February 3, 2000, which yielded gross proceeds to EVCI of
$4,000,000. Pursuant to a Securities Purchase Agreement between the parties,
Shaar purchased 400,000 shares of EVCI's newly designated Series A 7.5%
Convertible Preferred Stock, having a stated value of $10 per share (the "Series
A Preferred") and three year warrants (the "Warrants") to purchase 40,000 shares
of EVCI's Common Stock. EVCI is obligated to file a registration statement with
the SEC permitting the public resale of the shares of Common Stock issuable upon
conversion or exercise of the Series A Preferred and Warrants. Finders' fees
paid by EVCI, in connection with this transaction, totaled cash of $240,000 and
the issuance of three year warrants to purchase 3,870 shares of Common Stock at
$20.67 per share. Below is a more detailed description of the material
components of this financing transaction.
Series A Preferred
The Series A Preferred accrues cumulative dividends at the rate of 7.5% per
annum, payable quarterly in arrears on the last day of each calendar quarter,
commencing September 30, 2000. At EVCI's option, the dividends are payable in
cash or in shares of Common Stock registered for public resale.
Shaar may convert all or any part of the shares of the Series A Preferred
into shares of Common Stock at any time beginning August 31, 2000. On February
3, 2003, all outstanding shares of Series A Preferred automatically convert into
shares of Common Stock. The conversion price per share of Common Stock prior to
September 30, 2000 is 87.5% of the average closing bid price of the Common
Stock, as reported by Nasdaq, on any consecutive five of the ten trading days
immediately preceding the date of conversion. After September 30, 2000 the
conversion price is 85% of such average. The percentages referred to in this
paragraph are conversion ratios.
Under the certain circumstances, the conversion price will be the closing
bid price of the Common Stock on any of the ten trading days immediately
preceding the date of conversion. These include (i) a stock split or
combination; (ii) a distribution to holders of EVCI's capital stock; (iii) an
issuance of capital stock or any security convertible into or exercisable for
shares of capital stock at a price less than the closing bid price of the Common
Stock immediately prior to such issuance; (iv) a fundamental corporate change
(as defined); and (v) any action affecting the number of outstanding shares of
capital stock which, in Shaar's good faith opinion, would have a material
adverse effect on its rights upon conversion of the Series A Preferred or is
reasonably likely to result in a decrease of the price of the Common Stock.
The conversion ratio is subject to adjustment in the event that EVCI
issues, pursuant to an exemption from registration under the Securities Act of
1933, (i) Common Stock at a purchase price that is lower than the conversion
price on the date of issuance of such Common Stock, other than Common Stock
underlying securities referred to in (ii) and (iii) of this paragraph or issued
upon exercise of outstanding options and warrants, (ii) warrants or options with
an exercise price on the date of issuance thereof that is lower than the
conversion price on such date (except for warrants or options issued pursuant to
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employee stock option agreements or stock incentive agreements of EVCI), or
(iii) other securities convertible, exchangeable or exercisable into shares of
Common Stock at a price per share of Common Stock which is lower than the
closing bid price of the Common Stock on the date of issuance or conversion. If
any of the foregoing events occurs, the conversion ratio will be reduced to the
lowest of any such lower rates.
EVCI's failure to timely issue shares of Common Stock upon conversion of
Series A Preferred, payment of dividends in shares or exercise of the Warrants
will obligate EVCI to pay cash penalties to Shaar as provided in the Securities
Purchase Agreement.
EVCI may redeem the Series A Preferred, at any time prior to February 3,
2003, (i) at 110% of the stated value of the Preferred at any time on or before
August 3, 2000, (ii) at 115% of the stated value at any time after August 3,
2000 and on or before November 3, 2000 and (iii) at 120% of the stated value at
any time after November 3, 2000 and prior to February 3, 2003, in each case
together with all accrued and unpaid dividends.
EVCI does not have the obligation to issue any shares of Common Stock upon
conversion of the Series A Preferred, or the right to issue any shares of Common
Stock to pay dividends on the Series A Preferred, if, and to the extent that,
any such issuance would result in (i) Shaar being deemed the beneficial owner of
more than 5% of the then outstanding Common Stock under Section 13(d) of the
Securities Exchange Act of 1934 (the "Exchange Act"), (ii) Shaar being deemed a
beneficial holder of more than 10% of the then outstanding Common Stock under
Section 16(b) of the Exchange Act, or (iii) a violation of Nasdaq's corporate
governance rules because stockholder approval of the issuance has not been
obtained. If a court holds that EVCI's not having the obligation to issue more
shares is, nevertheless, ineffective to prevent Shaar from either being deemed a
5% beneficial owner under Section 13(d), or a 10% beneficial owner under Section
16(b), or if the event specified in clause (iii) occurs, EVCI is obligated to
redeem, at a premium, any shares of Series A Preferred which would bring Shaar's
holdings over such limitations, and to pay all accrued and unpaid dividends on
such shares in cash.
Warrants
The Warrants are initially exercisable at $21.27 per share from and after
the earlier to occur of (i) February 3, 2001 and (ii) the date immediately
succeeding a period of sixty consecutive trading days during which the Common
Stock trades above $23.50. The exercise price and number of shares issuable upon
exercise of the Warrants are subject to adjustment in the event of a
distribution or dividend paid in shares of Common Stock to holders of Common
Stock, a stock split or combination.
Registration Rights Agreement
Under a registration rights agreement with Shaar, EVCI is required to
register for public resale the Common Stock issuable (i) in lieu of cash
dividend payments on the Series A Preferred, (ii) upon conversion or redemption
of the Series A Preferred and (iii) upon exercise of the Warrants. The
applicable Registration Statement is to be filed not later than the date five
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business days after the date EVCI files its annual report on Form 10-KSB for its
fiscal year ended December 31, 1999, but in no event later than April 15, 2000,
and EVCI is obligated to use its best efforts to cause the SEC to declare the
Registration Statement effective as promptly as practicable but in no event
later than June 30, 2000. The number of shares to be registered will equal 19.9%
of the total number of shares of Common Stock outstanding on the initial filing
date of the Registration Statement.
In the event that, for any reason, EVCI either fails to file the
Registration Statement on or before April 15, 2000 or if the Registration
Statement is not declared effective by the Commission on or before June 30,
2000, EVCI is required to pay liquidated damages to Shaar based on percentages
of $4,000,000 (initially 2%) for each 30 day period of delay.
Item 7. Financial Statements and Exhibits.
Exhibits
3 Second Amended Certificate of Designation of Series A 7.5% Convertible
Series A Preferred of Educational Video Conferencing, Inc.
10.1 Securities Purchase Agreement, dated as of February 3, 2000, between
Educational Video Conferencing, Inc. and The Shaar Fund Ltd.
Schedules (Copies will be provided to the Commission upon request)
III.A.1 - Exercise Prices of Options and Warrants
III.A.3 - Preemptive, Subscription, "Call", Right of First Refusal or
Similar Rights
III.A.4 - Subsidiaries
III.A.5 - Minutes
III.C. - Issuances of Securities
III.F. - Contravention
III.K. - Litigation
III.L. - Events of Default
III.O. - Related Party Transactions
III.Q. - Securities Law Matters
III.R. - Environmental Matters
III.T. - ERISA Matters
III.V. - Property
III.W. - Intellectual Property Rights
III.Y. - Registration Rights
10.2 Common Stock Purchase Warrant, dated as of February 3, 2000, issued to
The Shaar Fund Ltd.
10.3 Registration Rights Agreement, dated as of February 3, 2000, between
Educational Video Conferencing, Inc. and The Shaar Fund Ltd.
10.4 Form of Finders' Warrant.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Current Report to be signed on its behalf by the
undersigned hereunto duly authorized.
EDUCATIONAL VIDEO CONFERENCING, INC.
Dated: February 17, 2000 By: /s/ Richard Goldenberg
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Name: Richard Goldenberg
Title: Chief Financial Officer
SECOND AMENDED CERTIFICATE OF DESIGNATION
OF
SERIES A 7.5% CONVERTIBLE PREFERRED STOCK
OF
EDUCATIONAL VIDEO CONFERENCING, INC.
_________________________________________________
Pursuant to Section 151 of the
General Corporation Law of the State of Delaware
_________________________________________________
The undersigned, being the Chairman and Chief Executive Officer of
Educational Video Conferencing, Inc., a corporation organized and existing under
the General Corporation Law of the State of Delaware (the "Corporation") does
hereby certify that: (i) on January 27, 2000, the Corporation filed with the
Delaware Secretary of State a Certificate of Designation of Series A 7.5%
Convertible Preferred Stock (the "Original Certificate of Designation"), (ii) on
February 2, 2000 the Corporation filed an Amended Certificate of Designation
relating to the Series A 7.5% Convertible Preferred Stock (the "Amended
Certificate of Designation"), (iii) the Board of Directors of the Corporation
has adopted a resolution to further amend the Amended Certificate of Designation
to read in its entirety as set forth in this Certificate and (iv) no Shares of
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Series A 7.5% Convertible Preferred Stock have heretofore been issued by the
Corporation.
Therefore the Amended Certificate of Designation is hereby amended to read
in its entirety as follows:
Educational Video Conferencing, Inc., a corporation organized and existing
under the General Corporation Law of the State of Delaware (the "Corporation"),
hereby certifies that the following resolutions were adopted by the Board of
Directors of the Corporation on December 22, 1999 pursuant to authority of the
Board of Directors as required by Section 151 of the General Corporation Law of
the State of Delaware:
RESOLVED, that pursuant to the authority granted to and vested in the Board
of Directors of this Corporation (the "Board of Directors" or the "Board") in
accordance with the provisions of its Certificate of Incorporation, the Board of
Directors hereby authorizes a series of the Corporation's previously authorized
Preferred Stock, par value $.0001 per share (the "Preferred Stock"), and hereby
states the designation and number of shares, and fixes the relative rights,
preferences, privileges, powers and restrictions thereof as follows:
Series A 7.5% Convertible Preferred Stock:
ARTICLE 1
DEFINITIONS
The terms defined in this Article whenever used in this Certificate of
Designation have the following respective meanings:
(a) "Additional Capital Shares" has the meaning set forth in Section
6.1(c).
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(b) "Affiliate" has the meaning ascribed to such term in Rule 12b-2 under
the Securities Exchange Act of 1934, as amended.
(c) "Business Day" means a day other than Saturday, Sunday or any day on
which banks located in the State of New York are authorized or obligated to
close.
(d) "Capital Shares" means the Common Shares and any other shares of any
other class or series of capital stock, whether now or hereafter authorized and
however designated, which have the right to participate in the distribution of
earnings and assets (upon dissolution, liquidation or winding-up) of the
Corporation.
(e) "Closing Date" shall have the meaning assigned such term in the
Securities Purchase Agreement.
(f) "Common Shares" or "Common Stock" means shares of common stock, par
value $.0001 per share, of the Corporation.
(g) "Common Stock Issued at Conversion", when used with reference to the
securities issuable upon conversion of the Series A Preferred Stock, means all
Common Shares now or hereafter Outstanding and securities of any other class or
series into which the Series A Preferred Stock hereafter shall have been changed
or substituted, whether now or hereafter created and however designated.
(h) "Conversion Date" means any day on which all or any portion of shares
of the Series A Preferred Stock is converted in accordance with the provisions
hereof.
(i) "Conversion Notice" means a written notice of conversion substantially
in the form annexed hereto as Annex I.
(j) "Conversion Price" means on any date of determination the applicable
price for the conversion of shares of Series A Preferred Stock into Common
Shares on such day as set forth in Section 6.1.
(k) "Conversion Ratio" means on any date of determination the applicable
percentage of the Market Price for conversion of shares of Series A Preferred
Stock into Common Shares on such day as set forth in Section 6.1.
(l) "Corporation" means Educational Video Conferencing, Inc., a Delaware
corporation, and any successor or resulting corporation by way of merger,
consolidation, sale or exchange of all or substantially all of the Corporation's
assets, or otherwise.
(m) "Current Market Price" means on any date of determination the closing
bid price of a Common Share on such day as reported on Nasdaq; provided, if such
security bid is not listed or admitted to trading on Nasdaq, as reported on the
principal national security exchange or quotation system on which such security
is quoted or listed or admitted to trading, or, if not quoted or listed or
admitted to trading on any national securities exchange or quotation system, the
closing bid price of such security on the over-the-counter market on the day in
question as reported by Bloomberg LP, or a similar generally accepted reporting
service, as the case may be.
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(n) "Default Dividend Rate" is equal to the Dividend Rate plus an
additional 4% per annum.
(o) "Dividend Payment Due Date" means March 31, June 30, September 30 and
December 31 of each year.
(p) "Dividend Period" means the quarterly period commencing on and
including the Issue Date or, if a dividend has previously been paid, the day
after the immediately preceding Dividend Payment Due Date and ending on and
including the immediately subsequent Dividend Payment Due Date; provided,
however, that the first Dividend Period shall commence on and include the Issue
Date and end on and include September 30, 2000.
(q) "Dividend Rate" means 7.5% per annum, computed on the basis of a
360-day year.
(r) "Holder" means The Shaar Fund Ltd., any successor thereto, or any
Person or Persons to whom the Series A Preferred Stock is subsequently
transferred in accordance with the provisions hereof.
(s) "Issue Date" means, as to any share of Series A Preferred Stock, the
date of issuance of such share.
(t) "Junior Securities" means all capital stock of the Corporation except
for the Series A Preferred Stock.
(u) "Liquidation Preference" means, with respect to a share of the Series A
Preferred Stock, an amount equal to the sum of (i) the Stated Value thereof,
plus (ii) an amount equal to 30% of such Stated Value, plus (iii) the aggregate
of all accrued and unpaid dividends on such share of Series A Preferred Stock
until the most recent Dividend Payment Due Date; provided that, in the event of
an actual liquidation, dissolution or winding up of the Corporation, the amount
referred to in clause (iii) above shall be calculated by including accrued and
unpaid dividends to the actual date of such liquidation, dissolution or winding
up, rather than the Dividend Payment Due Date referred to above.
(v) "Mandatory Conversion Date" has the meaning set forth in Section 6.8.
(w) "Market Price" per Common Share means the arithmetic mean of the
closing bid prices of the Common Shares as reported on Nasdaq for any five
consecutive Trading Days during any Valuation Period; provided, if such
security bid is not listed or admitted to trading on Nasdaq, as reported on
the principal national security exchange or quotation system on which such
security is quoted or listed or admitted to trading, or, if not quoted or
listed or admitted to trading on any national securities exchange or
quotation system, the closing bid price of such security on the
over-the-counter market on the day in question as reported by Bloomberg LP,
or a similar generally accepted reporting service, for any five consecutive
Trading Days during any Valuation Period.
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(x) "Nasdaq" means the Nasdaq SmallCap Market.
(y) "Optional Redemption Price" has the meaning set forth in Section 6.5.
(z) "Outstanding", when used with reference to Common Shares or Capital
Shares (collectively, "Shares"), means, on any date of determination, all issued
and outstanding Shares, and includes all such Shares issuable in respect of
outstanding scrip or any certificates representing fractional interests in such
Shares; provided, however, that any such Shares directly or indirectly owned or
held by or for the account of the Corporation or any Subsidiary of the
Corporation shall not be deemed "Outstanding" for purposes hereof.
(aa) "Person" means an individual, a corporation, a partnership, an
association, a limited liability company, an unincorporated business
organization, a trust or other entity or organization, and any government or
political subdivision or any agency or instrumentality thereof.
(bb) "Redemption Date" has the meaning set forth in Section 6.5.
(cc) "Registration Rights Agreement" means that certain Registration Rights
Agreement to be dated as of February 3, 2000 between the Corporation and The
Shaar Fund Ltd.
(dd) "SEC" means the United States Securities and Exchange Commission.
(ee) "Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC thereunder, all as in effect at the time.
(ff) "Securities Purchase Agreement" means that certain Securities Purchase
Agreement to be dated as of February 3, 2000 between the Corporation and The
Shaar Fund Ltd.
(gg) "Series A Preferred Shares" or "Series A Preferred Stock" means the
shares of Series A 7.5% Convertible Preferred Stock of the Corporation or such
other convertible Preferred stock of the Corporation as may be exchanged
therefor.
(hh) "Stated Value" has the meaning set forth in Article 2.
(ii) "Subsidiary" means any entity of which securities or other ownership
interests having ordinary voting power to elect a majority of the board of
directors or other persons performing similar functions are owned directly or
indirectly by the Corporation.
(jj) "Trading Day" means any day on which (a) purchases and sales of
securities authorized for quotation on Nasdaq arc reported thereon, (b) no event
which results in a material suspension or limitation of trading of the Common
Shares on Nasdaq has occurred and (c) at least one bid for the trading of Common
Shares is reported on Nasdaq.
(kk) "Valuation Event" has the meaning set forth in Section 6. l.
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(ll) "Valuation Period" means the period of 10 Trading Days immediately
preceding the Conversion Date; provided, however, that if a Valuation Event
occurs during a Valuation Period on a date less than 5 Trading Days before the
Conversion Date, the Valuation Period shall be extended until the date 5 Trading
Days after the occurrence of the Valuation Event.
All references to "cash" or "$" herein mean currency of the United States
of America.
ARTICLE 2
DESIGNATION AND AMOUNT
The designation of this series, which consists of 400,000 shares of
Preferred Stock, shall be Series A 7.5% Convertible Preferred Stock (the "Series
A Preferred Stock") and the stated value shall be $10 per share (the "Stated
Value").
ARTICLE 3
RANK
The Series A Preferred Stock shall rank prior to any other capital stock of
the Corporation.
ARTICLE 4
DIVIDENDS
(a) (i) The Holder shall be entitled to receive, when, as and if declared
by the Board of Directors, out of funds legally available for the payment of
dividends, dividends at the Dividend Rate on the Stated Value of each share of
Series A Preferred Stock on and as of each Dividend Payment Due Date with
respect to each Dividend Period; provided, however, that if any dividend is not
paid in full on any Dividend Payment Due Date, dividends shall thereafter accrue
and be payable at the Default Dividend Rate on the Stated Value of each share of
Series A Preferred Stock until all accrued dividends are paid in full. Dividends
on the Series A Preferred Stock shall be cumulative from the date of issue,
whether or not declared for any reason, including if such declaration is
prohibited under any outstanding indebtedness or borrowings of the Corporation
or any of its Subsidiaries, or any other contractual provision binding on the
Corporation or any of its Subsidiaries, and whether or not there shall be funds
legally available for the payment thereof.
(ii) Each dividend shall be payable in equal quarterly amounts on each
Dividend Payment Due Date, commencing September 30, 2000, to the Holders of
record of shares of the Series A Preferred Stock, as they appear on the stock
records of the Corporation at the close of business on such record date, not
more than 60 days or less than 10 days preceding the payment dates thereof, as
shall be fixed by the Board of Directors. Accrued and unpaid dividends for any
past Dividend Period may be declared and paid at any time, without reference to
any Dividend Payment Due Date, to Holders of record, not more than 15 days
preceding the payment date thereof, as may be fixed by the Board of Directors.
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(iii) At the option of the Corporation, the dividend shall be paid either
(x) in cash or (y) through the issuance of duly and validly authorized and
issued, fully paid and nonassessable shares of the Common Stock valued at the
Current Market Price and registered for resale in open market transactions on
the Registration Statement (as defined in the Registration Rights Agreement),
which Registration Statement shall then be effective under the Securities Act;
provided, however, that if no funds are legally available for the payment of
cash dividends on the Series A Preferred Stock, dividends shall be paid as
provided in clause (y) above.
(b) Except as provided in Section 4(d) hereof, the Holder shall not be
entitled to any dividends in excess of the cumulative dividends, as herein
provided, on the Series A Preferred Stock.
(c) So long as any shares of the Series A Preferred Stock are outstanding,
no dividends shall be declared or paid or set apart for payment or other
distribution declared or made upon any Junior Securities, nor shall any Junior
Securities be redeemed, purchased or otherwise acquired (other than a
redemption, purchase or other acquisition of shares of Common Stock made for
purposes of an employee incentive or benefit plan (including a stock option
plan) of the Corporation or any Subsidiary) for any consideration by the
Corporation, directly or indirectly, nor shall any moneys be paid to or made
available for a sinking fund for the redemption of any shares of any Junior
Securities, unless in each case (i) the full cumulative dividends required to be
paid in cash on all outstanding shares of the Series A Preferred Stock shall
have been paid or set apart for payment for all past Dividend Periods with
respect to the Series A Preferred Stock and (ii) sufficient funds shall have
been paid or set apart for the payment of the dividend for the current Dividend
Period with respect to the Series A Preferred Stock.
(d) If the Corporation shall at any time or from time to time after the
Issue Date declare, order, pay or make a dividend or other distribution
(including, without limitation, any distribution of stock or other securities or
property or rights or warrants to subscribe for securities of the Corporation or
any of its Subsidiaries by way of dividend or spin-off) on shares of its Common
Stock, then, and in each such case, in addition to the dividend obligation of
the Corporation specified in Section 4(a) hereof, the Corporation shall declare,
order, pay and make the same dividend or distribution to each Holder of Series B
Preferred Stock as would have been made with respect to the number of Common
Shares the Holder would have received had it converted all of its Series A
Preferred Shares, and exercised the Warrant held by it in full for all the
Common Shares then underlying the Warrant, immediately prior to such dividend or
distribution.
ARTICLE 5
LIQUIDATION PREFERENCE, MERGERS, CONSOLIDATIONS, ETC.
(a) If the Corporation shall commence a voluntary case under the Federal
bankruptcy laws or any other applicable Federal or state bankruptcy, insolvency
or similar law, or consent to the entry of an order for relief in an involuntary
case under any law or to the appointment of a receiver, liquidator, assignee,
custodian, trustee or 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
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respect of the Corporation shall be entered by a court having jurisdiction in
the premises in an involuntary case under the Federal bankruptcy laws or any
other applicable Federal or state bankruptcy, insolvency or similar law
resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee or sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of 30 consecutive days and, on account of any such event, the Corporation
shall liquidate, dissolve or wind up, or if the Corporation shall otherwise
liquidate, dissolve or wind up, no distribution shall be made to the holders of
any shares of capital stock of the Corporation upon liquidation, dissolution or
winding-up unless prior thereto, the Holders of shares of Series A Preferred
Stock, subject to this Article 5, shall have received the Liquidation Preference
with respect to each share.
(b) In case the Corporation shall reorganize its capital, reclassify its
capital stock, consolidate or merge with or into another Person (where the
Corporation is not the survivor or where there is a change in or distribution
with respect to the Common Stock of the Corporation), sell, convey, transfer or
otherwise dispose of all or substantially all its property, assets or business
to another Person, or effectuate a transaction or series of related transactions
in which more than 50% of the voting power of the Corporation is disposed of
(each, a "Fundamental Corporate Change") and, pursuant to the terms of such
Fundamental Corporate Change, shares of common stock of the successor or
acquiring corporation, or any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other subscription or
purchase rights) in addition to or in lieu of common stock of the successor or
acquiring corporation ("Other Property"), are to be received by or distributed
to the holders of Common Stock of the Corporation, then each Holder of Series A
Preferred Stock shall have the right thereafter, at its sole option, either
(x)to require the Corporation to deem such Fundamental Corporate Change to be a
liquidation, dissolution or winding up of the Corporation pursuant to which the
Corporation shall be required to distribute, upon consummation of and as a
condition to, such Fundamental Corporate Change an amount equal to 120% of the
Liquidation Preference with respect to each outstanding share of Series A
Preferred Stock, (y) to receive the number of shares of common stock of the
successor or acquiring corporation or of the Corporation, if it is the surviving
corporation, and Other Property as is receivable upon or as a result of such
Fundamental Corporate Change by a holder of the number of shares of Common Stock
into which such Series A Preferred Stock may be converted at the Conversion
Price applicable immediately prior to such Fundamental Corporate Change or (z)
require the Corporation, or such successor, resulting or purchasing corporation,
as the case may be, to, without benefit of any additional consideration
therefor, to execute and deliver to the Holder shares of its Preferred Stock
with substantial identical rights, preferences, privileges, powers, restrictions
and other terms as the Series A Preferred Stock equal to the number of shares of
Series A Preferred Stock held by such Holder immediately prior to such
Fundamental Corporate Change; provided, that all Holders of Series A Preferred
Stock shall be deemed to elect the option set forth in clause (x) above if at
least a majority in interest of such Holders elect such option. For purposes of
this Section 5(b), "common stock of the successor or acquiring corporation"
shall include stock of such corporation of any class which is not preferred as
to dividends or assets over any other class of stock of such corporation and
which is not subject to redemption and shall also include any evidences of
indebtedness, shares of stock or other securities which are convertible into or
exchangeable for any such stock, either immediately or upon the arrival of a
specified date or the happening of a specified event and any warrants or other
rights to subscribe for or purchase any such stock. The foregoing provisions of
this Section 5(b) shall similarly apply to successive Fundamental Corporate
Changes.
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ARTICLE 6
CONVERSION OF PREFERRED STOCK
Section 6.1 Conversion; Conversion Price
At the option of the Holder, the shares of Series A Preferred Stock may be
converted, either in whole or in part, into Common Shares (calculated as to each
such conversion to the nearest 1/100th of a share) at any time and from time to
time beginning August 31, 2000 at a Conversion Price per share of Common Stock
equal to 87.5% of the Market Price; provided that any unconverted Series A
Preferred Stock remaining after September 30, 2000 may be converted, at the sole
option of the Holder, at a Conversion Price per share of Common Stock equal to
85% of the Market Price; and provided, further, that if the Corporation's Common
Stock is delisted off Nasdaq for any reason, then any remaining unconverted
Series A Preferred Stock may be converted, at the sole option of the Holder, at
a Conversion Price per share of Common Stock equal to 50% of the Market Price.
At the Corporation's option, the amount of accrued and unpaid dividends as of
the Conversion Date shall not be subject to conversion but instead may be paid
in cash as of the Conversion Date; if the Corporation elects to convert the
amount of accrued and unpaid dividends at the Conversion Date into Common Stock,
the Common Stock issued to the Holder shall be valued at the applicable
Conversion Price.
The number of shares of Common Stock due upon conversion of Series A
Preferred Stock shall be (i) the number of shares of Series A Preferred Stock to
be converted, multiplied by (ii) the Stated Value plus accrued and unpaid
dividends, to the extent the Corporation does not at its election pay accrued
and unpaid dividends in cash, and divided by (iii) the applicable Conversion
Price.
Within two Business Days of the occurrence of a Valuation Event, the
Corporation shall send notice thereof to each Holder. Notwithstanding anything
to the contrary contained herein, if a Valuation Event occurs during any
Valuation Period, the Holder may convert some or all of its Series A Preferred
Stock, at its sole option, at a Conversion Price equal to the Current Market
Price on any Trading Day during the Valuation Period.
For purposes of this Section 6.1, a "Valuation Event" shall mean an event
in which the Corporation takes any of the following actions:
(a) subdivides or combines its Capital Shares;
(b) makes any distribution on its Capital Shares;
(c) issues any additional Capital Shares (the "Additional Capital Shares"),
otherwise than as provided in the foregoing Sections 6.1(a) and 6.1(b) above, at
a price per share less, or for other consideration lower, than the Current
Market Price in effect immediately prior to such issuances, or without
consideration, except for warrants or options issued pursuant to employee stock
option agreements or stock incentive agreements of the Corporation and issuances
under presently outstanding warrants, options or convertible securities;
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(d) issues any warrants, options or other rights to subscribe for or
purchase any Additional Capital Shares if the price per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to
such warrants, options or other rights shall be less than the Current Market
Price in effect immediately prior to such issuance;
(e) issues any securities convertible into or exchangeable or exercisable
for Additional Capital Shares if the consideration per share for which
Additional Capital Shares may at any time thereafter be issuable pursuant to the
terms of such convertible, exchangeable or exercisable securities shall be less
than the Current Market Price in effect immediately prior to such issuance;
(f) announces or effects a Fundamental Corporate Change;
(g) makes any distribution of its assets or evidences of indebtedness to
the holders of its Capital Shares as a dividend in liquidation or by way of
return of capital or other than as a dividend payable out of earnings or surplus
legally available for the payment of dividends under applicable law or any
distribution to such holders made in respect of the sale of all or substantially
all of the Corporation's assets (other than under the circumstances provided for
in the foregoing Sections 6.1(a) through 6.1(e)); or
(h) takes any action affecting the number of Outstanding Capital Shares,
other than an action described in any of the foregoing Sections 6.1(a) through
6.1(g) hereof, inclusive, which in the opinion of the Holder, determined in good
faith, would have a material adverse effect upon the rights of the Holder at the
time of a conversion of the Preferred Stock or is reasonably likely to result in
a decrease in the Market Price.
Section 6.2 Exercise of Conversion Privilege
(a) Conversion of the Series A Preferred Stock may be exercised, in whole
or in part, by the Holder by telecopying an executed and completed Conversion
Notice to the Corporation. Each date on which a Conversion Notice is telecopied
to the Corporation in accordance with the provisions of this Section 6.2 shall
constitute a Conversion Date. The Corporation shall convert the Preferred Stock
and issue the Common Stock Issued at Conversion, and all voting and other rights
associated with the beneficial ownership of the Common Stock Issued at
Conversion shall vest with the Holder, effective as of the Conversion Date at
the time specified in the Conversion Notice. The Conversion Notice also shall
state the name or names (with addresses) of the Persons who are to become the
holders of the Common Stock Issued at Conversion in connection with such
conversion. The Holder shall deliver the shares of Series A Preferred Stock to
the Corporation concurrently with the Conversion Notice. Upon surrender for
conversion, the Preferred Stock shall be accompanied by a proper assignment
thereof to the Corporation or be endorsed in blank. As promptly as practicable
after the receipt of the Conversion Notice as aforesaid, but in any event not
more than ten Business Days after the Corporation's receipt of all of the
documents set forth above and the Holder's satisfaction of all of the
requirements for conversion, the Corporation shall (i) issue the Common Stock
issued at Conversion in accordance with the provisions of this Article 6, and
(ii) cause to be mailed for delivery by overnight courier to the Holder (x) a
certificate or certificate(s) representing the number of Common Shares to which
the Holder is entitled by virtue of such conversion, (y) cash, as provided in
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Section 6.3, in respect of any fraction of a Common Share issuable upon such
conversion and (z) if the Corporation chooses to pay accrued and unpaid
dividends in cash, cash in the amount of accrued and unpaid dividends as of the
Conversion Date. As of the Conversion Date, the rights of the Holder of the
Series A Preferred Stock, as such, shall cease and the Person or Persons in
whose name or names the Common Stock Issued at Conversion shall be issuable
shall be deemed to have become the holder or holders of record of the Common
Shares represented thereby and all voting and other rights associated with the
beneficial ownership of such Common Shares shall at such time vest with such
Person or Persons. The Conversion Notice shall constitute a contract between the
Holder and the Corporation, whereby the Holder shall be deemed to subscribe for
the number of Common Shares which it will be entitled to receive upon such
conversion and, in payment and satisfaction of such subscription (and for any
cash adjustment to which it is entitled pursuant to Section 6.3), to surrender
the Series A Preferred Stock and to release the Corporation from all liability
thereon. No cash payment aggregating less than $1.00 shall be required to be
given unless specifically requested by the Holder.
(b) If, at any time (i) the Corporation challenges, disputes or denies the
right of the Holder hereof to effect the conversion of the Series A Preferred
Stock into Common Shares or otherwise dishonors or rejects any Conversion Notice
delivered in accordance with this Section 6.2 or (ii) any third pany commences
any lawsuit or proceeding or otherwise asserts any claim before any court or
public or governmental authority which seeks to challenge, deny, enjoin, limit,
modify, delay or dispute the right of the Holder hereof to effect the conversion
of the Series A Preferred Stock into Common Shares, then the Holder shall have
the right, by written notice to the Corporation, to require the Corporation
promptly to redeem the Series A Preferred Stock for cash at a redemption price
equal to 135% of the Stated Value thereof together with all accrued and unpaid
dividends thereon (the "Mandatory Purchase Amount"). Under any of the
circumstances set forth above, the Corporation shall be responsible for the
payment of all costs and expenses of the Holder, including reasonable legal fees
and expenses, as and when incurred in disputing any such action or pursuing its
rights hereunder (in addition to any other rights of the Holder).
(c) The Holder shall be entitled to exercise its conversion privilege
notwithstanding the commencement of any case under 11 U.S.C. ss. 101 et seq.
(the "Bankruptcy Code"). In the event the Corporation is a debtor under the
Bankruptcy Code, the Corporation hereby waives to the fullest extent permitted
any rights to relief it may have under 11 U.S.C. ss. 362 in respect of the
Holder's conversion privilege. The Corporation hereby waives to the fullest
extent permitted any rights to relief it may have under 11 U.S.C. ss. 362 in
respect of the conversion of the Series A Preferred Stock. The Corporation
agrees, without cost or expense to the Holder, to take or consent to any and all
action necessary to effectuate relief under 11 U.S.C. ss. 362.
Section 6.3 Fractional Shares
No fractional Common Shares or scrip representing fractional Common Shares
shall be issued upon conversion of the Series A Preferred Stock. Instead of any
fractional Common Shares which otherwise would be issuable upon conversion of
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the Series A Preferred Stock, the Corporation shall pay a cash adjustment in
respect of such fraction in an amount equal to the same fraction.
Section 6.4 Adjustments to Conversion Ratio
For so long as any shares of the Series A Preferred Stock are outstanding,
if the Corporation issues and sells pursuant to an exemption from registration
under the Securities Act (A) Common Shares at a purchase price that is lower
than the Conversion Price on the date of issuance of such Common Shares, (B)
warrants or options with an exercise price on the date of issuance thereof that
is lower than the Conversion Price for the Holder on such date, except for
warrants or options issued pursuant to employee stock option agreements or stock
incentive agreements of the Corporation, or (C) convertible, exchangeable or
exercisable securities with a right to exchange at lower than the Current Market
Price on the date of issuance or conversion, as applicable, of such convertible,
exchangeable or exercisable securities, except for stock option agreements or
stock incentive agreements, then the Conversion Ratio shall be reduced to equal
the lowest of any such lower rates.
Section 6.5 Optional Redemption
At any time after the date of issuance of the Series A Preferred Stock
until the Mandatory Conversion Date (as defined below), the Corporation, upon
notice delivered to the Holder as provided in Section 6.6, may redeem, in cash,
the Series A Preferred Stock (but only with respect to such shares as to which
the Holder has not theretofore furnished a Conversion Notice in compliance with
Section 6.2), (i) to the extent the Redemption Date occurs on or prior to the
sixth monthly anniversary of the Closing Date, at 110% of the Stated Value
thereof, (ii) to the extent the Redemption Date occurs during the period between
and including the sixth monthly anniversary of the Closing Date and the ninth
monthly anniversary of the Closing Date, at 115% of the Stated Value thereof and
(iii) to the extent the Redemption Date occurs after the ninth monthly
anniversary of the Closing Date, at 120% of the Stated Value thereof (as
applicable, the "Optional Redemption Price"), in each case, together with all
accrued and unpaid dividends thereon to the date of redemption (the "Redemption
Date"). Except as set forth in this Section 6.5, the Corporation shall not have
the right to redeem the Series A Preferred Stock.
Section 6.6 Notice of Redemption
Notice of redemption pursuant to Section 6.5 shall be provided by the
Corporation to the Holder in writing (by registered mail or overnight courier at
the Holder's last address appearing in the Corporation's security registry) not
less than 5 nor more than 10 days prior to the Redemption Date, which notice
shall specify the Redemption Date and refer to Section 6.5 (including a
statement of the Current Market Price per Common Share) and this Section 6.6.
Section 6.7 Surrender of Preferred Stock
Upon any redemption of the Series A Preferred Stock pursuant to Sections
6.5 and 6.6, the Holder shall either deliver the Series A Preferred Stock by
hand to the Corporation at its principal executive offices or surrender the same
to the Corporation at such address by express courier within 14 days after the
date that the Buyer receives payment therefore. Payment of the
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Optional Redemption Price shall be made by the Corporation to the Holder by wire
transfer of immediately available funds to such account(s) as the Holder shall
specify to the Corporation. If payment of such Optional Redemption Price is not
made in full by the Redemption Date, the Holder shall again have the right to
convert the Series A Preferred Stock as provided in Article 6 hereof.
Section 6.8 Mandatory Conversion
On the third anniversary of the Closing Date (the "Mandatory Conversion
Date"), the Corporation shall convert all Series A Preferred Stock outstanding,
at the Conversion Price utilizing the Stated Value (plus accrued and unpaid
dividends) as the value of each share of Series A Preferred Stock, into shares
of Common Stock registered for resale in open market transactions on the
Registration Statement (as defined in the Registration Rights Agreement), which
Registration Statement shall then be effective under the Securities Act.
Section 6.9 Certain Conversion Limitations
(a) Notwithstanding anything herein to the contrary, the Holder shall not
have the right, and the Corporation shall not have the obligation, to convert
all or any portion of the Series A Preferred Stock (and the Corporation shall
not have the right to pay dividends on the Series A Preferred Stock in shares of
Common Stock) if and to the extent that the issuance to the Holder of shares of
Common Stock upon such conversion (or payment of dividends) would result in the
Holder being deemed the "beneficial owner" of more than 5% of the then
Outstanding shares of Common Stock within the meaning of Section 13(d) of the
Securities Exchange Act of 1934, as amended, and the rules promulgated
thereunder. If any court of competent jurisdiction shall determine that the
foregoing limitation is ineffective to prevent a Holder from being deemed the
beneficial owner of more than 5% of the then Outstanding shares of Common Stock,
then the Corporation shall redeem so many of such Holder's shares (the
"Redemption Shares") of Series A Preferred Stock as are necessary to cause such
Holder to be deemed the beneficial owner of not more than 5% of the then
Outstanding shares of Common Stock. Upon such determination by a court of
competent jurisdiction, the Redemption Shares shall immediately and without
further action be deemed returned to the status of authorized but unissued
shares of Series A Preferred Stock, and the Holder shall have no interest in or
rights under such Redemption Shares. Any and all dividends paid on or prior to
the date of such determination shall be deemed dividends paid on the remaining
shares of Series A Preferred Stock held by the Holder. Such redemption shall be
for cash at a redemption price equal to the sum of (i) 125% of the Stated Value
of the Redemption Shares and (ii) any accrued and unpaid dividends to the date
of such redemption.
(b) Notwithstanding anything herein to the contrary, if and to the extent
that, on any date (the "Section 16 Determination Date"), the holding by the
Holder of shares of the Series A Preferred Stock would result in the Holder's
becoming subject to the provisions of Section 16(b) of the Exchange Act in
virtue of being deemed the "beneficial owner" of more than 10% of the then
Outstanding shares of Common Stock, then the Holder shall not have the right,
and the Corporation shall not have the obligation, to convert so many of such
Holder's shares of Series A Preferred Stock (the "Section 16 Redemption Shares")
as shall cause such Holder to be deemed the beneficial owner of more than 10% of
the then Outstanding shares of Common Stock during the period ending 60 days
after the Section 16 Determination Date. If any court of competent jurisdiction
shall determine that the foregoing limitation is ineffective to prevent a Holder
from being deemed the beneficial owner of more than 10% of the then Outstanding
shares of
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Common Stock for the purposes of such Section 16(b), then the Corporation
shall redeem the Section 16 Redemption Shares. Upon such determination by a
court of competent jurisdiction, the Section 16 Redemption Shares shall
immediately and without further action be deemed returned to the status of
authorized but unissued shares of Series A Preferred Stock, and the Holder shall
have no interest in or rights under such Section 16 Redemption Shares. Any and
all dividends paid on or prior to the date of such determination shall be deemed
dividends paid on the remaining shares of Series A Preferred Stock held by the
Holder. Such redemption shall be for cash at a redemption price equal to the sum
of (i) 110% of the Stated Value of the Section 16 Redemption Shares and (ii) any
declared and unpaid dividends to the date of such redemption.
(c) Unless the Corporation shall have obtained the approval of its voting
stockholders to such issuance in accordance with the rules of Nasdaq or any
other stock market rules with which the Corporation shall be required to comply,
but only to the extent required thereby, the Corporation shall not issue shares
of Common Stock (i) upon conversion of any shares of Series A Preferred Stock or
(ii) as a dividend on the Series A Preferred Stock, if such issuance of Common
Stock, when added to the number of shares of Common Stock previously issued by
the Corporation (x) upon conversion of shares of the Series A Preferred Stock,
(y) upon exercise of the Warrants issued pursuant to the terms of the Securities
Purchase Agreement and (z) in payment of dividends on the Series A Preferred
Stock, would equal or exceed 20% of the number of shares of the Corporation's
Common Stock which were issued and Outstanding on the Issue Date (the "Maximum
Issuance Amount"). In the event that a properly executed Conversion Notice is
received by the Corporation which would require the Corporation to issue shares
of Common Stock equal to or in excess of the Maximum Issuance Amount, the
Corporation shall honor such conversion request by (a) converting the number of
shares of Series A Preferred Stock stated in the Conversion Notice which is not
in excess of the Maximum Issuance Amount and (b) redeeming the remaining number
of shares of Series A Preferred Stock stated in the Conversion Notice in cash at
a price equal to 125% of the Stated Value thereof, together with all accrued and
unpaid dividends on the total number of shares stated in the Conversion Notice.
In the event that the Corporation shall elect to pay a dividend in shares of
Common Stock which would require the Corporation to issue shares of Common Stock
equal to or in excess of the Maximum Issuance Amount, the Corporation shall pay
(1) a dividend in a number of shares of Common Stock equal to one less than the
Maximum Issuance Amount and (2) the balance of the dividend in cash out of funds
legally available for the payment of dividends.
ARTICLE 7
VOTING RIGHTS
The Holders of the Series A Preferred Stock have no voting power, except as
otherwise provided by the General Corporation Law of the State of Delaware (the
"DGCL"), in this Article 7, and in Article 8 below.
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Notwithstanding the above, the Corporation shall provide each Holder of
Series A Preferred Stock with prior notification of any meeting of the
shareholders (and copies of all proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed liquidation, dissolution or
winding up of the Corporation, the Corporation shall mail a notice thereof to
each Holder at least 30 days prior to the date on which any such record is to be
taken for the purpose of such dividend, distribution, right or other event,
together with a brief statement regarding the amount and character of such
dividend, distribution, right or other event to the extent known at such time.
To the extent that under the DGCL the vote of the Holders of the Series A
Preferred Stock, voting separately as a class or series as applicable, is
required to authorize a given action of the Corporation, the affirmative vote or
consent of the Holders of at least a majority of the outstanding shares of
Series A Preferred Stock represented at a duly held meeting at which a quorum is
present or by written consent of a majority of the outstanding shares of Series
A Preferred Stock (except as otherwise may be required under the DGCL) shall
constitute the approval of such action by the class. To the extent that under
the DGCL Holders of the Series A Preferred Stock are entitled to vote on a
matter with holders of Common Stock, voting together as one class, each share of
Series A Preferred Stock shall be entitled to a number of votes equal to the
number of shares of Common Stock into which it is then convertible using the
record date for the taking of such vote of shareholders as the date as of which
the Conversion Price is calculated. Holders of the Series A Preferred Stock
shall be entitled to notice of all shareholder meetings or written consents (and
copies of all proxy materials and other information sent to shareholders) with
respect to which they would be entitled to vote, which notice would be provided
pursuant to the Corporation's bylaws and the DGCL.
ARTICLE 8
PROTECTIVE PROVISIONS
So long as shares of Series A Preferred Stock are outstanding, the
Corporation shall not, without first obtaining the approval (by vote or written
consent, as provided in the DGCL) of the Holders of at least a majority of the
then outstanding shares of Series A Preferred Stock:
(a) alter or change the rights, preferences or privileges of the Series A
Preferred Stock;
(b) create any new class or series of capital stock having a preference
over the Series A Preferred Stock as to distribution of assets upon liquidation,
dissolution or winding up of the Corporation ("Senior Securities") or alter or
change the rights, preferences or privileges of any Senior Securities so as to
affect adversely the Series A Preferred Stock;
(c) increase the authorized number of shares of Series A Preferred Stock;
or
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(d) do any act or thing not authorized or contemplated by this Certificate
of Designation which would result in taxation of the Holders of shares of the
Series A Preferred Stock under Section 305 of the Internal Revenue Code of 1986,
as amended (or any comparable provision of the Internal Revenue Code of 1986, as
hereafter from time to time amended).
In the event Holders of least a majority of the then outstanding shares of
Series A Preferred Stock agree to allow the Corporation to alter or change the
rights, preferences or privileges of the shares of Series Preferred Stock,
pursuant to subsection (a) above, so as to affect the Series A Preferred Stock,
then the Corporation will deliver notice of such approved change to the Holders
of the Series Preferred Stock that did not agree to such alteration or change
(the "Dissenting Holders") and Dissenting Holders shall have the right for a
period of 30 days to convert pursuant to the terms of this Certificate of
Designation as in effect prior to such alteration or change or to continue to
hold their shares of Series A Preferred Stock.
Notwithstanding anything to the contrary herein, if at any time the
Corporation shall "spin-off" certain of its assets or businesses by
transferring, directly or indirectly, such assets or businesses to a Subsidiary
of the Corporation ("Spinco") and making a divided (the "Spin-off Dividend") to
the Corporation's stockholders of the shares of capital stock of Spinco, then
prior to making the Spin-off Dividend, the Corporation shall cause Spinco to
issue to each Holder that number of shares of preferred stock of Spinco with
substantially identical rights, preferences, privileges, powers, restrictions
and other terms as the Series A Preferred Stock equal to 50% of the number of
shares of Series A Preferred Shares held by such Holder immediately prior to the
Spin-off Dividend.
ARTICLE 9
MISCELLANEOUS
Section 9.1 Loss, Theft, Destruction of Preferred Stock
Upon receipt of evidence satisfactory to the Corporation of
the loss, theft, destruction or mutilation of shares of Series A Preferred Stock
and, in the case of any such loss, theft or destruction, upon receipt of
indemnity or security reasonably satisfactory to the Corporation, or, in the
case of any such mutilation, upon surrender and cancellation of the Series A
Preferred Stock, the Corporation shall make, issue and deliver, in lieu of such
lost, stolen, destroyed or mutilated shares of Series A Preferred Stock, new
shares of Series A Preferred Stock of like tenor. The Series A Preferred Stock
shall be held and owned upon the express condition that the provisions of this
Section 9.1 are exclusive with respect to the replacement of mutilated,
destroyed, lost or stolen shares of Series A Preferred Stock and shall preclude
any and all other rights and remedies notwithstanding any law or statute
existing or hereafter enacted to the contrary with respect to the replacement of
negotiable instruments or other securities without the surrender thereof.
Section 9.2 Who Deemed Absolute Owner
The Corporation may deem the Person in whose name the Series A Preferred
Stock shall be registered upon the registry books of the Corporation to be, and
may treat it as, the absolute owner of the Series A Preferred Stock for the
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purpose of receiving payment of dividends on the Series A Preferred Stock, for
the conversion of the Series A Preferred Stock and for all other purposes, and
the Corporation shall not be affected by any notice to the contrary. All such
payments and such conversion shall be valid and effectual to satisfy and
discharge the liability upon the Series A Preferred Stock to the extent of the
sum or sums so paid or the conversion so made.
Section 9.3 Fundamental Corporate Change
In the case of the occurrence of any Fundamental Corporate Change described
in Section 5(b), the Corporation shall cause to be mailed to the Holder of the
Series A Preferred Stock at its last address as it appears in the Corporation's
security registry, at least 20 days prior to the applicable record, effective or
expiration date specified in connection therewith (or, if such 20 days notice is
not possible, at the earliest possible date prior to any such record, effective
or expiration date), a notice stating (x) the date on which a record is to be
taken for the purpose of such corporate action, or if a record is not to be
taken, the date as of which the Holders of record of Series A Preferred Stock to
be entitled to any dividend, distribution, issuance or granting of rights,
options or warrants are to be determined or the date on which such Fundamental
Corporate Change is expected to become effective, and (y) the date as of which
it is expected that Holders of record of Series A Preferred Stock will be
entitled to exchange their shares for securities, cash or other property
deliverable upon such Fundamental Corporate Change.
Section 9.4 Register
The Corporation shall keep at its principal office a register in which the
Corporation shall provide for the registration of the Series A Preferred Stock.
Upon any transfer of the Series A Preferred Stock in accordance with the
provisions hereof, the Corporation shall register such transfer on the register
of Series A Preferred Stock.
Section 9.5 Withholding
To the extent required by applicable law, the Corporation may withhold
amounts for or on account of any taxes imposed or levied by or on behalf of any
taxing authority in the United States having jurisdiction over the Corporation
from any payments made pursuant to the Series A Preferred Stock.
Section 9.6 Headings
The headings of the Articles and Sections of this Certificate of
Designation are inserted for convenience only and do not constitute a part of
this Certificate of Designation.
Section 9.7 Severability
If any provision of this Certificate of Designation, or the application
thereof to any person or entity or any circumstance, is invalid or
unenforceable, (i) a suitable and equitable provision shall be substituted
therefor in order to carry out, so far as may be valid and enforceable, the
intent and purpose of such invalid or unenforceable provision, and (ii)the
remainder of this Certificate of Designation and the application of such
provision to other persons, entities or circumstances shall not be affected by
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such invalidity or unenforceability, nor shall such invalidity or
unenforceability affect the validity or enforceability of such provision, or the
application thereof, in any other jurisdiction.
[SIGNATURE PAGE FOLLOWS.]
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IN WITNESS WHEREOF, the Corporation has caused this Second Amended
Certificate of Designation to be signed by its duly authorized officers on
February 3, 2000.
EDUCATIONAL VIDEO CONFERENCING, INC.
By: /s/ Dr. Arol I. Buntzman
_________________________________
Name: Dr. Arol I. Buntzman
Title: Chairman & CEO
<PAGE>
ANNEX I
FORM OF CONVERSION NOTICE
To: Educational Video Conferencing, Inc.
35 East Grassy Sprain Road
Yonkers, NY 10710
The undersigned owner of this Series A 7.5% Convertible Preferred Stock
(the "Series A Preferred Stock") issued by Educational Video Conferencing, Inc.
(the "Corporation") hereby irrevocably exercises its option to convert
___________ shares of the Series A Preferred Stock into _______ shares of the
common stock, par value $.0001 per share ("Common Stock"), of the Corporation in
accordance with the terms of the Certificate of Designation. This conversion is
being made pursuant to the _______ paragraph of Article _ of the Certificate of
Designations with a conversion price of $____ per share of Common
Stock. The undersigned hereby instructs the Corporation to convert the number of
shares of the Series A Preferred Stock specified above into Shares of Common
Stock Issued at Conversion in accordance with the provisions of Article 6 of the
Certificate of Designation. The undersigned directs that the Common Stock
issuable and certificates therefor deliverable upon conversion and the
recertificated Series A Preferred Stock, if any, not being surrendered for
conversion hereby, together with any check in payment for fractional Common
Stock, be issued in the name of and delivered to the undersigned unless a
different name has been indicated below. All capitalized terms used and not
defined herein have the respective meanings assigned to them in the Certificate
of Designation. So long as the Series A Preferred Stock shall have been
surrendered for conversion hereby, the conversion pursuant hereto shall be
deemed to have been effected at the date and time specified below, and at such
time the rights of the undersigned as a Holder of the Series A Preferred Stock
shall cease and the Person or Persons in whose name or names the Common Stock
Issued at Conversion shall be issuable shall be deemed to have become the holder
or holders of record of the Common Shares represented thereby and all voting and
other rights associated with the beneficial ownership of such Common Shares
shall at such time vest with such Person or Persons.
Date and time:____________________________________
___________________________________
Signature
Fill in for registration of Series A Preferred Stock:
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
Please print name and address (including zip code number)
5
SECURITIES PURCHASE AGREEMENT
This SECURITIES PURCHASE AGREEMENT, dated as of February 3, 2000 (this
"Agreement"), by and between Educational Video Conferencing, Inc., a Delaware
corporation, with principal executive offices located at 35 East Grassy Sprain
Road, Yonkers, NY 10710 (the "Company"), and The Shaar Fund Ltd. ("Buyer").
WHEREAS, Buyer desires to purchase from the Company, and the Company
desires to issue and sell to Buyer, upon the terms and subject to the conditions
of this Agreement, (i) 400,000 shares of the Company's Series A 7.5% Convertible
Preferred Stock, par value $.0001 per share (collectively, the "Preferred
Shares"), and (ii) Common Stock Purchase Warrants in the form attached hereto as
Exhibit A to purchase 40,000 shares of Common Stock (as defined below)
(collectively, the "Warrants");
WHEREAS, upon the terms and subject to the designations, preferences
and rights set forth in the Company's Certificate of Designation which was
amended by the Company's Amended Certificate of Designation which was further
amended by the Company's Second Amended Certificate of Designation of Series A
7.5% Convertible Preferred Stock in the form attached hereto as Exhibit B (the
"Certificate of Designation"), the Preferred Shares are convertible into shares
of the Company's common stock, par value $.0001 per share (the "Common Stock");
and
WHEREAS, the Warrants, upon the terms and subject to the conditions
specified in the Warrants, will be exercisable for a period of three years;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
I. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS
A. Transaction. Buyer hereby agrees to purchase from the Company, and
the Company has offered and hereby agrees to issue and sell to Buyer in a
transaction exempt from the registration and prospectus delivery requirements of
the Securities Act of 1933, as amended (the "Securities Act"), the Preferred
Shares and the Warrants to purchase 40,000 shares of Common Stock.
B. Purchase Price; Form of Payment. The purchase price for the
Preferred Shares and the Warrants to be purchased by Buyer hereunder shall be
$4,000,000 (the "Purchase Price"). Simultaneously with the execution of this
Agreement, Buyer shall pay the Purchase Price by wire transfer of immediately
available funds to the escrow agent (the "Escrow Agent") identified in those
certain Escrow Instructions of even date herewith, a copy of which is attached
hereto as Exhibit C (the "Escrow Instructions"). Simultaneously with the
execution of this Agreement, the Company shall deliver one or more duly
authorized, issued and executed certificates (I/N/O Buyer or, if the Company
otherwise has been notified, I/N/O Buyer's nominee) evidencing the Preferred
Shares and the Warrants which Buyer is purchasing, to the Escrow Agent or its
designated depository. By executing and delivering this Agreement, Buyer and the
Company each hereby agree to observe the terms and conditions of the Escrow
Instructions, all of which are incorporated herein by reference as if fully set
forth herein.
C. Method of Payment. Payment into and out of escrow of the Purchase
Price shall be made as set forth in the Escrow Instructions.
II. BUYER'S REPRESENTATIONS AND WARRANTIES
Buyer represents and warrants to and covenants and agrees with the
Company as follows:
<PAGE>
A. Buyer is purchasing the Preferred Shares, the Warrants, the Common
Stock issuable upon exercise of the Warrants (the "Warrant Shares"), the Common
Stock, if any, issuable in payment of dividends on the Preferred Shares (the
"Dividend Shares"), and the Common Stock issuable upon conversion or redemption
of the Preferred Shares (the "Conversion Shares" and, collectively with the
Preferred Shares, the Warrants, the Warrant Shares and the Dividend Shares, the
"Securities") for its own account, for investment purposes only and not with a
view towards or in connection with the public sale or distribution thereof in
violation of the Securities Act.
B. Buyer is (i) an "accredited investor" within the meaning of Rule
501 of Regulation D under the Securities Act, (ii) experienced in making
investments of the kind contemplated by this Agreement, (iii) capable, by reason
of its business and financial experience, of evaluating the relative merits and
risks of an investment in the Securities, and (iv) able to afford the loss of
its investment in the Securities.
C. Buyer understands that the Securities are being offered and sold by
the Company in reliance on an exemption from the registration requirements of
the Securities Act and equivalent state securities and "blue sky" laws, and that
the Company is relying upon the accuracy of, and Buyer's compliance with,
Buyer's representations, warranties and covenants set forth in this Agreement to
determine the availability of such exemption and the eligibility of Buyer to
purchase the Securities;
D. Buyer understands that the Securities have not been approved or
disapproved by the Securities and Exchange Commission (the "Commission") or any
state securities commission.
E. This Agreement has been duly and validly authorized, executed and
delivered by Buyer and is a valid and binding agreement of Buyer enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and except as rights to
indemnity and contribution may be limited by federal or state securities laws or
the public policy underlying such laws.
F. Buyer has not relied on any representations made by J.P. Turner &
Company, L.L.C. in entering into this Agreement and the transactions
contemplated hereby.
III. THE COMPANY'S REPRESENTATIONS
The Company represents and warrants to Buyer that:
A. Capitalization.
1. The authorized capital stock of the Company consists solely
of: (x) 20,000,000 shares of Common Stock, of which 4,347,243 shares are
issued and outstanding on the date hereof; and (y) 1,000,000 shares of
preferred stock, of which no shares are issued. As of the date hereof, the
Company has outstanding stock options to purchase 420,000 shares of Common
Stock and Warrants outstanding to purchase 570,252 shares of Common Stock
exclusive of the shares of Common Stock underlying the Warrants referred to
in footnotes (1) and (2) on Schedule III.A.1 hereto. The exercise price for
each of such outstanding options and Warrants is accurately set forth on
Schedule III.A.1. hereto.
2. The Conversion Shares, the Dividend Shares and the Warrant
Shares have been duly and validly authorized and reserved for issuance by
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the Company, and when issued by the Company upon conversion of, or in lieu
of cash dividends on, the Preferred Shares and on exercise of the Warrants
will be duly and validly issued, fully paid and nonassessable and will not
subject the holder thereof to personal liability by reason of being such
holder.
3. Except as disclosed on Schedule III.A.3. hereto, there are no
preemptive, subscription, "call," right of first refusal or other similar
rights to acquire any capital stock of the Company or any of its
Subsidiaries or other voting securities of the Company that have been
issued or granted to any person and no other obligations of the Company or
any of its Subsidiaries to issue, grant, extend or enter into any security,
option, warrant, "call," right, commitment, agreement, arrangement or
undertaking with respect to any of their respective capital stock.
4. Schedule III.A.4. hereto lists all the Subsidiaries of the
Company (the "Subsidiaries"). Except as disclosed on Schedule III.A.4.
hereto, the Company does not own or control, directly or indirectly, any
interest in any other corporation, partnership, limited liability company,
unincorporated business organization, association, trust or other business
entity.
5. The Company has delivered to Buyer complete and correct copies
of the Certificate of Incorporation and the By-Laws of each of the Company
and the Subsidiaries, in each case as amended to the date of this
Agreement. Except as set forth on Schedule III.A.5., the Company has
delivered to Buyer true and complete copies of all minutes of the Board of
Directors of the Company (the "Board of Directors") since March, 1997.
B. Organization; Reporting Company Status.
1. Each of the Company and the Subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
state or jurisdiction in which it is incorporated and is duly qualified as
a foreign corporation in all jurisdictions in which the failure so to
qualify would reasonably be expected to have a material adverse effect on
the business, properties, prospects, condition (financial or otherwise) or
results of operations of the Company and the Subsidiaries taken as a whole
or on the consummation of any of the transactions contemplated by this
Agreement (a "Material Adverse Effect").
2. The Company has registered the Common Stock pursuant to
Section 12 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"). The Common Stock is listed and traded on the Nasdaq
SmallCap Market ("Nasdaq") and the Company has not received any notice
regarding, and to its knowledge there is no threat of, the termination or
discontinuance of the eligibility of the Common Stock for such listing.
C. Authorization. The Company (i) has duly and validly authorized and
reserved for issuance 1,000,000 shares of Common Stock, which is a number
sufficient for the conversion of and the payment of dividends (in lieu of cash
payments) on the 400,000 Preferred Shares and the exercise of the Warrants in
full, and (ii) at all times from and after the date hereof shall have a
sufficient number of shares of Common Stock duly and validly authorized and
reserved for issuance to satisfy the conversion of Preferred Shares, the payment
of dividends (in lieu of cash payments) on the Preferred Shares and the exercise
of the Warrants in full. The Company understands and acknowledges the
potentially dilutive effect on the Common Stock of the issuance of the Preferred
Shares and of the Conversion Shares, the Dividend Shares and the Warrant Shares
upon the conversion of, and payment of dividends on, the Preferred Shares and
the exercise of the Warrants, respectively. The Company further acknowledges
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that its obligation to issue Conversion Shares upon conversion of the Preferred
Shares and Warrant Shares upon exercise of the Warrants in accordance with this
Agreement, the Certificate of Designation and the Warrants is absolute and
unconditional regardless of the dilutive effect that such issuance may have on
the ownership interests of other stockholders of the Company and notwithstanding
the commencement of any case under 11 U.S.C. ss. 101 et seq. (the "Bankruptcy
Code"). In the event the Company is a debtor under the Bankruptcy Code, the
Company hereby waives to the fullest extent permitted any rights to relief it
may have under 11 U.S.C. ss. 362 in respect of the conversion of the Preferred
Shares and the exercise of the Warrants. The Company agrees, without cost or
expense to Buyer, to take or consent to any and all action necessary to
effectuate relief under 11 U.S.C. ss. 362. Schedule III.C. hereto sets forth (i)
all issuances and sales by the Company since December 31, 1998 of its capital
stock, and other securities convertible into or exercisable or exchangeable for
capital stock of the Company, (ii) the amount of such securities sold, including
the amount of any underlying shares of capital stock, (iii) the purchaser
thereof, (iv) the amount paid therefor, and (v) the material terms of all
outstanding capital stock of the Company (other than the Common Stock).
D. Authority; Validity and Enforceability. The Company has the
requisite corporate power and authority to file, and perform its obligations
under, the Certificate of Designation and to enter into the Documents (as
hereinafter defined) and to perform all of its obligations hereunder and
thereunder (including the issuance, sale and delivery to Buyer of the
Securities). The execution, delivery and performance by the Company of the
Documents and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the filing of the Certificate
of Designation with the Delaware Secretary of State's office, the issuance of
the Preferred Shares and the Warrants and the issuance and reservation for
issuance of the Conversion Shares, the Dividend Shares and the Warrant Shares)
have been duly and validly authorized by all necessary corporate action on the
part of the Company. Each of the Documents has been duly and validly executed
and delivered by the Company and the Certificate of Designation has been duly
filed with the Delaware Secretary of State's office by the Company, and each
Document constitutes a valid and binding obligation of the Company enforceable
against it in accordance with its terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and except as rights to
indemnity and contribution may be limited by federal or state securities laws or
the public policy underlying such laws. The Securities have been duly and
validly authorized for issuance by the Company and, when executed and delivered
by the Company, will be valid and binding obligations of the Company enforceable
against it in accordance with their terms, subject to applicable bankruptcy,
insolvency, fraudulent conveyance, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally. For purposes of this
Agreement, the term "Documents" means (i) this Agreement; (ii) the Registration
Rights Agreement of even date herewith between the Company and Buyer, a copy of
which is annexed hereto as Exhibit D (the "Registration Rights Agreement");
(iii) the Certificate of Designation; (iv) the Warrants; and (v) the Escrow
Instructions.
E. Validity of Issuance of the Securities. The Preferred Shares and
the Warrants as of the Closing Date, and the Conversion Shares, the Dividend
Shares and the Warrant Shares upon their issuance in accordance with the
Certificate of Designation and the Warrants, respectively, will be validly
issued and outstanding, fully paid and nonassessable, and not subject to any
preemptive rights, rights of first refusal, tag-along rights, drag-along rights
or other similar rights.
F. Non-contravention. Except as set forth on Schedule III.F., the
execution and delivery by the Company of the Documents, the issuance of the
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Securities, and the consummation by the Company of the other transactions
contemplated hereby and thereby, including, without limitation, the filing of
the Certificate of Designation with the Delaware Secretary of State's office, do
not, and compliance with the provisions of this Agreement and other Documents
will not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of a
material benefit under, or result in the creation of any Lien (as defined in
Section III.V.) upon any of the properties or assets of the Company or any of
its Subsidiaries under, or result in the termination of, or require that any
consent be obtained or any notice be given with respect to, (i) the Certificate
of Incorporation or By-Laws of the Company or the comparable charter or
organizational documents of any of its Subsidiaries, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease, contract or other agreement,
instrument or permit applicable to the Company or any of its Subsidiaries or
their respective properties or assets, or (iii) any Law (as defined in Section
III.N.) applicable to, or any judgment, decree or order of any court or
government body having jurisdiction over, the Company or any of its Subsidiaries
or any of their respective properties or assets.
G. Approvals. No authorization, approval or consent of any court or
public or governmental authority is required to be obtained by the Company for
the issuance and sale of the Preferred Shares or the Warrants (or the Conversion
Shares, the Dividend Shares or Warrant Shares) to Buyer as contemplated by this
Agreement, except such authorizations, approvals and consents as have been
obtained by the Company prior to the date hereof.
H. Commission Filings. The Company has properly and timely filed with
the Commission all reports, proxy statements, forms and other documents required
to be filed with the Commission under the Securities Act and the Exchange Act
since February 23, 1999 (the "Commission Filings"). As of their respective
dates, (i) the Commission Filings complied in all material respects with the
requirements of the Securities Act or the Exchange Act, as the case may be, and
the rules and regulations of the Commission promulgated thereunder applicable to
such Commission Filings, and (ii) none of the Commission Filings contained at
the time of its filing any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. The financial statements of the Company included in the
Commission Filings, as of the dates of such documents, were true and complete in
all material respects and complied with applicable accounting requirements and
the published rules and regulations of the Commission with respect thereto, were
prepared in accordance with generally accepted accounting principles in the
United States ("GAAP") (except in the case of unaudited statements permitted by
Form 10-Q under the Exchange Act) applied on a consistent basis during the
periods involved (except as may be indicated in the notes thereto) and fairly
presented the consolidated financial position of the Company and its
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 statements, to normal year-end audit adjustments that in the aggregate
are not material and to any other adjustment described therein).
I. Absence of Certain Changes. Since the Balance Sheet Date (as
defined in Section III.M.), there has not occurred any change, event or
development in the business, financial condition, prospects or results of
operations of the Company and the Subsidiaries, there has not existed any
condition having or reasonably likely to have a Material Adverse Effect, and the
Company and the Subsidiaries have conducted their respective businesses only in
the ordinary course.
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<PAGE>
J. Full Disclosure. There is no fact known to the Company (other than
general economic or industry conditions known to the public generally) that has
not been fully disclosed in writing to Buyer that (i) reasonably could be
expected to have a Material Adverse Effect or (ii) reasonably could be expected
to materially and adversely affect the ability of the Company to perform its
obligations pursuant to the Documents.
K. Absence of Litigation. Except as set forth on Schedule III.K.,
there are (i) no suits, actions or proceedings pending or, to the knowledge of
the Company, threatened against the Company or any of its Subsidiaries, (ii) no
complaints, lawsuits, charges or other proceedings pending or, to the knowledge
of the Company, threatened in any forum by or on behalf of any present or former
employee of the Company or any of its Subsidiaries, any applicant for employment
or classes of the foregoing alleging breach of any express or implied contract
of employment, any applicable law governing employment or the termination
thereof or other discriminatory, wrongful or tortious conduct in connection with
the employment relationship, and (iii) no judgments, decrees, injunctions or
orders of any court or other governmental entity or arbitrator outstanding
against the Company or any Subsidiary.
L. Absence of Events of Default. Except as set forth in Schedule
III.L., no "Event of Default" (as defined in any agreement or instrument to
which the Company is a party) and no event which, with notice, lapse of time or
both, would constitute an Event of Default (as so defined), has occurred and is
continuing.
M. Financial Statements; No Undisclosed Liabilities. The Company has
delivered to Buyer true and complete copies of the (i) audited balance sheet of
the Company and the Subsidiaries as at December 31, 1998 and 1997, respectively,
and the related audited statements of income, changes in stockholders' equity
and cash flows for the two fiscal years ended December 31, 1998 and 1997
including the related notes and schedules thereto and (ii) unaudited balance
sheets of the Company and the Subsidiaries and the statements of income, changes
in stockholders' equity and cash flows as at the end of and for each fiscal
quarter ended since December 31, 1998 including the related notes and schedules
thereto, all certified by the chief financial officer of the Company
(collectively, the "Financial Statements"), and all management letters, if any,
from the Company's independent auditors relating to the dates and periods
covered by the Financial Statements. Each of the Financial Statements is
complete and correct in all material respects, has been prepared in accordance
with GAAP (subject, in the case of the interim Financial Statements, to normal
year end adjustments and the absence of footnotes), and fairly presents the
financial position, results of operations and cash flows of the Company as at
the dates and for the periods indicated. For purposes hereof, the audited
balance sheet of the Company as at December 31, 1998 is hereinafter referred to
as the "Balance Sheet" and December 31, 1998 is hereinafter referred to as the
"Balance Sheet Date". The Company has no indebtedness, obligations or
liabilities of any kind (whether accrued, absolute, contingent or otherwise, and
whether due or to become due), which was not fully reflected in, reserved
against or otherwise described in the Balance Sheet or the notes thereto or
incurred in the ordinary course of business consistent with the Company's past
practices since the Balance Sheet Date.
N. Compliance with Laws; Permits. Each of the Company and its
Subsidiaries is in compliance with all laws, rules, regulations, codes,
ordinances and statutes (collectively, "Laws") applicable to it or to the
conduct of its business. The Company possesses all material permits, approvals,
authorizations, licenses, certificates and consents from all public and
governmental authorities which are necessary to conduct its business.
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<PAGE>
O. Related Party Transactions. Except as set forth on Schedule III.O.
hereto, neither the Company nor any of its officers, directors or "Affiliates"
(as such term is defined in Rule 12b-2 under the Exchange Act) nor any family
member of any officer, director or Affiliate of the Company has borrowed any
moneys from or has outstanding any indebtedness or other similar obligations to
the Company or any of the Subsidiaries. Except as set forth on Schedule III.O.
hereto, neither the Company nor any of its officers, directors or Affiliates nor
any family member of any officer, director or Affiliate of the Company (i) owns
any direct or indirect interest constituting more than a 1% equity (or similar
profit participation) interest in, or controls or is a director, officer,
partner, member or employee of, or consultant or lender to or borrower from, or
has the right to participate in the profits of, any person or entity which is
(x) a competitor, supplier, customer, landlord, tenant, creditor or debtor of
the Company or any Subsidiary, (y) engaged in a business related to the business
of the Company or any Subsidiary, or (z) a participant in any transaction to
which the Company or any Subsidiary is a party or (ii) is a party to any
contract, agreement, commitment or other arrangement with the Company or any
Subsidiary.
P. Insurance. Each of the Company and the Subsidiaries maintains
property and casualty, general liability, workers' compensation, environmental
hazard, personal injury and other similar types of insurance with financially
sound and reputable insurers that is adequate and consistent with industry
standards and the Company's historical claims experience. None of the Company or
the Subsidiaries has received notice from, and none of them has knowledge of any
threat by, any insurer (that has issued any insurance policy to the Company or
any Subsidiary) that such insurer intends to deny coverage under or cancel,
discontinue or not renew any insurance policy presently in force.
Q. Securities Law Matters. Assuming the accuracy of the
representations and warranties of Buyer set forth in Article II hereof, the
offer and sale by the Company of the Securities is exempt from (i) the
registration and prospectus delivery requirements of the Securities Act and the
rules and regulations of the Commission thereunder and (ii) the registration
and/or qualification provisions of all applicable state securities and "blue
sky" laws. Other than pursuant to an effective registration statement under the
Securities Act, the Company has not issued, offered or sold the Preferred Shares
or any shares of Common Stock (including for this purpose any securities of the
same or a similar class as the Preferred Shares or Common Stock, or any
securities convertible into or exchangeable or exercisable for the Preferred
Shares or Common Stock or any such other securities) within the one-year period
next preceding the date hereof, except as disclosed on Schedule III.Q. hereto,
and the Company shall not directly or indirectly take, and shall not permit any
of its directors, officers or Affiliates directly or indirectly to take, any
action (including, without limitation, any offering or sale to any person or
entity of the Preferred Shares or shares of Common Stock) which will make
unavailable the exemption from Securities Act registration being relied upon by
the Company for the offer and sale to Buyer of the Preferred Shares and the
Warrants (and the Conversion Shares, the Dividend Shares and the Warrant Shares)
as contemplated by this Agreement. No form of general solicitation or
advertising has been used or authorized by the Company or any of its officers,
directors or Affiliates in connection with the offer or sale of the Preferred
Shares and the Warrants (and the Conversion Shares, the Dividend Shares and the
Warrant Shares) as contemplated by this Agreement or any other agreement to
which the Company is a party.
R. Environmental Matters.
Except as set forth on Schedule III.R. hereto:
1. The Company, the Subsidiaries and their respective operations
are in compliance with all applicable Environmental Laws and all permits
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(including terms, conditions, and limitations therein) issued pursuant to
Environmental Laws or otherwise;
2. Each of the Company and the Subsidiaries has all permits,
licenses, waivers, exceptions, and exemptions required under all applicable
Environmental Laws necessary to operate its business;
3. None of the Company or the Subsidiaries is the subject of any
outstanding written order of or agreement with any governmental authority
or person respecting (i) Environmental Laws or permits, (ii) Remedial
Action or (iii) any Release or threatened Release of Hazardous Materials;
4. None of the Company or the Subsidiaries has received any
written communication alleging that it may be in violation of any
Environmental Law or any permit issued pursuant to any Environmental Law,
or may have any liability under any Environmental Law;
5. None of the Company or the Subsidiaries has any liability,
contingent or otherwise, in connection with any presence, treatment,
storage, disposal or Release of any Hazardous Materials whether on property
owned or operated by the Company or any Subsidiary or property of third-
parties, and none of the Company or the Subsidiaries has transported, or
arranged for transportation of, any Hazardous Materials for treatment or
disposal on any property;
6. There are no investigations of the business, operations, or
currently or previously owned, operated or leased property of the Company
or any Subsidiary pending or threatened which could lead to the imposition
of any case or liability pursuant to any Environmental Law;
7. There is not located at any of the properties owned or
operated by the Company or any Subsidiary any (A) underground storage
tanks, (B) asbestos-containing material or (C) equipment containing
polychlorinated biphenyls;
8. Each of the Company and the Subsidiaries has provided to Buyer
all environmentally related assessments, audits, studies, reports,
analyses, and results of investigations that have been performed with
respect to the currently or previously owned, leased or operated properties
or activities of the Company and such Subsidiaries;
9. There are no liens arising under or pursuant to any
Environmental Law on any real property owned, operated, or leased by the
Company or any Subsidiary, and no action of any governmental authority has
been taken or, to the knowledge of the Company, is in process of being
taken which could subject any of such properties to such liens, and none of
the Company or the Subsidiaries has been or is expected to be required to
place any notice or restriction relating to the presence of Hazardous
Material at any real property owned, operated, or leased by it in any deed
to such property;
10. Neither the Company nor any of the Subsidiaries owns,
operates, or leases any hazardous waste generation, treatment, storage, or
disposal facility, as such terms are used pursuant to the RCRA and related
or analogous state, local, or foreign law. None of the properties owned,
operated, or leased by the Company, any of the Subsidiaries or any
predecessor thereof are now, or were in the past, used in any part as a
dump, landfill, or disposal site, and neither the Company, any of the
Subsidiaries nor any predecessor of any of them has filled any wetlands;
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11. The purchase that is the subject of this Agreement will not
require any governmental approvals under Environmental Laws, including
those that are triggered by sales or transfers of businesses or real
property, including, as examples and without limitation, the New Jersey
Industrial Site Recovery Act, N.J. Stat. 13:1K-7 et seq., and the
Connecticut Transfer of Establishments Act, Conn. Gen. Stat. ss. 22a-134 et
seq.;
12. There is no currently existing requirement or requirement to
be imposed in the future by any Environmental Law or Environmental Permit
which could result in the incurrence of a cost that could be reasonably
expected to have a Material Adverse Effect; and
13. Each of the Company and each of the Subsidiaries has
disclosed to Buyer all other acts or conditions that could result in any
costs or liabilities under Environmental Laws.
For purposes of this Section III.R.:
"Environmental Law" means any foreign, federal, state or local
statute, regulation, ordinance, or common law as now or hereafter in effect in
any way relating to the protection of human health, safety or welfare or the
environment including, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act, the Hazardous Materials Transportation
Act, the Resource Conservation and Recovery Act ("RCRA"), the Clean Water Act,
the Clean Air Act, the Toxic Substances Control Act, the Federal Insecticide,
Fungicide, and Rodenticide Act and the Occupational Safety and Health Act, and
the regulations promulgated pursuant to any of them;
"Hazardous Material" means any substance that is listed, classified or
regulated pursuant to any Environmental Law, including petroleum, gasoline, and
any other petroleum product, by-product, fraction or derivative, asbestos or
asbestos-containing material, lead-containing paint, water, or plumbing,
polychlorinated biphenyls, radioactive materials and radon;
"Release" means any placement, release, spill, filtration, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, migration,
or leaching to, through, or under the indoor or outdoor environment, or into,
through, under, or out of any property; and
"Remedial Action" means any action to (x) clean up, remove, remediate,
treat or in any other way address any Hazardous Material; (y) prevent or contain
the Release of any Hazardous Material; or (z) perform studies and investigations
or post-remedial monitoring and care in relation to (x) or (y) above.
S. Labor Matters. Neither the Company nor any of the Subsidiaries is
party to any labor or collective bargaining agreement, and there are no labor or
collective bargaining agreements which pertain to any employees of the Company
or any Subsidiary. No employees of the Company or any of the Subsidiaries are
represented by any labor organization and none of such employees has made a
pending demand for recognition, and there are no representation proceedings or
petitions seeking a representation proceeding presently pending or, to the
Company's knowledge, threatened to be brought or filed, with the National Labor
Relations Board or other labor relations tribunal. There is no organizing
activity involving the Company or any Subsidiary pending or to the Company's
knowledge, threatened by any labor organization or group of employees of the
Company or any of the Subsidiaries. There are no (i) strikes, work stoppages,
slowdowns, lockouts or arbitrations or (ii) material grievances or other labor
disputes pending or, to the knowledge of the Company, threatened against or
involving the Company or any of the Subsidiaries. There are no unfair labor
practice charges, grievances or complaints pending or, to the knowledge of the
Company, threatened by or on behalf of any employee or group of employees of the
Company or any of the Subsidiaries.
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T. ERISA Matters. All Plans maintained by the Company or any of its
Subsidiaries and ERISA Affiliates are listed in Schedule III.T. and copies of
all documentation relating to such Plans (including, but not limited to, copies
of written Plans, written descriptions of oral Plans, summary plan descriptions,
trust agreements, the three most recent annual returns, employee communications
and IRS determination letters) have been delivered to or made available for
review by the Buyer. Each Plan has at all times been maintained and administered
in all material respects in accordance with its terms and the requirements of
applicable law, including ERISA and the Code, and each Plan intended to qualify
under section 401(a) of the Code has at all times since its adoption been so
qualified, and each trust which forms a part of any such plan has at all times
since its adoption been tax-exempt under section 501(a) of the Code. The Company
and each of its Subsidiaries and ERISA Affiliates are in compliance in all
material respects with all provisions of ERISA applicable to it. No Reportable
Event has occurred, been waived or exists as to which the Company or any of its
Subsidiaries and ERISA Affiliates was required to file a report with the PBGC,
and the present value of all liabilities under each Pension Plan (based on those
assumptions used to fund such Plans) listed in Schedule III.T. did not, as of
the most recent annual valuation date applicable thereto, exceed the value of
the assets of such Pension Plan. None of the Company, its Subsidiaries and ERISA
Affiliates has incurred, or reasonably expects to incur, any Withdrawal
Liability with respect to any Multi-employer Plan that could result in a
Material Adverse Effect. None of the Company, its Subsidiaries and ERISA
Affiliates has received any notification that any Multi-employer Plan is in
reorganization or has been terminated within the meaning of Title IV of ERISA,
and no Multi-employer Plan is reasonably expected to be in reorganization or
termination where such reorganization or termination has resulted or could
reasonably be expected to result in increases to the contributions required to
be made to such Plan or otherwise. No direct, contingent or secondary liability
has been incurred or is expected to be incurred by the Company or any of its
Subsidiaries under Title IV of ERISA to any party with respect to any Plan, or
with respect to any other Plan presently or heretofore maintained or contributed
to by any ERISA Affiliate. Neither the Company nor any of its Subsidiaries and
ERISA Affiliates has incurred any liability for any tax imposed under sections
4971 through 4980B of the Code or civil liability under section 502(i) or (l) of
ERISA. No suit, action or other litigation or any other claim which could
reasonably be expected to result in a material liability or expense to the
Company or any of its Subsidiaries or ERISA Affiliates (excluding claims for
benefits incurred in the ordinary course of plan activities) has been brought
or, to the knowledge of the Company, threatened against or with respect to any
Plan and there are no facts or circumstances known to the Company or any of its
Subsidiaries or ERISA Affiliates that could reasonably be expected to give rise
to any such suit, action or other litigation. All contributions to Plans that
were required to be made under such Plans have been made, and all benefits
accrued under any unfunded Plan have been paid, accrued or otherwise adequately
reserved in accordance with GAAP, all of which accruals under unfunded Plans are
as disclosed in Schedule III.T., and the Company, its Subsidiaries and ERISA
Affiliates have each performed all material obligations required to be performed
under all Plans. The execution, delivery and performance of this Agreement and
the other Documents and the consummation of the transactions contemplated hereby
and thereby (including, without limitation, the offer, issue and sale by the
Company, and the purchase by the Buyer, of the Preferred Shares, the Conversion
Shares, the Warrants, the Warrant Shares and Dividend Shares) will not involve
any "prohibited transaction" within the meaning of ERISA or the Code with
respect to any Plan.
As used in this Agreement:
"Code" means the Internal Revenue Code of 1986, as amended.
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"ERISA" means the Employee Retirement Income Security Act of 1974, or
any successor statute, together with the regulations thereunder, as the same may
be amended from time to time.
"ERISA Affiliate" means any trade or business (whether or not
incorporated) that was, is or hereafter may become, a member of a group of which
the Company is a member and which is treated as a single employer under section
414 of the Code.
"Multi-employer Plan" means a multi-employer plan as defined in
section 4001(a)(3) of ERISA to which the Company or any ERISA Affiliate (other
than one considered an ERISA Affiliate only pursuant to subsection (m) or (o) of
section 414 of the Code) is making or accruing an obligation to make
contributions, or has within any of the preceding six plan years made or accrued
an obligation to make contributions.
"PBGC" means the Pension Benefit Guaranty Corporation referred to and
defined in ERISA or any successor thereto.
"Pension Plan" means any pension plan (other than a Multi-employer
Plan) subject to the provision of Title IV of ERISA or section 412 of the Code
that is maintained for employees of the Company or any of its Subsidiaries, or
any ERISA Affiliate.
"Plan" means any bonus, incentive compensation, deferred compensation,
pension, profit sharing, retirement, stock purchase, stock option, stock
ownership, stock appreciation rights, phantom stock, leave of absence, layoff,
vacation, day or dependent care, legal services, cafeteria, life, health,
accident, disability, workmen's compensation or other insurance, severance,
separation or other employee benefit plan, practice, policy or arrangement of
any kind, whether written or oral, or whether for the benefit of a single
individual or more than one individual including, but not limited to, any
"employee benefit plan" within the meaning of section 3(3) of ERISA, including
any Pension Plan.
"Reportable Event" means any reportable event as defined in section
4043(b) of ERISA or the regulations issued thereunder with respect to a Plan.
"Withdrawal Liability" means liability to a Multi-employer Plan as a
result of a complete or partial withdrawal from such Multi-employer Plan, as
such terms are defined in Part I of Subtitle E of Title IV of ERISA.
U. Tax Matters.
1. The Company has filed all material Tax Returns which it is
required to file under applicable Laws; all such Tax Returns are true and
accurate in all material respects and have been prepared in compliance with
all applicable Laws; the Company has paid all Taxes due and owing by it
(whether or not such Taxes are required to be shown on a Tax Return) and
has withheld and paid over to the appropriate taxing authorities all Taxes
which it is required to withhold from amounts paid or owing to any
employee, stockholder, creditor or other third parties; and since the
Balance Sheet Date, the charges, accruals and reserves for Taxes with
respect to the Company (including any provisions for deferred income taxes)
reflected on the books of the Company are adequate to cover any Tax
liabilities of the Company if its current tax year were treated as ending
on the date hereof.
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2. No claim has been made by a taxing authority in a jurisdiction
where the Company does not file tax returns that the Company is or may be
subject to taxation by such jurisdiction. There are no foreign, federal,
state or local tax audits or administrative or judicial proceedings pending
or being conducted with respect to the Company; no information related to
Tax matters has been requested by any foreign, federal, state or local
taxing authority; and, except as disclosed above, no written notice
indicating an intent to open an audit or other review has been received by
the Company from any foreign, federal, state or local taxing authority.
There are no material unresolved questions or claims concerning the
Company's Tax liability. The Company (A) has not executed or entered into a
closing agreement pursuant to section 7121 of the Code or any predecessor
provision thereof or any similar provision of state, local or foreign law;
or (B) has not agreed to or is required to make any adjustments pursuant to
section 481(a) of the Code or any similar provision of state, local or
foreign law by reason of a change in accounting method initiated by the
Company or any of its subsidiaries or has any knowledge that the IRS has
proposed any such adjustment or change in accounting method, or has any
application pending with any taxing authority requesting permission for any
changes in accounting methods that relate to the business or operations of
the Company. The Company has not been a United States real property holding
corporation within the meaning of section 897(c)(2) of the Code during the
applicable period specified in section 897(c)(1)(A)(ii) of the Code.
3. The Company has not made an election under section 341(f) of
the Code. The Company is not liable for the Taxes of another person that is
not a subsidiary of the Company under (A) Treas. Reg. Section 1.1502-6 (or
comparable provisions of state, local or foreign law), (B) as a transferee
or successor, (C) by contract or indemnity or (D) otherwise. The Company is
not a party to any tax sharing agreement. The Company has not made any
payments, is not obligated to make payments and is not a party to an
agreement that could obligate it to make any payments that would not be
deductible under section 280G of the Code except pursuant to the Chief
Executive Officer Change in Control Agreement dated October 1, 1998,
between the Company and Dr. Arol I. Buntzman.
As used in this Agreement:
"IRS" means the United States Internal Revenue Service.
"Tax" or "Taxes" means federal, state, county, local, foreign, or
other income, gross receipts, ad valorem, franchise, profits, sales or use,
transfer, registration, excise, utility, environmental, communications, real or
personal property, capital stock, license, payroll, wage or other withholding,
employment, social security, severance, stamp, occupation, alternative or add-on
minimum, estimated and other taxes of any kind whatsoever (including, without
limitation, deficiencies, penalties, additions to tax, and interest attributable
thereto) whether disputed or not.
"Tax Return" means any return, information report or filing with
respect to Taxes, including any schedules attached thereto and including any
amendment thereof.
V. Property. Except as set forth on Schedule III.V., each of the
Company and the Subsidiaries has good and marketable title to all of its assets
and properties material to the conduct of its business, free and clear of any
liens, pledges, security interests, claims, encumbrances or other restrictions
of any kind (collectively, "Liens"). With respect to any assets or properties it
leases, each of the Company and its Subsidiaries holds a valid and subsisting
leasehold interest therein, free and clear of any Liens, is in compliance, in
all material respects, with the terms of the applicable lease, and enjoys
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peaceful and undisturbed possession under such lease. All of the assets and
properties of the Company and its Subsidiaries that are material to the conduct
of business as presently conducted or as proposed to be conducted by it are in
good operating condition and repair. The inventory of each of the Company and
its Subsidiaries is in good and marketable condition, does not include any
material quantity of items which are obsolete, damaged or slow moving, and is
salable (or may be leased) in the normal course of business as currently
conducted by it.
W. Intellectual Property. The Company owns or possesses adequate and
enforceable rights to use all patents, patent applications, trademarks,
trademark applications, trade names, service marks, copyrights, copyright
applications, licenses, know-how (including trade secrets and other unpatented
and/or unpatentable proprietary or confidential information, systems or
procedures) and other similar rights and proprietary knowledge (collectively,
"Intangibles") necessary for the conduct of its business as now being conducted
including, but not limited to, those described on Schedule III.W. hereto. Except
as set forth on Schedule III.W, the Company has all right, title and interest in
all of the Intangibles, free and clear of any and all Liens. The Company is not
infringing upon or in conflict with any right of any other person with respect
to any Intangibles. Except as disclosed on Schedule III.W. hereto, (i) no claims
have been asserted by any individual, partnership, corporation, unincorporated
organization or association, limited liability company, trust or other entity
(collectively, a "Person") contesting the validity, enforceability, use or
ownership of any Intangibles, and the Company has no knowledge of any basis for
such claim, and (ii) neither the Company nor the Subsidiaries has any knowledge
of infringement or misappropriation of the Intangibles by any third party.
X. Contracts. All contracts, Agreements, notes, instruments,
franchises, leases, licenses, commitments, arrangements or understandings,
written or oral (collectively, "Contracts") which are material to the business
and operations of the Company and the Subsidiaries are in full force and effect
and constitute legal, valid and binding obligations of the Company and the
Subsidiaries and, to the best knowledge of the Company, the other parties
thereto; the Company and the Subsidiaries and, to the best knowledge of the
Company, each other party thereto, have performed in all material respects all
obligations required to be performed by them under the Contracts, and no
material violation or default exists in respect thereof, nor any event that with
notice or lapse of time, or both, would constitute a default thereof, on the
part of the Company and the Subsidiaries or, to the best knowledge of the
Company, any other party thereto; none of the Contracts is currently being
renegotiated; and the validity, effectiveness and continuation of all Contracts
will not be materially adversely affected by the transactions contemplated by
this Agreement.
Y. Registration Rights. Except as set forth on Schedule III.Y., no
Person has, and as of the Closing (as defined in Article VII), no Person shall
have, any demand, "piggy-back" or other rights to cause the Company to file any
registration statement under the Securities Act, relating to any of its
securities or to participate in any such registration statement.
Z. Dividends. The timely payment of dividends on the Preferred Shares
as specified in the Certificate of Designation is not prohibited by the
Certificate of Incorporation or By-Laws of the Company or any Agreement,
Contract, document or other undertaking to which the Company or any of the
Subsidiaries is a party.
AA. Investment Company Act. Neither the Company nor any of the
Subsidiaries is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended (the "Investment Company Act"), nor is the
Company nor any of the Subsidiaries directly or indirectly controlled by or
acting on behalf of any Person which is an "investment company" within the
meaning of the Investment Company Act.
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BB. Business Plan. Any business information of the Company previously
submitted to Buyer in any form, including the projections contained therein, was
prepared by the senior management of the Company in good faith and is based on
assumptions that the Company believes are reasonable. The Company is not aware
of any fact or condition that could reasonably be expected to result in the
Company not achieving the results described in such business plan.
CC. Year 2000 Compliance. The Company has reviewed its products,
business and operations that could be adversely affected by the risk that
computer applications used by the Company and the Subsidiaries may be unable to
recognize, and properly perform date-sensitive functions involving, dates prior
to and after December 31, 1999 (the "Year 2000 Problem"). The Company believes
its internal information and business systems will be able to perform properly
date-sensitive functions for all dates before and after January 1, 2000. In
addition, the Company has surveyed those vendors, suppliers and other third
parties (collectively, the "Outside Parties") with which the Company or any of
the Subsidiaries do business and whose failure to adequately address the Year
2000 Problem could reasonably be expected to adversely affect the business and
operations of the Company or any of the Subsidiaries. Based upon the
aforementioned internal review and surveys of the Outside Parties as of the date
of this Agreement, the Year 2000 Problem has not resulted in, and is not
reasonably expected to have, a Material Adverse Effect.
DD. Internal Controls and Procedures. The Company maintains accurate
books and records and internal accounting controls that provide reasonable
assurance that (i) all transactions to which the Company or each of the
Subsidiaries is a party or by which its properties are bound are executed with
management's authorization; (ii) the reported accountability of the Company's
and the Subsidiaries' assets is compared with existing assets at regular
intervals; (iii) access to the Company's and the Subsidiaries' assets is
permitted only in accordance with management's authorization; and (iv) all
transactions to which any of the Company and the Subsidiaries is a party or by
which its properties are bound are recorded as necessary to permit preparation
of the financial statements of the Company in accordance with GAAP.
EE. Payments and Contributions. Neither the Company nor any of its
Subsidiaries nor any of their respective directors, officers or, to their
respective knowledge, other employees has (i) used any Company funds for any
unlawful contribution, endorsement, gift, entertainment or other unlawful
expense relating to political activity; (ii) made any direct or indirect
unlawful payment of Company funds to any foreign or domestic government official
or employee, (iii) violated or is in violation of any provision of the Foreign
Corrupt Practices Act of 1977, as amended; or (iv) made any bribe, rebate,
payoff, influence payment, kickback or other similar payment to any person with
respect to Company matters.
FF. No Misrepresentation. No representation or warranty of the Company
contained in this Agreement or any of the other Documents, any schedule, annex
or exhibit hereto or thereto or any agreement, instrument or certificate
furnished by the Company to Buyer pursuant to this Agreement contains any untrue
statement of a material fact or omits to state a material fact required to be
stated therein or necessary to make the statements therein not misleading.
GG. Finder's Fee. There is no finder's fee, brokerage commission or
like payment in connection with the transactions contemplated by this Agreement
for which Buyer is liable or responsible.
IV. CERTAIN COVENANTS AND ACKNOWLEDGMENTS
A. Restrictive Legend. Buyer acknowledges and agrees that, upon
issuance pursuant to this Agreement, the Securities (including any Dividends
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Shares, Conversion Shares or the Warrant Shares) shall have endorsed thereon a
legend in substantially the following form (and a stop-transfer order may be
placed against transfer of the Preferred Shares, the Warrant Shares and the
Conversion Shares until such legend has been removed):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR THE SECURITIES LAWS OF ANY STATE, AND ARE BEING OFFERED
AND SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER LAWS."
B. Filings. The Company shall make all necessary Commission Filings
and "blue sky" filings required to be made by the Company in connection with the
sale of the Securities to Buyer as required by all applicable Laws, and shall
provide a copy thereof to Buyer promptly after such filing.
C. Reporting Status. So long as Buyer beneficially owns any of the
Securities, the Company shall timely file all reports required to be filed by it
with the Commission pursuant to Section 13 or 15(d) of the Exchange Act.
D. Use of Proceeds. The Company shall use the proceeds from the sale
of the Securities (net of amounts paid by the Company for Buyer's out-of-pocket
costs and expenses, whether or not accounted for or incurred in connection with
the transactions contemplated by this Agreement (including the fees and
disbursements of Buyer's legal counsel), and finder's fees in connection with
such sale) solely for general corporate and working capital purposes.
E. Listing. Except to the extent the Company lists its Common Stock on
The New York Stock Exchange or The Nasdaq National Market, the Company shall use
its best efforts to maintain its listing of the Common Stock on Nasdaq. If the
Common Stock is delisted from Nasdaq, the Company will use its best efforts to
list the Common Stock on the most liquid national securities exchange or
quotation system that the Common Stock is qualified to be listed on.
F. Reserved Conversion Shares. The Company at all times from and after
the date hereof shall have such number of shares of Common Stock duly and
validly authorized and reserved for issuance as shall be sufficient for the
conversion in full of, and the payment of dividends on, the Preferred Shares and
the exercise in full of the Warrants.
G. Right of First Refusal. If, during the period commencing on the
date hereof and ending three years after the Closing Date (the "Right of First
Refusal Period"), the Company should propose (the "Proposal") to issue Common
Stock (other than the issuance of Common Stock in connection with a merger
transaction or an acquisition transaction, in each case, where at least 50% of
the consideration to be paid consists of Common Stock and the transaction is not
with an Affiliate of the Company) or securities convertible into Common Stock at
a price less than the Current Market Price (as defined in the Certificate of
Designation), or debt at less than par value or having an effective annual
interest rate in excess of 9.9% (each a "Right of First Refusal Security" and
collectively, the "Right of First Refusal Securities"), in each case on the date
of issuance the Company shall be obligated to offer such Right of First Refusal
Securities to Buyer on the terms set forth in the Proposal (the "Offer") and
Buyer shall have the right, but not the obligation, to accept such Offer on such
terms. The Company shall provide written notice to Buyer of any Proposal,
setting forth in full the terms and conditions thereof, and Buyer shall then
have 10 business days to accept or reject the Offer in writing. If the Company
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issues any Right of First Refusal Securities during the Right of First Refusal
Period but fails to: (i) notify Buyer of the Proposal, (ii) offer Buyer the
opportunity to complete the transaction as set forth in the Proposal, or (iii)
enter into and consummate an agreement to issue such Right of First Refusal
Securities to Buyer on the terms and conditions set forth in the Proposal, after
Buyer has accepted the Offer, then the Company shall pay to Buyer, as liquidated
damages, an amount equal to 5% of the amount paid to the Company for the Right
of First Refusal Securities. The foregoing Right of First Refusal is and shall
be senior in right to any other right of first refusal issued by the Company to
any other Person.
H. Information. Each of the parties hereto acknowledges and agrees
that Buyer shall not be provided with, nor be given access to, any material
non-public information relating to the Company or any of the Subsidiaries.
I. Exemption from Investment Company Act. The Company shall conduct
its business, and shall cause the Subsidiaries to conduct their businesses, in
such a manner that neither the Company nor any Subsidiary shall become an
"investment company" within the meaning of the Investment Company Act.
J. Accounting and Reserves. The Company shall maintain a standard and
uniform system of accounting and shall keep proper books and records and
accounts in which full, true and correct entries shall be made of its
transactions, all in accordance with GAAP applied on a consistent basis through
all periods, and shall set aside on such books for each fiscal year all such
reserves for depreciation, obsolescence, amortization, bad debts and other
purposes in connection with its operations as are required by such principles so
applied.
K. Transactions with Affiliates. Neither the Company nor any of its
Subsidiaries shall, directly or indirectly, enter into any transaction or
Agreement with any stockholder, officer, director or Affiliate of the Company or
family member of any officer, director or Affiliate of the Company, unless the
transaction or Agreement is (i) reviewed and approved by a majority of
Disinterested Directors (as defined below) and (ii) on terms no less favorable
to the Company or the applicable Subsidiary than those obtainable from a
non-affiliated person or, with respect to employment arrangements and benefit
programs, are on reasonable terms as determined by a majority of the
Disinterested Directors. A "Disinterested Director" shall mean a director of the
Company who is not and has not been an officer or employee of the Company and
who is not a member of the family of, controlled by or under common control
with, any such officer or employee.
L. Issuances of Additional Convertible Preferred Shares or Convertible
Debentures. So long as Buyer beneficially owns any of the Preferred Shares, the
Company shall not issue any additional convertible preferred stock or
convertible debt securities, in each case, convertible into Common Stock at a
floating conversion price, without the prior written consent of Buyer.
M. Certain Restrictions. So long as any Preferred Shares are
outstanding, no dividends shall be declared or paid or set apart for payment nor
shall any other distribution be declared or made upon Junior Securities (as
defined in the Certificate of Designation), nor shall any Junior Securities be
redeemed, purchased or otherwise acquired (other than a redemption, purchase or
other acquisition of shares of Common Stock made for purposes of an employee
incentive or benefit plan (including a stock option plan) of the Company or any
Subsidiary, for any consideration by the Company, directly or indirectly, nor
shall any moneys be paid to or made available for a sinking fund for the
redemption of any shares of any such stock.
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N. Transfer Agent. If requested by Buyer, the Company shall replace
the then Transfer Agent for the Common Stock with a Transfer Agent designated by
Buyer.
O. Certain Restrictions. Neither Buyer nor its affiliates nor any
person acting on its or their behalf shall enter into, prior to the Closing or
at any other time while any of the Preferred Shares remain outstanding, any put
option, short position or other similar instrument or position with respect to
the Common Stock and neither Buyer nor any of its affiliates nor any person
acting on its or their behalf will use at any time shares of Common Stock
acquired pursuant to this Agreement to settle any put option, short position or
other similar instrument or position that may have been entered into prior to
the execution of this Agreement; provided, however, that nothing in this Section
IV.O. shall operate to forbid Buyer or any of its affiliates or any person
acting on its or their behalf from selling, or entering into any other
transaction with respect to, the Common Stock contemporaneously with or
following such date and time as the person or persons in whose name or names the
Common Stock delivered at conversion of Preferred Shares, as provided in the
Certificate of Designation, shall be issuable shall be deemed to have become the
holder or holders of record of the Common Shares represented thereby and all
voting and other rights associated with the beneficial ownership of such Common
Shares shall have vested with such person or persons.
V. TRANSFER AGENT INSTRUCTIONS
A. The Company undertakes and agrees that no instruction other than
the instructions referred to in this Article V and customary stop transfer
instructions prior to the registration and sale of the Common Stock pursuant to
an effective Securities Act registration statement shall be given to its
transfer agent for the Common Stock and that the Conversion Shares, the Dividend
Shares and the Warrant Shares shall otherwise be freely transferable on the
books and records of the Company as and to the extent provided in this
Agreement, the Registration Rights Agreement and applicable law. Nothing
contained in this Section V.A. shall affect in any way Buyer's obligations and
agreement to comply with all applicable securities laws upon resale of such
Common Stock. If, at any time, Buyer provides the Company with an opinion of
counsel reasonably satisfactory to the Company that registration of the resale
by Buyer of such Common Stock is not required under the Securities Act and that
the removal of restrictive legends is permitted under applicable law, the
Company shall permit the transfer of such Common Stock and promptly instruct the
Company's transfer agent to issue one or more certificates for Common Stock
without any restrictive legends endorsed thereon.
B. Buyer shall have the right to convert the Preferred Shares by
telecopying an executed and completed Notice of Conversion (as defined in the
Certificate of Designation and subject to the conditions specified in the
Certificate of Designation) to the Company. Each date on which a Notice of
Conversion is telecopied to and received by the Company in accordance with the
provisions hereof shall be deemed a Conversion Date (as defined in the
Certificate of Designation). The Company shall transmit the certificates
evidencing the shares of Common Stock issuable upon conversion of any Preferred
Shares (together with certificates evidencing any Preferred Shares not being so
converted) to Buyer by overnight express courier within ten (10) business days
after receipt by the Company of the Notice of Conversion and delivery to the
Company of a certificate or certificates evidencing the Preferred Shares being
converted (the "Delivery Date").
C. Buyer shall have the right to purchase shares of Common Stock
pursuant to exercise of the Warrants in accordance with its applicable terms of
the Warrants. The last date that the Company may deliver shares of Common Stock
issuable upon any exercise of Warrants is referred to herein as the "Warrant
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Delivery Date."
D. The Company understands that a delay in the issuance of the shares of
Common Stock issuable in lieu of cash dividends on the Preferred Shares or upon
the conversion of the Preferred Shares or exercise of the Warrants beyond the
applicable Dividend Payment Due Date (as defined in the Certificate of
Designation), Delivery Date or Warrant Delivery Date could result in economic
loss to Buyer. As compensation to Buyer for such loss (and not as a penalty),
the Company agrees to pay to Buyer for late issuance of Common Stock issuable in
lieu of cash dividends on the Preferred Shares or upon conversion of the
Preferred Shares or exercise of the Warrants in accordance with the following
schedule (where "No. Business Days" is defined as the number of business days
after the five business days immediately following the Dividend Payment Due
Date, the Delivery Date or the Warrant Delivery Date, as applicable):
Compensation For Each 10 Shares
of Preferred Shares Not Converted
Timely or 500 Shares of Common
Stock Issuable In Payment of
Dividends or Upon Exercise of
No. Business Days Warrants Not Issued Timely
----------------- ---------------------------------
1 $ 25
2 50
3 75
4 100
5 125
6 150
7 175
8 200
9 225
10 250
more than 10 $250 + $100 for each Business Day
Late beyond 10 days
The Company shall pay to Buyer the compensation described above by the transfer
of immediately available funds upon Buyer's demand. Nothing herein shall limit
Buyer's right to pursue actual damages for the Company's failure to issue and
deliver Common Stock to Buyer. In addition to any other remedies which may be
available to Buyer, in the event the Company fails for any reason to deliver
such shares of Common Stock within five business days after the relevant
Dividend Payment Due Date, Delivery Date or Warrant Delivery Date, as
applicable, Buyer shall be entitled to rescind the relevant Notice of Conversion
or exercise of Warrants by delivering a notice to such effect to the Company
whereupon the Company and Buyer shall each be restored to their respective
original positions immediately prior to delivery of such Notice of Conversion on
delivery.
VI. DELIVERY INSTRUCTIONS
The Securities shall be delivered by the Company to the Escrow Agent
pursuant to Section I.B. hereof on a "delivery-against-payment basis" at the
Closing.
VII. CLOSING DATE
The date and time (the "Closing Date") of the issuance and sale of the
Preferred Shares and the Warrants (the "Closing") shall be the date hereof or
such other date as shall be mutually agreed upon in writing. The issuance and
sale of the Securities shall occur on the Closing Date at the offices of the
Escrow Agent. Notwithstanding anything to the contrary contained herein, the
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Escrow Agent shall not be authorized to release to the Company the Purchase
Price or to Buyer the certificate(s) (I/N/O Buyer or I/N/O Buyer's nominee)
evidencing the Securities being purchased by Buyer unless the conditions set
forth in Sections VIII.C. and IX.H. hereof have been satisfied.
VIII. CONDITIONS TO THE COMPANY'S OBLIGATIONS
Buyer understands that the Company's obligation to sell the Securities
on the Closing Date to Buyer pursuant to this Agreement is conditioned upon:
A. Delivery by Buyer to the Escrow Agent of the Purchase Price;
B. The accuracy on the Closing Date of the representations and
warranties of Buyer contained in this Agreement as if made on the Closing Date
(except for representations and warranties which, by their express terms, speak
as of and relate to a specified date, in which case such accuracy shall be
measured as of such specified date) and the performance by Buyer in all material
respects on or before the Closing Date of all covenants and agreements of Buyer
required to be performed by it pursuant to this Agreement on or before the
Closing Date; and
C. There shall not be in effect any Law or order, ruling, judgment or
writ of any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement.
IX. CONDITIONS TO BUYER'S OBLIGATIONS
The Company understands that Buyer's obligation to purchase the
Securities on the Closing Date pursuant to this Agreement is conditioned upon:
A. Delivery by the Company to Buyer of evidence that the Certificate
of Designation has been filed and is effective;
B. Delivery by the Company to the Escrow Agent of one or more
certificates (I/N/O Buyer or I/N/O Buyer's nominee) evidencing the Securities to
be purchased by Buyer pursuant to this Agreement;
C. The accuracy on the Closing Date of the representations and
warranties of the Company contained in this Agreement as if made on the Closing
Date (except for representations and warranties which, by their express terms,
speak as of and relate to a specified date, in which case such accuracy shall be
measured as of such specified date) and the performance by the Company in all
respects on or before the Closing Date of all covenants and Agreements of the
Company required to be performed by it pursuant to this Agreement on or before
the Closing Date, all of which shall be confirmed to Buyer by delivery of the
certificate of the chief executive officer of the Company to that effect;
D. Buyer having received an opinion of counsel for the Company, dated
the Closing Date, in form, scope and substance reasonably satisfactory to Buyer
as to the matters set forth in Annex A;
E. There not having occurred (i) any general suspension of trading in,
or limitation on prices listed for, the Common Stock on Nasdaq, (ii) the
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States, (iii) the commencement of a war, armed hostilities
or other international or national calamity directly or indirectly involving the
United States or any of its territories, protectorates or possessions, or (iv)
in the case of the foregoing existing at the date of this Agreement, a material
acceleration or worsening thereof;
F. There not having occurred any event or development, and there being
in existence no condition, having or which reasonably and foreseeably could have
a Material Adverse Effect;
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G. The Company shall have delivered to Buyer (as provided in the
Escrow Instructions) reimbursement of Buyer's out-of-pocket costs and expenses,
whether or not accounted for or incurred in connection with the transactions
contemplated by this Agreement (including the fees and disbursements of Buyer's
legal counsel), of $30,000;
H. There shall not be in effect any Law, order, ruling, judgment or
writ of any court or public or governmental authority restraining, enjoining or
otherwise prohibiting any of the transactions contemplated by this Agreement;
I. Delivery by the Company of irrevocable instructions to the
Company's transfer agent to reserve 1,000,000 shares of Common Stock for
issuance of the Conversion Shares and the Warrant Shares;
J. The Company shall have obtained all consents, approvals or waivers
from governmental authorities and third persons necessary for the execution,
delivery and performance of the Documents and the transactions contemplated
thereby, all without material cost to the Company; and
K. Buyer shall have received such additional Documents, certificates,
payment, assignments, transfers and other delivers, as it or its legal counsel
may reasonably request and as are customary to effect a closing of the matters
herein contemplated.
X. TERMINATION
A. Termination by Mutual Written Consent. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned, for any
reason and at any time prior to the Closing Date, by the mutual written consent
of the Company and Buyer.
B. Termination by the Company or Buyer. This Agreement may be
terminated and the transactions contemplated hereby may be abandoned by action
of the Company or Buyer if (i) the Closing shall not have occurred at or prior
to 5:00 p.m., New York City time, on February 4, 2000 (the "Latest Closing
Date"); provided, however, that the right to terminate this Agreement pursuant
to this Section X.B. shall not be available to any party whose failure to
fulfill any of its obligations under this Agreement has been the cause of or has
resulted in the failure of the Closing to occur at or before such time and date;
provided, further, however, that if the Closing shall not have occurred on or
prior to the Latest Closing Date, the Closing may only occur after the Latest
Closing Date with the written consent of Buyer.
C. Termination by Buyer. This Agreement may be terminated and the
transactions contemplated hereby may be abandoned by Buyer at any time prior to
the Closing Date, if (i) the Company shall have failed to comply with any of its
covenants or Agreements contained in this Agreement, (ii) there shall have been
a breach by the Company of any representation or warranty made by it in this
Agreement, (iii) there shall have occurred any event or development, or there
shall be in existence any condition, having or reasonably likely to have a
Material Adverse Effect or (iv) the Company shall have failed to satisfy the
conditions provided in Article IX hereof.
D. Termination by the Company. This Agreement may be terminated and
the transactions contemplated hereby may be abandoned by the Company at any time
prior to the Closing Date, if (i) Buyer shall have failed to comply with any of
its covenants or Agreements contained in this Agreement or (ii) there shall have
been a breach by Buyer of any representation or warranty made by it in this
Agreement.
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E. Effect of Termination. In the event of the termination of this
Agreement pursuant to this Article X, this Agreement shall thereafter become
void and have no effect, and no party hereto shall have any liability or
obligation to any other party hereto in respect of this Agreement, except that
the provisions of Article XI, this Section X.E and Section X.F shall survive any
such termination; provided, however, that no party shall be released from any
liability hereunder if this Agreement is terminated and the transactions
contemplated hereby abandoned by reason of (i) willful failure of such party to
perform its obligations hereunder or (ii) any misrepresentation made by such
party of any matter set forth herein.
F. Fees and Expenses of Termination. If this Agreement is terminated
for any reason, the Company shall promptly reimburse Buyer for all of Buyer's
out-of-pocket costs and expenses incurred in connection with the transactions
contemplated by this Agreement and the other Documents (including, without
limitation, the fees and disbursements of Buyer's legal counsel).
XI. SURVIVAL; INDEMNIFICATION
A. The representations, warranties and covenants made by each of the
Company and Buyer in this Agreement, the annexes, schedules and exhibits hereto
and in each instrument, agreement and certificate entered into and delivered by
them pursuant to this Agreement shall survive the Closing and the consummation
of the transactions contemplated hereby. In the event of a breach or violation
of any of such representations, warranties or covenants, the party to whom such
representations, warranties or covenants have been made shall have all rights
and remedies for such breach or violation available to it under the provisions
of this Agreement or otherwise, whether at law or in equity, irrespective of any
investigation made by or on behalf of such party on or prior to the Closing
Date.
B. The Company hereby agrees to indemnify and hold harmless Buyer, its
Affiliates and their respective officers, directors, partners and members
(collectively, the "Buyer Indemnitees") from and against any and all losses,
claims, damages, judgments, penalties, liabilities and deficiencies
(collectively, "Losses") and agrees to reimburse Buyer Indemnitees for all out
of-pocket expenses (including the fees and expenses of legal counsel), in each
case promptly as incurred by Buyer Indemnitees and to the extent arising out of
or in connection with:
1. any misrepresentation, omission of fact or breach of any of
the Company's representations or warranties contained in this Agreement or
the other Documents, or the annexes, schedules or exhibits hereto or
thereto or any instrument, Agreement or certificate entered into or
delivered by the Company pursuant to this Agreement or the other Documents;
2. any failure by the Company to perform in any material respect
any of its covenants, agreements, undertakings or obligations set forth in
this Agreement or the other Documents or any instrument, certificate or
Agreement entered into or delivered by the Company pursuant to this
Agreement or the other Documents; or
3. resales of the Common Shares by Buyer in the manner and as
contemplated by this Agreement and the Registration Rights Agreement and in
compliance with the registration statement and all applicable Laws (as
defined in Section III.N); provided, however, this indemnification shall
not be deemed to guarantee that Buyer will be able to make such resales at
any minimum or other price.
C. Buyer hereby agrees to indemnify and hold harmless the Company, its
Affiliates and their respective officers, directors, partners and members
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(collectively, the "Company Indemnitees") from and against any and all Losses,
and agrees to reimburse the Company Indemnitees for all out-of-pocket expenses
(including the fees and expenses of legal counsel) in each case promptly as
incurred by the Company Indemnitees and to the extent arising out of or in
connection with:
1. any misrepresentation, omission of fact or breach of any of
Buyer's representations or warranties contained in this Agreement or the
other Documents, or the annexes, schedules or exhibits hereto or thereto or
any instrument, agreement or certificate entered into or delivered by Buyer
pursuant to this Agreement or the other Documents; or
2. any failure by Buyer to perform in any material respect any of
its covenants, agreements, undertakings or obligations set forth in this
Agreement or the other Documents or any instrument, certificate or
agreement entered into or delivered by Buyer pursuant to this Agreement or
the other Documents.
D. Promptly after receipt by either party hereto seeking
indemnification pursuant to this Article XI (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Article XI is being sought (the "Indemnifying Party") of the commencement
thereof; but the omission so to notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party except
to the extent that the Indemnifying Party is materially prejudiced and forfeits
substantive rights or defenses by reason of such failure. In connection with any
Claim as to which both the Indemnifying Party and the Indemnified Party are
parties, the Indemnifying Party shall be entitled to assume the defense thereof.
Notwithstanding the assumption of the defense of any Claim by the Indemnifying
Party, the Indemnified Party shall have the right to employ separate legal
counsel and to participate in the defense of such Claim, and the Indemnifying
Party shall bear the reasonable fees, out-of-pocket costs and expenses of such
separate legal counsel to the Indemnified Party if (and only if): (x) the
Indemnifying Party shall have agreed to pay such fees, out-of-pocket costs and
expenses, (y) the Indemnified Party and the Indemnifying Party reasonably shall
have concluded that representation of the Indemnified Party and the Indemnifying
Party by the same legal counsel would not be appropriate due to actual or, as
reasonably determined by legal counsel to the Indemnified Party, potentially
differing interests between such parties in the conduct of the defense of such
Claim, or if there may be legal defenses available to the Indemnified Party that
are in addition to or disparate from those available to the Indemnifying Party,
or (z) the Indemnifying Party shall have failed to employ legal counsel
reasonably satisfactory to the Indemnified Party within a reasonable period of
time after notice of the commencement of such Claim. If the Indemnified Party
employs separate legal counsel in circumstances other than as described in
clauses (x), (y) or (z) above, the fees, costs and expenses of such legal
counsel shall be borne exclusively by the Indemnified Party. Except as provided
above, the Indemnifying Party shall not, in connection with any Claim in the
same jurisdiction, be liable for the fees and expenses of more than one firm of
legal counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnifying Party shall not, without the prior written consent of
the Indemnified Party (which consent shall not unreasonably be withheld), settle
or compromise any Claim or consent to the entry of any judgment that does not
include an unconditional release of the Indemnified Party from all liabilities
with respect to such Claim or judgment.
E. In the event one party hereunder should have a claim for
indemnification that does not involve a claim or demand being asserted by a
third party, the Indemnified Party promptly shall deliver notice of such claim
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to the Indemnifying Party. If the Indemnified Party disputes the claim, such
dispute shall be resolved by mutual agreement of the Indemnified Party and the
Indemnifying Party or by binding arbitration conducted in New York City in
accordance with the procedures and rules of the American Arbitration
Association. Judgment upon any award rendered by any arbitrators may be entered
in any court having competent jurisdiction thereof.
XII. GOVERNING LAW
This Agreement shall be governed by and interpreted in accordance with
the laws of the State of New York, without regard to the conflicts of law
principles of such state.
XIII. SUBMISSION TO JURISDICTION
Each of the parties hereto consents to the exclusive jurisdiction of
the federal courts whose districts encompass any part of the City of New York or
the state courts of the State of New York sitting in the City of New York in
connection with any dispute arising under this Agreement and the other
Documents. Each party hereto hereby irrevocably and unconditionally waives, to
the fullest extent it may effectively do so, any defense of an inconvenient
forum or improper venue to the maintenance of such action or proceeding in any
such court and any right of jurisdiction on account of its place of residence or
domicile. Each party hereto irrevocably and unconditionally consents to the
service of any and all process in any such action or proceeding in such courts
by the mailing of copies of such process by certified or registered airmail at
its address specified in Article XIX. Each party hereto agrees that a final
judgment in any such action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
XIV. WAIVER OF JURY TRIAL
TO THE FULLEST EXTENT PERMITTED BY LAW, EACH OF THE PARTIES HERETO
HEREBY KNOWINGLY, VOLUNTARILY AND INTENTIONALLY WAIVES ITS RESPECTIVE RIGHTS TO
A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR ANY OTHER DOCUMENT OR ANY DEALINGS BETWEEN THEM RELATING TO THE
SUBJECT MATTER OF THIS AGREEMENT AND OTHER DOCUMENTS. EACH PARTY HERETO (i)
CERTIFIES THAT NEITHER OF THEIR RESPECTIVE REPRESENTATIVES, AGENTS OR ATTORNEYS
HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCH PARTY WOULD NOT, IN THE EVENT
OF LITIGATION, SEEK TO ENFORCE THE FOREGOING WAIVERS AND (ii) ACKNOWLEDGES THAT
IT HAS BEEN INDUCED TO ENTER INTO THIS AGREEMENT BY, AMONG OTHER THINGS, THE
MUTUAL WAIVERS AND CERTIFICATIONS HEREIN.
XV. COUNTERPARTS; EXECUTION
This Agreement may be executed in any number of counterparts and by
the different parties hereto on separate counterparts, each of which when so
executed and delivered shall be an original, but all the counterparts shall
together constitute one and the same instrument. A facsimile transmission of
this signed Agreement shall be legal and binding on all parties hereto.
XVI. HEADINGS
The headings of this Agreement are for convenience of reference and
shall not form part of, or affect the interpretation of, this Agreement.
XVII. SEVERABILITY
In the event any one or more of the provisions contained in this
Agreement or in the other Documents should be held invalid, illegal or
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unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein or therein shall not in any way be
affected or impaired thereby. The parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions the economic effect of which comes as close as possible to that
of the invalid, illegal or unenforceable provisions.
XVIII. ENTIRE AGREEMENT; REMEDIES, AMENDMENTS AND WAIVERS
This Agreement and the Documents constitute the entire agreement among
the parties pertaining to the subject matter hereof and supersede all prior
agreements, understandings, negotiations and discussions, whether oral or
written, of the parties. No supplement, modification or waiver of this Agreement
shall be binding unless executed in writing by all parties. No waiver of any of
the provisions of this Agreement shall be deemed or shall constitute a waiver of
any other provision hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver unless otherwise expressly provided.
XIX. NOTICES
Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or, if mailed,
three (3) days after the date of deposit in the United States mails, as follows:
A. if to the Company, to:
Educational Video Conferencing, Inc.
35 East Grassy Sprain Road
Yonkers, NY 10710
Attention: Dr. Arol I. Buntzman
(914) 787-3500
(914) 395-3498 (fax)
with a copy to:
Fischbein, Badillo, Wagner, Harding
909 Third Avenue, 17th Floor
New York, NY 10022
Attention: Joseph D. Alperin, Esq.
(212) 826-2000
(212) 644-3601 (Fax)
B. if to Buyer, to:
The Shaar Fund Ltd.
c/o Levinson Capital Management
2 World Trade Center, Suite 1820
New York, NY 10048
Attention: Samuel Levinson
(212) 432-7711
(212) 432-7771 (Fax)
with a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attention: Dennis J. Block, Esq.
(212) 504-5555
(212) 504-5557 (Fax)
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C. if to the Escrow Agent, to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attention: Dennis J. Block, Esq.
(212) 504-5555
(212) 504-5557 (Fax)
The Company, Buyer or the Escrow Agent may change the foregoing address by
notice given pursuant to this Article XIX.
XX. CONFIDENTIALITY
Each of the Company and Buyer agrees to keep confidential and not to
disclose to or use for the benefit of any third-party the terms of this
Agreement or any other information which at any time is communicated by the
other party as being confidential without the prior written approval of the
other party; provided, however, that this provision shall not apply to
information which, at the time of disclosure, is already part of the public
domain (except by breach of this Agreement) and information which is required to
be disclosed by law (including, without limitation, pursuant to Item 601(b)(10)
of Regulation S-K under the Securities Act and the Exchange Act).
XXI. ASSIGNMENT
This Agreement shall not be assignable by either of the parties hereto
prior to the Closing without the prior written consent of the other party, and
any attempted assignment contrary to the provisions hereby shall be null and
void; provided, however, that Buyer may assign its rights and obligations
hereunder, in whole or in part, to any Affiliate of Buyer.
[SIGNATURE PAGE FOLLOWS.]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed and
delivered this Agreement on the date first above written.
EDUCATIONAL VIDEO CONFERENCING, INC.
By: /s/ Dr. Arol I. Buntzman
___________________________________________
Name: Dr. Arol I. Buntzman
Title: Chairman & CEO
THE SHAAR FUND LTD.
By: /s/ Declan Quilligan /s/ Henriette DeVries
__________________________________________
Name: Inter Caribbean Services Ltd.
Title: Director
By: /s/ Uri Wolfman
________________________________
Name: Uri Wolfson
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<PAGE>
ANNEX A
FORM OF OPINION
1. The Company has been duly incorporated and is validly existing as a
corporation in good standing under the laws of the State of Delaware, is duly
qualified to do business as a foreign corporation and is in good standing in all
jurisdictions where the Company owns or leases properties or conducts business,
except for jurisdictions in which the failure to so qualify would not have a
Material Adverse Effect, and has all requisite corporate power and authority to
own its properties and conduct its business as described in the Commission
Filings.
2. The authorized capital stock of the Company consists of 20,000,000
shares of Common Stock, par value $.0001 per share (the "Common Stock"), and
1,000,000 shares of Preferred Stock, par value $.0001 per share.
3. When delivered to you or upon your order against payment of the
agreed consideration therefor in accordance with the provisions of the
Documents, the Securities will be duly authorized and validly issued, fully paid
and nonassessable.
4. The Company has the requisite corporate power and authority to
enter into the Documents and to sell and deliver the Securities as described in
the Documents; each of the Documents has been duly and validly authorized by all
necessary corporate action by the Company; each of the Documents has been duly
and validly executed and delivered by and on behalf of the Company, and is valid
and binding agreement of the Company, enforceable in accordance with its terms,
except as enforceability may be limited by general equitable principles,
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium or
other laws affecting creditors rights generally.
5. Except as set forth on the Schedules to the Securities Purchase
Agreement, the execution and delivery by the Company of the Documents, the
issuance of the Securities, and the consummation by the Company of the other
transactions contemplated thereby, including, without limitation, the filing of
the Certificate of Designation and the Amended and Restated Certificate of
Designation with the Delaware Secretary of State's office, do not, and
compliance with the provisions of the Documents will not, conflict with, or
result in any violation of, or default (with or without notice or lapse of time,
or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or loss of a material benefit under, or result in
the creation of any Lien upon any of the properties or assets of the Company or
any of its Subsidiaries under, or result in the termination of, or require that
any consent be obtained or any notice be given with respect to, (i) the
Certificate of Incorporation or By-Laws of the Company or the comparable charter
or organizational documents of any of its Subsidiaries, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease, contract or other agreement,
instrument or permit known to us and applicable to the Company or any of its
Subsidiaries or their respective properties or assets, or (iii) any Law
applicable to, or, to the best of our knowledge, any judgment, decree or order
of any court or government body having jurisdiction over, the Company or any of
its Subsidiaries or any of their respective properties or assets. To the best of
our knowledge, no consent, approval, authorization, order, registration, filing,
qualification, license or permit of or with any court or any public,
governmental or regulatory agency or body having jurisdiction over the Company
or any of its properties or assets is required for the execution, delivery and
performance by the Company of the Documents or the consummation by the Company
of the transactions contemplated thereby.
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<PAGE>
6. When issued, the Preferred Shares and the Warrants shall be duly
authorized, validly issued, fully paid and nonassessable, and free and clear of
all encumbrances and restrictions, except for restrictions on transfer imposed
by applicable securities laws. The Conversion Shares and Warrant Shares issuable
upon conversion or exercise, respectively, of the Preferred Shares and the
Warrants, respectively, will be duly authorized, validly issued, fully paid and
nonassessable, and free and clear of all encumbrances and restrictions, except
for restrictions on transfer imposed by applicable securities laws.
7. Based on Buyer's representations contained in this Agreement, the
offer and sale of the Preferred Shares and the Warrants are exempt from the
registration requirements of the Securities Act.
8. To the best of our knowledge, other than as described in the
Commission Filings, there are no outstanding options, warrants or other
securities exercisable or convertible into Common Stock of the Company.
9. There is no action, suit, claim, inquiry or investigation pending
or, to the best of our knowledge, threatened by or before any court or public or
governmental authority which, if determined adversely to the Company, would have
a Material Adverse Effect.
10. Neither the Company nor any of its Subsidiaries is, or will be
after the consummation of the transactions contemplated by this Agreement and
the other Documents and the use of the proceeds from the sale of the Securities,
an "investment company" or an entity "controlled" by an "investment company," as
such terms are defined in the Investment Company Act of 1940, as amended.
A-2
THIS COMMON STOCK PURCHASE WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER OR
THE PROVISIONS OF THIS COMMON STOCK PURCHASE WARRANT.
Number of Shares of Common Stock: 40,000
Warrant No. 1
COMMON STOCK PURCHASE WARRANT
To Purchase Common Stock of
Educational Video Conferencing, Inc.
THIS IS TO CERTIFY THAT The Shaar Fund Ltd., or registered assigns, is
entitled, at any time from the Closing Date (as hereinafter defined) to the
Expiration Date (as hereinafter defined), to purchase from Educational Video
Conferencing, Inc., a Delaware corporation (the "Company"), 40,000 shares of
Common Stock (as hereinafter defined and subject to adjustment as provided
herein), in whole or in part, including fractional parts, at a purchase price
per share equal to 120% of the Market Price, subject to adjustment as provided
herein, all on the terms and conditions and pursuant to the provisions
hereinafter set forth.
1. Definitions
As used in this Common Stock Purchase Warrant (this "Warrant"), the
following terms shall have the respective meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common
Stock issued by the Company after the Closing Date, other than Warrant Stock.
"Book Value" shall mean, in respect of any share of Common Stock on
any date herein specified, the consolidated book value of the Company as of the
last day of any month immediately preceding such date, divided by the number of
Fully Diluted Outstanding shares of Common Stock as determined in accordance
with GAAP (assuming the payment of the exercise prices for such shares) by
Goldstein Golub Kessler LLP or any other firm of independent certified public
accountants of recognized national standing selected by the Company and
reasonably acceptable to the Holder.
"Business Day" shall mean any day that is not a Saturday or Sunday or
a day on which banks are required or permitted to be closed in the State of New
York.
"Closing Date" shall have the meaning set forth in the Securities
Purchase Agreement.
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean (except where the context otherwise
indicates) the Common Stock, par value $.0001 per share, of the Company as
constituted on the Closing Date, and any capital stock into which such Common
Stock may thereafter be changed, and shall also include (i) capital stock of the
Company of any other class (regardless of how denominated) issued to the holders
<PAGE>
of shares of Common Stock upon any reclassification thereof which is also not
preferred as to dividends or assets over any other class of stock of the Company
and which is not subject to redemption and (ii) shares of common stock of any
successor or acquiring corporation received by or distributed to the holders of
Common Stock of the Company in the circumstances contemplated by Section 4.4.
"Convertible Securities" shall mean evidences of indebtedness, shares
of stock or other securities which are convertible into or exchangeable, with or
without payment of additional consideration in cash or property, for shares of
Common Stock, either immediately or upon the occurrence of a specified date or a
specified event.
"Current Market Price" shall mean on any date of determination the
closing bid price of a Common Share on such day as reported on Nasdaq; provided,
if such security bid is not listed or admitted to trading on Nasdaq, as reported
on the principal national security exchange or quotation system on which such
security is quoted or listed or admitted to trading, or, if not quoted or listed
or admitted to trading on any national securities exchange or quotation system,
the closing bid price of such security on the over-the-counter market on the day
in question as reported by Bloomberg LP, or a similar generally accepted
reporting service, as the case may be.
"Current Warrant Price" shall mean, in respect of a share of Common
Stock at any date herein specified, the price at which a share of Common Stock
may be purchased pursuant to this Warrant on such date, as set forth in the
first paragraph hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Exercise Period" shall mean the period during which this Warrant is
exercisable pursuant to Section 2.1.
"Expiration Date" shall mean February 2, 2003.
"Fully Diluted Outstanding" shall mean, when used with reference to
Common Stock, at any date as of which the number of shares thereof is to be
determined, all shares of Common Stock Outstanding at such date and all shares
of Common Stock issuable in respect of this Warrant, outstanding on such date,
and other options or warrants to purchase, or securities convertible into,
shares of Common Stock outstanding on such date which would be deemed
outstanding in accordance with GAAP for purposes of determining Book Value or
net income per share.
"Fundamental Corporate Change" shall have the meaning set forth in
Section 4.4.
"GAAP" shall mean generally accepted accounting principles in the
United States of America as from time to time in effect.
"Holder" shall mean the Person in whose name the Warrant or Warrant
Stock set forth herein is registered on the books of the Company maintained for
such purpose.
"Market Price" per Common Share means the average of the closing bid
prices of the Common Shares as reported on the Nasdaq SmallCap Market ("Nasdaq")
for the five trading days immediately preceding the Closing Date.
"Other Property" shall have the meaning set forth in Section 4.4.
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<PAGE>
"Outstanding" shall mean, when used with reference to Common Stock, at
any date as of which the number of shares thereof is to be determined, all
issued shares of Common Stock, except shares then owned or held by or for the
account of the Company or any subsidiary thereof, and shall include all shares
issuable in respect of outstanding scrip or any certificates representing
fractional interests in shares of Common Stock.
"Person" shall mean any individual, sole proprietorship, partnership,
joint venture, trust, incorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Registration Rights Agreement" shall mean the Registration Rights
Agreement dated as of a date even herewith between the Company and The Shaar
Fund Ltd., as it may be amended from time to time.
"Restricted Common Stock" shall mean shares of Common Stock which are,
or which upon their issuance on their exercise of this Warrant would be,
evidenced by a certificate bearing the restrictive legend set forth in Section
9.1(a).
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Securities Purchase Agreement" shall mean the Securities Purchase
Agreement dated as of a date even herewith between the Company and The Shaar
Fund Ltd., as it may be amended from time to time.
"Transfer" shall mean any disposition of any Warrant or Warrant Stock
or of any interest in either thereof, which would constitute a sale thereof
within the meaning of the Securities Act.
"Transfer Notice" shall have the meaning set forth in Section 9.2.
"Warrant Price" shall mean an amount equal to (i) the number of shares
of Common Stock being purchased upon exercise of this Warrant pursuant to
Section 2.1, multiplied by (ii) the Current Warrant Price as of the date of such
exercise.
"Warrant Stock" shall mean the shares of Common Stock purchased by the
holders of the Warrants upon the exercise thereof.
"Warrants" shall mean this Warrant and all warrants issued upon
transfer, division or combination of, or in substitution for, any thereof. All
Warrants shall at all times be identical as to terms and conditions and date,
except as to the number of shares of Common Stock for which they may be
exercised.
2. Exercise of Warrant
2.1 Manner of Exercise
From and after the earlier to occur of (i) the first anniversary of
the Closing Date and (ii) the date immediately succeeding a period of sixty (60)
consecutive trading days during which the Common Stock trades above $23.50 (as
adjusted for any stock splits or similar corporate actions) and until 5:00 p.m.,
New York time, on the Expiration Date, Holder may exercise this Warrant, on any
Business Day, for all or any part of the number of shares of Common Stock
purchasable hereunder.
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In order to exercise this Warrant, in whole or in part, Holder shall
deliver to the Company at its principal office at 35 East Grassy Sprain Road,
Yonkers, NY 10710, or at the office or agency designated by the Company pursuant
to Section 12, (i) a written notice of Holder's election to exercise this
Warrant, which notice shall specify the number of shares of Common Stock to be
purchased, (ii) to the extent such exercise is not being effected through a
Cashless Exercise, payment of the Warrant Price in cash or wire transfer or
cashier's check drawn on a United States bank and (iii) this Warrant. Such
notice shall be substantially in the form of the subscription form appearing at
the end of this Warrant as Exhibit A, duly executed by Holder or its agent or
attorney. Upon receipt of the items referred to in clauses (i), (ii) and (iii)
above, the Company shall, as promptly as practicable, and in any event within
five Business Days thereafter, execute or cause to be executed and deliver or
cause to be delivered to Holder a certificate or certificates representing the
aggregate number of full shares of Common Stock issuable upon such exercise,
together with cash in lieu of any fraction of a share, as hereinafter provided.
The stock certificate or certificates so delivered shall be, to the extent
possible, in such denomination or denominations as Holder shall request in the
notice and shall be registered in the name of Holder or, subject to Section 9,
such other name as shall be designated in the notice. This Warrant shall be
deemed to have been exercised and such certificate or certificates shall be
deemed to have been issued, and Holder or any other Person so designated to be
named therein shall be deemed to have become a holder of record of such shares
for all purposes, as of the date the notice, together with the cash or check or
checks and this Warrant, is received by the Company as described above and all
taxes required to be paid by Holder, if any, pursuant to Section 2.2 prior to
the issuance of such shares have been paid. If this Warrant shall have been
exercised in part, the Company shall, at the time of delivery of the certificate
or certificates representing Warrant Stock, deliver to Holder a new Warrant
evidencing the rights of Holder to purchase the unpurchased shares of Common
Stock called for by this Warrant, which new Warrant shall in all other respects
be identical with this Warrant, or, at the request of Holder, appropriate
notation may be made on this Warrant and the same returned to Holder.
Notwithstanding any provision herein to the contrary, the Company shall not be
required to register shares in the name of any Person who acquired this Warrant
(or part hereof) or any Warrant Stock otherwise than in accordance with this
Warrant.
Simultaneously with the exercise of this Warrant, payment in full of
the Warrant Price shall be made, at the option of the Holder, (i) by payment of
the Warrant Price in cash or by wire transfer or cashier's check drawn on a
United States bank, (ii) through a net exercise without payment of the Warrant
Price in cash by providing notice to the Company of the Holder's election to
receive a number of shares of Common Stock in a Cashless Exercise equal to the
product of (1) the number of shares for which such Warrant is exercisable with
payment in cash of the Warrant Price as of the date of exercise and (2) the
Cashless Exercise Ratio or (iii) by any combination of clauses (i) and (ii). For
purposes of this Agreement, the "Cashless Exercise Ratio" shall equal a
fraction, the numerator of which is the excess of the Current Market Price per
share of the Common Stock on the date of exercise over the Current Warrant Price
as of the date of exercise, and the denominator of which is the Current Market
Price per share of the Common Stock on the date of exercise. An exercise of a
Warrant in accordance with clause (ii) above is herein called a "Cashless
Exercise." Following a Cashless Exercise, this Warrant shall be canceled in all
respects with regard to (a) the number of shares of Common Stock issued in
accordance with the Cashless Exercise plus (b) the number of shares used as
consideration for the Cashless Exercise.
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2.2 Payment of Taxes and Charges
All shares of Common Stock issuable upon the exercise of this Warrant
pursuant to the terms hereof shall be validly issued, fully paid and
nonassessable, freely tradable after registration of such shares, subject to any
applicable limitations of Section 3(a) of the Registration Rights Agreement, and
without any preemptive rights. The Company shall pay all expenses in connection
with, and all taxes and other governmental charges that may be imposed with
respect to, the issuance or delivery thereof, unless such tax or charge is
imposed by law upon Holder, in which case such taxes or charges shall be paid by
Holder. The Company shall not be required, however, to pay any tax or other
charge imposed in connection with any transfer involved in the issuance of any
certificate for shares of Common Stock issuable upon exercise of this Warrant in
any name other than that of Holder, and in such case the Company shall not be
required to issue or deliver any stock certificate until such tax or other
charge has been paid or it has been established to the satisfaction of the
Company that no such tax or other charge is due.
2.3 Fractional Shares
The Company shall not be required to issue a fractional share of
Common Stock upon exercise of any Warrant. As to any fraction of a share which
Holder would otherwise be entitled to purchase upon such exercise, the Company
shall pay a cash adjustment in respect of such final fraction in an amount equal
to the same fraction of the Market Price per share of Common Stock as of the
Closing Date.
2.4 Continued Validity
A holder of shares of Common Stock issued upon the exercise of this
Warrant, in whole or in part (other than a holder who acquires such shares after
the same have been publicly sold pursuant to a Registration Statement under the
Securities Act or sold pursuant to Rule 144 thereunder) shall continue to be
entitled with respect to such shares to all rights to which it would have been
entitled as Holder under Sections 9, 10 and 14 of this Warrant. The Company
will, at the time of exercise of this Warrant, in whole or in part, upon the
request of Holder, acknowledge in writing, in form reasonably satisfactory to
Holder, its continuing obligation to afford Holder all such rights; provided,
however, that if Holder shall fail to make any such request, such failure shall
not affect the continuing obligation of the Company to afford to Holder all such
rights.
3. Transfer, Division and Combination
3.1 Transfer
Subject to compliance with Section 9, transfer of this Warrant and all
rights hereunder, in whole or in part, shall be registered on the books of the
Company to be maintained for such purpose, upon surrender of this Warrant at the
principal office of the Company referred to in Section 2.1 or the office or
agency designated by the Company pursuant to Section 12, together with a written
assignment of this Warrant substantially in the form of Exhibit B hereto duly
executed by Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer. Upon such surrender
and, if required, such payment, the Company shall, subject to Section 9, execute
and deliver a new Warrant or Warrants in the name of the assignee or assignees
and in the denomination specified in such instrument of assignment, and shall
issue to the assignor a new Warrant evidencing the portion of this Warrant not
so assigned, and this Warrant shall promptly be canceled. A Warrant, if properly
assigned in compliance with Section 9, may be exercised by a new Holder for the
purchase of shares of Common Stock without having a new warrant issued.
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3.2 Division and Combination
Subject to Section 9, this Warrant may be divided or combined with
other Warrants upon presentation hereof at the aforesaid office or agency of the
Company, together with a written notice specifying the names and denominations
in which new Warrants are to be issued, signed by Holder or its agent or
attorney. Subject to compliance with Sections 3.1 and 9, as to any transfer
which may be involved in such division or combination, the Company shall execute
and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to
be divided or combined in accordance with such notice.
3.3 Expenses
The Company shall prepare, issue and deliver at its own expense (other
than transfer taxes) the new Warrants or Warrants under this Section 3.
3.4 Maintenance of Books
The Company agrees to maintain, at its aforesaid office or agency,
books for the registration and the registration of transfer of the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is
exercisable, or the price at which such shares may be purchased upon exercise of
this Warrant, shall be subject to adjustment from time to time as set forth in
this Section 4. The Company shall give Holder notice of any event described
below which requires an adjustment pursuant to this Section 4 at the time of
such event.
4.1 Stock Dividends, Subdivisions and Combinations
If at any time the Company shall:
(a) take a record of the holders of its Common Stock for the purpose
of entitling them to receive a dividend payable in, or other distribution of,
Additional Shares of Common Stock;
(b) subdivide its outstanding shares of Common Stock into a larger
number of shares of Common Stock; or
(c) combine its outstanding shares of Common Stock into a smaller
number of shares of Common Stock;
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current Warrant Price
shall be adjusted to equal (A) the Current Warrant Price multiplied by the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such adjustment. 4.2
Intentionally Omitted 4.3 Other Provisions Applicable to Adjustments under this
Section
The following provisions shall be applicable to the making of
adjustments of the number of shares of Common Stock for which this Warrant is
exercisable and the Current Warrant Price provided for in this Section 4:
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(a) When Adjustments to be Made. The adjustments required by this
Section 4 shall be made whenever and as often as any specified event requiring
an adjustment shall occur. For the purpose of any adjustment, any specified
event shall be deemed to have occurred at the close of business on the date of
its occurrence.
(b) Fractional Interests. In computing adjustments under this Section
4, fractional interests in Common Stock shall be taken into account to the
nearest 1/10th of a share.
(c) When Adjustment not Required. If the Company shall take a record
of the holders of its Common Stock for the purpose of entitling them to receive
a dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by reason of the taking
of such record and any such adjustment previously made in respect thereof shall
be rescinded and annulled.
(d) Challenge to Good Faith Determination. Whenever the Board of
Directors of the Company shall be required to make a determination in good faith
of the fair value of any item under this Section 4, such determination may be
challenged in good faith by the Holder, and any dispute shall be resolved by an
investment banking firm of recognized national standing selected by the Company
and acceptable to Holder.
4.4 Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets
In case the Company shall reorganize its capital, reclassify its
capital stock, consolidate or merge with or into another Person (where the
Company is not the survivor or where there is a change in or distribution with
respect to the Common Stock of the Company), or sell, convey, transfer or
otherwise dispose of all or substantially all its property, assets or business
to another Person, or effectuate a transaction or series of related transactions
in which more than 50% of the voting power of the Company is disposed of (each,
a "Fundamental Corporate Change") and, pursuant to the terms of such Fundamental
Corporate Change, shares of Common Stock of the successor or acquiring
corporation, or any cash, shares of stock or other securities or property of any
nature whatsoever (including warrants or other subscription or purchase rights)
in addition to or in lieu of common stock of the successor or acquiring
corporation ("Other Property"), are to be received by or distributed to the
holders of Common Stock of the Company, then Holder shall have the right
thereafter to receive, upon exercise of the Warrant, such number of shares of
common stock of the successor or acquiring corporation or of the Company, if it
is the surviving corporation, and Other Property as is receivable upon or as a
result of such Fundamental Corporate Change by a holder of the number of shares
of Common Stock for which this Warrant is exercisable immediately prior to such
Fundamental Corporate Change. In case of any such Fundamental Corporate Change,
the successor or acquiring corporation (if other than the Company) shall
expressly assume the due and punctual observance and performance of each and
every covenant and condition of this Warrant to be performed and observed by the
Company and all the obligations and liabilities hereunder, subject to such
modifications as may be deemed appropriate (as determined by resolution of the
Board of Directors of the Company) in order to provide for adjustments of shares
of Common Stock for which this Warrant is exercisable which shall be as nearly
equivalent as practicable to the adjustments provided for in this Section 4. For
purposes of this Section 4.4, "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class which is not
preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
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evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either immediately or upon
the arrival of a specified date or the happening of a specified event and any
warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 4.4 shall similarly apply to successive
Fundamental Corporate Change.
4.5 Other Action Affecting Common Stock
In case at any time or from time to time the Company shall take any
action in respect of its Common Stock, other than any action described in this
Section 4, which would have a materially adverse effect upon the rights of
Holder, the number of shares of Common Stock and/or the purchase price thereof
shall be adjusted in such manner as may be equitable in the circumstances, as
determined in good faith by the Board of Directors of the Company.
4.6 Certain Limitations
Notwithstanding anything herein to the contrary, the Company agrees
not to enter into any transaction which, by reason of any adjustment hereunder,
would cause the Current Warrant Price to be less than the par value per share of
Common Stock.
5. NOTICES TO HOLDER
5.1 Notice of Adjustments
Whenever the number of shares of Common Stock for which this Warrant
is exercisable, or whenever the price at which a share of such Common Stock may
be purchased upon exercise of the Warrants, shall be adjusted pursuant to
Section 4, the Company shall forthwith prepare a certificate to be executed by
the chief financial officer of the Company setting forth, in reasonable detail,
the event requiring the adjustment and the method by which such adjustment was
calculated (including a description of the basis on which the Board of Directors
of the Company determined the fair value of any evidences of indebtedness,
shares of stock, other securities or property or warrants or other subscription
or purchase rights referred to in Section 4.2), specifying the number of shares
of Common Stock for which this Warrant is exercisable and (if such adjustment
was made pursuant to Section 4.4 or 4.5) describing the number and kind of any
other shares of stock or Other Property for which this Warrant is exercisable,
and any change in the purchase price or prices thereof, after giving effect to
such adjustment or change. The Company shall promptly cause a signed copy of
such certificate to be delivered to the Holder in accordance with Section 14.2.
The Company shall keep at its office or agency designated pursuant to Section 12
copies of all such certificates and cause the same to be available for
inspection at said office during normal business hours by the Holder or any
prospective purchaser of a Warrant designated by Holder.
5.2 Notice of Corporate Action
If at any time:
(a) the Company shall take a record of the holders of its Common Stock
for the purpose of entitling them to receive a dividend or other distribution,
or any right to subscribe for or purchase any evidences of its indebtedness, any
shares of stock of any class or any other securities or property, or to receive
any other right; or
(b) there shall be any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or any
consolidation or merger of the Company with, or any sale, transfer or other
disposition of all or substantially all the property, assets or business of the
Company to, another corporation; or
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(c) there shall be a voluntary or involuntary dissolution, liquidation
or winding up of the Company;
then, in any one or more of such cases, the Company shall give to Holder (i) at
least 30 days' prior written notice of the date on which a record date shall be
selected for such dividend, distribution or right or for determining rights to
vote in respect of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, and (ii) in the case of any such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up, at least 30 days' prior written notice of the date when the same shall take
place. Such notice in accordance with the foregoing clause also shall specify
(i) the date on which any such record is to be taken for the purpose of such
dividend, distribution or right, the date on which the holders of Common Stock
shall be entitled to any such dividend, distribution or right, and the amount
and character thereof, and (ii) the date on which any such reorganization,
reclassification, merger, consolidation, sale, transfer, disposition,
dissolution, liquidation or winding up is to take place and the time, if any
such time is to be fixed, as of which the holders of Common Stock shall be
entitled to exchange their shares of Common Stock for securities or other
property deliverable upon such reorganization, reclassification, merger,
consolidation, sale, transfer, disposition, dissolution, liquidation or winding
up. Each such written notice shall be sufficiently given if addressed to Holder
at the last address of Holder appearing on the books of the Company and
delivered in accordance with Section 14.2.
6. No Impairment
The Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issuance or sale of
securities or other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate to protect the rights of Holder
against impairment. Without limiting the generality of the foregoing, the
Company will (a) not increase the par value of any shares of Common Stock
receivable upon the exercise of this Warrant above the amount payable therefor
upon such exercise immediately prior to such increase in par value, (b) take all
such action as may be necessary or appropriate in order that the Company may
validly and legally issue fully paid and nonassessable shares of Common Stock
upon the exercise of this Warrant, and (c) use its best efforts to obtain all
such authorizations, exemptions or consents from any public regulatory body
having jurisdiction thereof as may be necessary to enable the Company to perform
its obligations under this Warrant.
Upon the request of Holder, the Company will at any time during the
period this Warrant is outstanding acknowledge in writing, in form satisfactory
to Holder, the continuing validity of this Warrant and the obligations of the
Company hereunder.
7. Reservation and Authorization of Common Stock
From and after the Closing Date, the Company shall at all times
reserve and keep available for issuance upon the exercise of Warrants such
number of its authorized but unissued shares of Common Stock as will be
sufficient to permit the exercise in full of all outstanding Warrants. All
shares of Common Stock which shall be so issuable, when issued upon exercise of
any Warrant and payment therefor in accordance with the terms of such Warrant,
shall be duly and validly issued and fully paid and nonassessable and not
subject to preemptive rights.
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Before taking any action which would cause an adjustment reducing the
Current Warrant Price below the then par value, if any, of the shares of Common
Stock issuable upon exercise of the Warrants, the Company shall take any
corporate action which may be necessary in order that the Company may validly
and legally issue fully paid and nonassessable shares of such Common Stock at
such adjusted Current Warrant Price.
Before taking any action which would result in an adjustment in the
number of shares of Common Stock for which this Warrant is exercisable or in the
Current Warrant Price, the Company shall obtain all such authorizations or
exemptions thereof, or consents thereto, as may be necessary from any public
regulatory body or bodies having jurisdiction thereof.
8. Taking of Record; Stock and Warrant Transfer Books
In the case of all dividends or other distributions by the Company to
the holders of its Common Stock with respect to which any provision of Section 4
refers to the taking of record of such holders, the Company will in each case
take such a record and will take such record as of the close of business on a
Business Day. The Company will not at any time, except upon dissolution,
liquidation or winding up of the Company, close its stock transfer books or
Warrant transfer books so as to result in preventing or delaying the exercise or
transfer of any Warrant.
9. Restrictions on Transferability
The Warrants and the Warrant Stock shall not be transferred,
hypothecated or assigned before satisfaction of the conditions specified in this
Section 9, which conditions are intended to ensure compliance with the
provisions of the Securities Act with respect to the Transfer of any Warrant or
any Warrant Stock. Holder, by acceptance of this Warrant, agrees to be bound by
the provisions of this Section 9.
9.1 Restrictive Legend
(a) Holder, by accepting this Warrant and any Warrant Stock agrees
that this Warrant and the Warrant Stock issuable upon exercise hereof may not be
assigned or otherwise transferred unless and until (i) the Company has received
an opinion of counsel for Holder that such securities may be sold pursuant to an
exemption from registration under the Securities Act or (ii) a registration
statement relating to such securities has been filed by the Company and declared
effective by the Commission.
Each certificate for Warrant Stock issuable hereunder shall bear a
legend as follows until such securities have been sold pursuant to an effective
registration statement under the Securities Act:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"),
OR THE SECURITIES LAWS OF ANY STATE, AND ARE BEING OFFERED
AND SOLD PURSUANT TO AN EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT AND SUCH LAWS. THESE
SECURITIES MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OR PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT OR SUCH OTHER LAWS."
(b) Except as otherwise provided in this Section 9, the Warrant shall
be stamped or otherwise imprinted with a legend in substantially the following
form:
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"THIS COMMON STOCK PURCHASE WARRANT AND THE SECURITIES
REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND
REGULATIONS THEREUNDER OR THE PROVISIONS OF THIS COMMON
STOCK PURCHASE WARRANT."
9.2 Notice of Proposed Transfers
Prior to any Transfer or attempted Transfer of any Warrants or any
shares of Restricted Common Stock, the Holder shall give ten days' prior written
notice (a "Transfer Notice") to the Company of Holder's intention to effect such
Transfer, describing the manner and circumstances of the proposed Transfer, and
obtain from counsel to Holder who shall be reasonably satisfactory to the
Company, an opinion that the proposed Transfer of such Warrants or such
Restricted Common Stock may be effected without registration under the
Securities Act. After receipt of the Transfer Notice and opinion, the Company
shall, within five days thereof, notify the Holder as to whether such opinion is
reasonably satisfactory and, if so, such holder shall thereupon be entitled to
Transfer such Warrants or such Restricted Common Stock, in accordance with the
terms of the Transfer Notice. Each certificate, if any, evidencing such shares
of Restricted Common Stock issued upon such Transfer shall bear the restrictive
legend set forth in Section 9.1(a), and the Warrant issued upon such Transfer
shall bear the restrictive legend set forth in Section 9.1(b), unless in the
opinion of such counsel such legend is not required in order to ensure
compliance with the Securities Act. Holder shall not be entitled to Transfer
such Warrants or such Restricted Common Stock until receipt of notice from the
Company under this Section 9.2 that such opinion is reasonably satisfactory.
9.3 Required Registration
Pursuant to the terms and conditions set forth in Registration Rights
Agreement, the Company shall prepare and file with the Commission not later than
the date five (5) business days after the date the Company files the Form 10K
for its fiscal year ending December 31, 1999, but in no event later than April
15, 2000, a Registration Statement relating to the offer and sale of the Common
Stock issuable upon exercise of the Warrants and shall use its best efforts to
cause the Commission to declare such Registration Statement effective under the
Securities Act as promptly as practicable but no later than June 30, 2000. 9.4
Termination of Restrictions
Notwithstanding the foregoing provisions of Section 9, the
restrictions imposed by this Section upon the transferability of the Warrants,
the Warrant Stock and the Restricted Common Stock (or Common Stock issuable upon
the exercise of the Warrants) and the legend requirements of Section 9.1 shall
terminate as to any particular Warrant or share of Warrant Stock or Restricted
Common Stock (or Common Stock issuable upon the exercise of the Warrants) (i)
when and so long as such security shall have been effectively registered under
the Securities Act and disposed of pursuant thereto or (ii) when the Company
shall have received an opinion of counsel reasonably satisfactory to it that
such shares may be transferred without registration thereof under the Securities
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Act. Whenever the restrictions imposed by Section 9 shall terminate as to this
Warrant, as hereinabove provided, the Holder hereof shall be entitled to receive
from the Company upon written request of the Holder, at the expense of the
Company, a new Warrant bearing the following legend in place of the restrictive
legend set forth hereon:
"THE RESTRICTIONS ON TRANSFERABILITY OF THE WITHIN WARRANT
CONTAINED IN SECTION 9 HEREOF TERMINATED ON __________,
_____, AND ARE OF NO FURTHER FORCE AND EFFECT."
All Warrants issued upon registration of transfer, division or combination of,
or in substitution for, any Warrant or Warrants entitled to bear such legend
shall have a similar legend endorsed thereon. Whenever the restrictions imposed
by this Section shall terminate as to any share of Restricted Common Stock, as
hereinabove provided, the holder thereof shall be entitled to receive from the
Company, at the Company's expense, a new certificate representing such Common
Stock not bearing the restrictive legend set forth in Section 9.1(a).
9.5 Listing on Securities Exchange
If the Company shall list any shares of Common Stock on any securities
exchange or quotation system, it will, at its expense, list thereon, maintain
and, when necessary, increase such listing of, all shares of Common Stock issued
or, to the extent permissible under the applicable securities exchange rules,
issuable upon the exercise of this Warrant so long as any shares of Common Stock
shall be so listed during any such Exercise Period.
10. Supplying Information
The Company shall cooperate with Holder in supplying such information
as may be reasonably necessary for Holder to complete and file any information
reporting forms presently or hereafter required by the Commission as a condition
to the availability of an exemption from the Securities Act for the sale of any
Warrant or Restricted Common Stock. 11. Loss or Mutilation
Upon receipt by the Company from Holder of evidence reasonably
satisfactory to it of the ownership of and the loss, theft, destruction or
mutilation of this Warrant and indemnity reasonably satisfactory to it (it being
understood that the written agreement of the Holder shall be sufficient
indemnity), and in case of mutilation upon surrender and cancellation hereof,
the Company will execute and deliver in lieu hereof a new Warrant of like tenor
to Holder; provided, in the case of mutilation no indemnity shall be required if
this Warrant in identifiable form is surrendered to the Company for
cancellation. 12. Office of the Company
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency (which may be the principal executive offices of
the Company) where the Warrants may be presented for exercise, registration of
transfer, division or combination as provided in this Warrant.
13. Limitation of Liability
No provision hereof, in the absence of affirmative action by Holder to
purchase shares of Common Stock, and no enumeration herein of the rights or
privileges of Holder hereof, shall give rise to any liability of Holder for the
purchase price of any Common Stock or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.
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14. Miscellaneous
14.1 Nonwaiver and Expenses
No course of dealing or any delay or failure to exercise any right
hereunder on the part of Holder shall operate as a waiver of such right or
otherwise prejudice Holder's rights, powers or remedies. If the Company fails to
make, when due, any payments provided for hereunder, or fails to comply with any
other provision of this Warrant, the Company shall pay to Holder such amounts as
shall be sufficient to cover any costs and expenses including, without
limitation, reasonable attorneys' fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due pursuant hereto or
in otherwise enforcing any of its rights, powers or remedies hereunder.
14.2 Notice Generally
Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or, if mailed,
three days after the date of deposit in the United States mails, as follows:
(a) if to the Company, to:
Educational Video Conferencing, Inc.
35 East Grassy Sprain Road
Yonkers, NY 10710
Attention: Dr. Arol I. Buntzman
(914) 787-3500
(914) 395-3498 (fax)
with a copy to:
Fischbein, Badillo, Wagner, Harding
909 3rd Avenue, 17th Floor
New York, NY 10022
Attention: Joseph D. Alperin, Esq.
(212) 826-2000
(212) 644-3601 (fax)
(b) if to the Holder, to:
The Shaar Fund Ltd.,
c/o Levinson Capital Management
2 World Trade Center, Suite 1820
New York, NY 10048
Attention: Samuel Levinson
(212) 432-7711
(212) 432-7771 (Fax)
with a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attention: Dennis J. Block, Esq.
(212) 504-5555
(212) 504-5557 (Fax)
The Company or the Holder may change the foregoing address by notice given
pursuant to this Section 14.2.
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<PAGE>
14.3 Indemnification
The Company agrees to indemnify and hold harmless Holder from and
against any liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, claims, costs, attorneys' fees, expenses and disbursements of
any kind which may be imposed upon, incurred by or asserted against Holder in
any manner relating to or arising out of any failure by the Company to perform
or observe in any material respect any of its covenants, agreements,
undertakings or obligations set forth in this Warrant; provided, however, that
the Company will not be liable hereunder to the extent that any liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, claims,
costs, attorneys' fees, expenses or disbursements are found in a final
nonappealable judgment by a court to have resulted from Holder's gross
negligence, bad faith or willful misconduct in its capacity as a stockholder or
warrantholder of the Company.
14.4 Remedies
Holder in addition to being entitled to exercise all rights granted by
law, including recovery of damages, will be entitled to specific performance of
its rights under Section 9 of this Warrant. The Company agrees that monetary
damages would not be adequate compensation for any loss incurred by reason of a
breach by it of the provisions of Section 9 of this Warrant and hereby agrees to
waive the defense in any action for specific performance that a remedy at law
would be adequate.
14.5 Successors and Assigns
Subject to the provisions of Sections 3.1 and 9, this Warrant and the
rights evidenced hereby shall inure to the benefit of and be binding upon the
successors of the Company and the successors and assigns of Holder. The
provisions of this Warrant are intended to be for the benefit of all Holders
from time to time of this Warrant and, with respect to Section 9 hereof, holders
of Warrant Stock, and shall be enforceable by any such Holder or holder of
Warrant Stock.
14.6 Amendment
This Warrant and all other Warrants may be modified or amended or the
provisions hereof waived with the written consent of the Company and Holder.
14.7 Severability
Wherever possible, each provision of this Warrant shall be interpreted
in such manner as to be effective and valid under applicable law, but if any
provision of this Warrant shall be prohibited by or invalid under applicable
law, such provision shall only be ineffective to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Warrant.
14.8 Headings
The headings used in this Warrant are for the convenience of reference
only and shall not, for any purpose, be deemed a part of this Warrant.
14.9 Governing Law
This Warrant shall be governed by the laws of the State of New York,
without regard to the provisions thereof relating to conflicts of law.
[SIGNATURE PAGE FOLLOWS.]
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<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be duly
executed and its corporate seal to be impressed hereon and attested by its
Secretary or an Assistant Secretary.
Dated: February 3, 2000
EDUCATIONAL VIDEO CONFERENCING, INC.
By: /s/ Dr. Arol I. Buntzman
-------------------------------------
Name: Dr. Arol I. Buntzman
Title: Chairman and Chief Executive
Officer
Attest:
By: /s/ Richard Goldenberg
----------------------------
Name: Richard Goldenberg
Title: Secretary
-15-
<PAGE>
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises
this Warrant for the purchase of __________ shares of Common Stock of
Educational Video Conferencing, Inc. and herewith makes payment therefor, all at
the price and on the terms and conditions specified in this Warrant and requests
that certificates for the shares of Common Stock hereby purchased (and any
securities or other property issuable upon such exercise) be issued in the name
of and delivered to
________________________________________________________________________________
whose address is
________________________________________________________________________________
and, if such shares of Common Stock shall not include all of the shares of
Common Stock issuable as provided in this Warrant, that a new Warrant of like
tenor and date for the balance of the shares of Common Stock issuable hereunder
be delivered to the undersigned.
_____________________________________
(Name of Registered Owner)
_____________________________________
(Signature of Registered Owner)
_____________________________________
(Street Address)
_____________________________________
(City) (State) (Zip Code)
A-1
<PAGE>
Notice: The signature on this subscription must
correspond with the name as written upon the face
of the within Warrant in every particular, without
alteration or enlargement or any change
whatsoever.
A-2
<PAGE>
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant
hereby sells, assigns and transfers unto the Assignee named below all of the
rights of the undersigned under this Warrant, with respect to the number of
shares of Common Stock set forth below:
No. of Shares of
Name and Address of Assignee Common Stock
---------------------------- ------------
and does hereby irrevocably constitute and appoint
________________________________________________________________________________
attorney-in-fact to register such transfer on the books of Educational Video
Conferencing, Inc. maintained for the purpose, with full power of substitution
in the premises.
Dated: ________________________
___________________________________
(Print Name)
___________________________________
(Signature)
___________________________________
(Print Name of Witness)
___________________________________
(Witness's Signature)
Notice: The signature on this assignment must
correspond with the name as written upon the face
of the within Warrant in every particular, without
alteration or enlargement or any change
whatsoever.
B-1
REGISTRATION RIGHTS AGREEMENT
This REGISTRATION RIGHTS AGREEMENT, dated as of February 3, 2000 (this
"Agreement"), by and between Educational Video Conferencing, Inc., a Delaware
corporation, with principal executive offices located at 35 East Grassy Sprain
Road, Yonkers, NY 10710 (the "Company"), and The Shaar Fund Ltd. (the "Initial
Investor").
WHEREAS, upon the terms and subject to the conditions of the
Securities Purchase Agreement dated as of February 3, 2000, by and between the
Initial Investor and the Company (the "Securities Purchase Agreement"), the
Company has agreed to issue and sell to the Initial Investor (i) 400,000 shares
of Series A 7.5% Convertible Preferred Stock, par value $.0001 per share (the
"Preferred Shares") which, upon the terms of and subject to the conditions of
the Company's Certificate of Designation which was amended by the Company's
Amended Certificate of Designation which was further amended by the Company's
Second Amended Certificate of Designation (the "Certificate of Designation"),
are convertible into shares of the Company's common stock, par value $.0001 per
share (the "Common Stock") and (ii) Common Stock Purchase Warrants (the
"Warrants") to purchase shares of Common Stock; and
WHEREAS, to induce the Initial Investor to execute and deliver the
Securities Purchase Agreement, the Company has agreed to provide with respect to
the Common Stock issued or issuable in lieu of cash dividend payments on the
Preferred Shares, upon conversion of the Preferred Shares and exercise of the
Warrants certain registration rights under the Securities Act;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Definitions
(a) As used in this Agreement, the following terms shall have the
meanings:
(i) "Affiliate," of any specified Person means any other Person
who directly, or indirectly through one or more intermediaries, is in
control of, is controlled by, or is under common control with, such
specified Person. For purposes of this definition, control of a Person
means the power, directly or indirectly, to direct or cause the direction
of the management and policies of such Person whether by contract,
securities, ownership or otherwise; and the terms "controlling" and
"controlled" have the respective meanings correlative to the foregoing.
(ii) "Closing Date" means the date and time of the issuance and
sale of the Preferred Shares and the Warrants.
(iii) "Commission" means the Securities and Exchange Commission.
(iv) "Current Market Price" on any date of determination means
the closing bid price of a share of the Common Stock on such day as
reported on the Nasdaq SmallCap Market ("Nasdaq"); provided, if such
security is not listed or admitted to trading on the Nasdaq, as reported on
the principal national security exchange or quotation system on which such
security is quoted or listed or admitted to trading, or, if not quoted or
listed or admitted to trading on any national securities exchange or
quotation system, the closing bid price of such security on the
over-the-counter market on the day in question as reported by Bloomberg LP,
or a similar generally accepted reporting service, as the case may be.
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<PAGE>
(v) "Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the Commission thereunder, or any
similar successor statute.
(vi) "Investor" means each of the Initial Investor and any
transferee or assignee of Registrable Securities which agrees to become
bound by all of the terms and provisions of this Agreement in accordance
with Section 8 hereof.
(vii) "Person" means any individual, partnership, corporation,
limited liability company, joint stock company, association, trust,
unincorporated organization, or a government or agency or political
subdivision thereof.
(viii) "Prospectus" means the prospectus (including, without
limitation, any preliminary prospectus and any final prospectus filed
pursuant to Rule 424(b) under the Securities Act, including any prospectus
that discloses information previously omitted from a prospectus filed as
part of an effective registration statement in reliance on Rule 430A under
the Securities Act) included in the Registration Statement, as amended or
supplemented by any prospectus supplement with respect to the terms of the
offering of any portion of the Registrable Securities covered by the
Registration Statement and by all other amendments and supplements to such
prospectus, including all material incorporated by reference in such
prospectus and all documents filed after the date of such prospectus by the
Company under the Exchange Act and incorporated by reference therein.
(ix) "Public Offering" means an offer registered with the
Commission and the appropriate state securities commissions by the Company
of its Common Stock and made pursuant to the Securities Act.
(x) "Registrable Securities" means the Common Stock issued or
issuable (i) in lieu of cash dividend payments on the Preferred Shares,
(ii) upon conversion or redemption of the Preferred Shares or (iii) upon
exercise of the Warrants; provided, however, a share of Common Stock shall
cease to be a Registrable Security for purposes of this Agreement when it
no longer is a Restricted Security.
(xi) "Registration Statement" means a registration statement of
the Company filed on an appropriate form under the Securities Act providing
for the registration of, and the sale on a continuous or delayed basis by
the holders of, all of the Registrable Securities pursuant to Rule 415
under the Securities Act, including the Prospectus contained therein and
forming a part thereof, any amendments to such registration statement and
supplements to such Prospectus, and all exhibits to and other material
incorporated by reference in such registration statement and Prospectus.
(xii) "Restricted Security" means any share of Common Stock
issued or issuable in lieu of cash dividend payments on the Preferred
Shares, upon conversion or redemption of the Preferred Shares or exercise
of the Warrants except any such share that (i) has been registered pursuant
to an effective registration statement under the Securities Act and sold in
a manner contemplated by the prospectus included in such registration
statement, (ii) has been transferred in compliance with the resale
provisions of Rule 144 under the Securities Act (or any successor provision
thereto) or is transferable pursuant to paragraph (k) of Rule 144 under the
Securities Act (or any successor provision thereto), or (iii) otherwise has
been transferred and a new share of Common Stock not subject to transfer
restrictions under the Securities Act has been delivered by or on behalf of
the Company.
2
<PAGE>
(xiii) "Securities Act" means the Securities Act of 1933, as
amended, and the rules and regulations of the Commission thereunder, or any
similar successor statute.
(b) All capitalized terms used and not defined herein have the
respective meaning assigned to them in the Securities Purchase Agreement.
2. Registration
(a) Filing and Effectiveness of Registration Statement. The Company
shall prepare and file with the Commission not later than the date five (5)
business days after the date the Company files the Form 10K for its fiscal year
ending December 31, 1999, but in no event later than April 15, 2000, a
Registration Statement relating to the offer and sale of the Registrable
Securities and shall use its best efforts to cause the Commission to declare
such Registration Statement effective under the Securities Act as promptly as
practicable but in no event later than June 30, 2000, registering a number of
shares equal to 19.9% of the total number of shares of Common Stock then
outstanding. The Company shall promptly (and, in any event, no more than 24
hours after it receives comments from the Commission), notify the Buyer when and
if it receives any comments from the Commission on the Registration Statement
and promptly forward a copy of such comments, if they are in writing, to the
Buyer. At such time after the filing of the Registration Statement pursuant to
this Section 2(a) as the Commission indicates, either orally or in writing, that
it has no further comments with respect to such Registration Statement or that
it is willing to entertain appropriate requests for acceleration of
effectiveness of such Registration Statement, the Company shall promptly, and in
no event later than two business days after receipt of such indication from the
Commission, request that the effectiveness of such Registration Statement be
accelerated within 48 hours of the Commission's receipt of such request. Except
for the securities listed on Schedule 2(a), the Company shall not include any
other securities in the Registration Statement relating to the offer and sale of
the Registrable Securities. The Company shall notify the Initial Investor by
written notice that such Registration Statement has been declared effective by
the Commission within 24 hours of such declaration by the Commission.
(b) Registration Default. If the Registration Statement covering the
Registrable Securities required to be filed by the Company pursuant to Section
2(a), is not (i) filed with the Commission within the time period specified in
Section 2(a) or (ii) declared effective by the Commission on or before June 30,
2000 (either of which, without duplication, an "Initial Date"), then the Company
shall make the payments to the Initial Investor as provided in the next sentence
as liquidated damages and not as a penalty. The amount to be paid by the Company
to the Initial Investor shall be determined as of each Computation Date (as
defined below), and such amount shall be equal to 2% (the "Liquidated Damage
Rate") of the Purchase Price (as defined in the Securities Purchase Agreement)
from the Initial Date to the first Computation Date and for each Computation
Date thereafter, calculated on a pro rata basis to the date on which the
Registration Statement is filed with (in the event of an Initial Date pursuant
to clause (i) above) or declared effective by (in the event of an Initial Date
pursuant to clause (ii) above) the Commission (the "Periodic Amount") provided,
however, that in no event shall the liquidated damages be less than $25,000;
provided, further, however, that if the Registration Statement is not declared
effective by the Commission within 210 days after the Initial Date set forth in
clause (ii) above, then the Liquidated Damage Rate shall increase to 4%;
provided, further, however, that the Liquidated Damage Rate shall increase by 1%
for each 30 day period after the 210th day after the Initial Date set forth in
clause (ii) above that the Registration Statement is not declared effective by
the Commission. The full Periodic Amount shall be paid by the Company to the
Initial Investor by wire transfer of immediately available funds within three
days after each Computation Date.
3
<PAGE>
As used in this Section 2(b), "Computation Date" means the date which
is 30 days after the Initial Date and, if the Registration Statement required to
be filed by the Company pursuant to Section 2(a) has not theretofore been
declared effective by the Commission, each date which is 30 days after the
previous Computation Date until such Registration Statement is so declared
effective.
(c) Eligibility for Use of Form S-3. The Company agrees that at such
time as it meets all the requirements for the use of Securities Act Registration
Statement on Form S-3 it shall file all reports and information required to be
filed by it with the Commission in a timely manner and take all such other
action so as to maintain such eligibility for the use of such form.
(d) Additional Registration Statement. In the event the Current Market
Price declines to $10 per share or less and each time thereafter that the
Current Market Price declines by 20% (each such date, a "Decline Date"), the
Company shall, to the extent required by the Securities Act (because the
additional shares were not covered by the Registration Statement filed pursuant
to Section 2(a)), as reasonably determined by the Initial Investor, file an
additional Registration Statement with the Commission for such additional number
of Registrable Securities as would be issuable upon conversion of the Preferred
Shares and exercise of the Warrants (the "Additional Registrable Securities") in
addition to those previously registered, assuming (x) with respect to the first
Additional Registration Statement, a Conversion Price of $5 per share and (y)
with respect to each succeeding Additional Registration Statement, a Conversion
Price of 20% less than the Conversion Price assumed with respect to the
immediately preceding Additional Registration Statement. The Company shall, to
the extent required by the Securities Act, as reasonably determined by the
Initial Investor, prepare and file with the Commission not later than the 30th
day thereafter, a Registration Statement relating to the offer and sale of such
Additional Registrable Securities and shall use its best efforts to cause the
Commission to declare such Registration Statement effective under the Securities
Act as promptly as practicable but not later than 60 days thereafter. The
Company shall not include any other securities in the Registration Statement
relating to the offer and sale of such Additional Registrable Securities.
If the Additional Registration Statement is not (i) filed with the
Commission within 30 days after the Decline Date or (ii) declared effective by
the Commission within 90 days after the Decline Date (either of which, without
duplication, an "Additional Registration Date"), then the Company shall make the
payments to the Initial Investor at the Liquidated Damage Rate from the
Additional Registration Date to the first Additional Computation Date and for
each Additional Computation Date thereafter, calculated on a pro rata basis to
the date on which the Additional Registration Statement is filed with (in the
event of an Additional Registration Date pursuant to clause (i) above) or
declared effective by (in the event of an Additional Registration Date pursuant
to clause (ii) above) the Commission (the "Additional Periodic Amount")
provided, however, that in no event shall the liquidated damages be less than
$25,000; provided, further, however, that if the Additional Registration
Statement is not declared effective by the Commission within 120 days after the
Additional Registration Date set forth in clause (ii) above, then the Liquidated
Damage Rate shall increase to 4%; provided, further, however, that the
Liquidated Damage Rate shall increase by 1% for each 30 day period after the
120th day after the Additional Registration Date set forth in clause (ii) above
that the Additional Registration Statement is not declared effective by the
Commission. The full Additional Periodic Amount shall be paid by the Company to
the Initial Investor by wire transfer of immediately available funds within
three days after each Additional Computation Date.
4
<PAGE>
As used in this Section 2(d), "Additional Computation Date" means the
date which is 30 days after the Additional Registration Date and, if the
Additional Registration Statement required to be filed by the Company pursuant
to this Section 2(d) has not theretofore been declared effective by the
Commission, each date which is 30 days after the previous Additional Computation
Date until such Additional Registration Statement is so declared effective.
(e) (i) If the Company proposes to register any of its warrants,
Common Stock or any other shares of common stock of the Company under the
Securities Act (other than a registration (A) on Form S-8 or S-4 or any
successor or similar forms, (B) relating to Common Stock or any other shares of
common stock of the Company issuable upon exercise of employee share options or
in connection with any employee benefit or similar plan of the Company or (C) in
connection with a direct or indirect acquisition by the Company of another
Person or any transaction with respect to which Rule 145 (or any successor
provision) under the Securities Act applies), whether or not for sale for its
own account, it will each such time, give prompt written notice at least 20 days
prior to the anticipated filing date of the registration statement relating to
such registration to each Investor, which notice shall set forth such Investor's
rights under this Section 2(e) and shall offer such Investor the opportunity to
include in such registration statement such number of Registrable Securities as
such Investor may request. Upon the written request of any Investor made within
10 days after the receipt of notice from the Company (which request shall
specify the number of Registrable Securities intended to be disposed of by such
Investor), the Company will use its best efforts to effect the registration
under the Securities Act of all Registrable Securities that the Company has been
so requested to register by each Investor, to the extent requisite to permit the
disposition of the Registrable Securities so to be registered; provided,
however, that (A) if such registration involves a Public Offering, each Investor
must sell its Registrable Securities to any underwriters selected by the Company
with the consent of such Investor, which consent will not be unreasonably
withheld, on the same terms and conditions as apply to the Company and (B) if,
at any time after giving written notice of its intention to register any
Registrable Securities pursuant to this Section 2 and prior to the effective
date of the registration statement filed in connection with such registration,
the Company shall determine for any reason not to register such Registrable
Securities, the Company shall give written notice to each Investor and,
thereupon, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration. The Company's obligations under
this Section 2(e) shall terminate on the date that the registration statement to
be filed in accordance with Section 2(a) is declared effective by the
Commission.
(ii) If a registration pursuant to this Section 2(e) involves a
Public Offering and the managing underwriter thereof advises the Company
that, in its view, the number of shares of Common Stock, Warrants or other
shares of Common Stock that the Company and the Investors intend to include
in such registration exceeds the largest number of shares of Common Stock
or Warrants (including any other shares of Common Stock or Warrants of the
Company) that can be sold without having an adverse effect on such Public
Offering (the "Maximum Offering Size"), the Company will include in such
registration only such number of shares of Registrable Securities, as
applicable, as does not exceed the Maximum Offering Size, and the number of
shares in the Maximum Offering Size shall be allocated among the Company,
the Investors and any other sellers of Common Stock or Warrants in such
Public Offering ("Third-Party Sellers"), first, pro rata among the
Investors until all the shares of Registrable Securities originally
proposed to be offered for sale by the Investors have been allocated, and
second, pro rata among the Company and any Third-Party Sellers, in each
case on the basis of the relative number of shares of Registrable
Securities originally proposed to be offered for sale under such
5
<PAGE>
registration by each of the Investors, the Company and the Third-Party
Sellers, as the case may be. If as a result of the proration provisions of
this Section 2(e)(ii), any Investor is not entitled to include all such
Registrable Securities in such registration, such Investor may elect to
withdraw its request to include any Registrable Securities in such
registration. With respect to registrations pursuant to this Section 2(e),
the number of securities required to satisfy any underwriters'
over-allotment option shall be allocated among the Company, the Investors
and any Third-Party Seller pro rata on the basis of the relative number of
securities offered for sale under such registration by each of the
Investors, the Company and any such Third-Party Sellers before the exercise
of such over-allotment option.
3. Obligations of the Company
In connection with the registration of the Registrable Securities, the
Company shall:
(a) Promptly (i) prepare and file with the Commission such amendments
(including post-effective amendments) to the Registration Statement and
supplements to the Prospectus as may be necessary to keep the Registration
Statement continuously effective and in compliance with the provisions of the
Securities Act applicable thereto so as to permit the Prospectus forming part
thereof to be current and useable by Investors for resales of the Registrable
Securities for a period of five years from the date on which the Registration
Statement is first declared effective by the Commission (the "Effective Time")
or such shorter period that will terminate when all the Registrable Securities
covered by the Registration Statement have been sold pursuant thereto in
accordance with the plan of distribution provided in the Prospectus, transferred
pursuant to Rule 144 under the Securities Act or otherwise transferred in a
manner that results in the delivery of new securities not subject to transfer
restrictions under the Securities Act (the "Registration Period") and (ii) take
all lawful action such that each of (A) the Registration Statement and any
amendment thereto does not, when it becomes effective, contain an untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements therein, not misleading and
(B) the Prospectus forming part of the Registration Statement, and any amendment
or supplement thereto, does not at any time during the Registration Period
include an untrue statement of a material fact or omit to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading.
Notwithstanding the foregoing provisions of this Section 3(a), the Company may,
during the Registration Period, suspend the use of the Prospectus for a period
not to exceed 45 days (whether or not consecutive) in any 12-month period if the
Board of Directors of the Company determines in good faith that because of valid
business reasons, including pending mergers or other business combination
transactions, the planned acquisition or divestiture of assets, pending material
corporate developments and similar events, it is in the best interests of the
Company to suspend such use, and prior to or contemporaneously with suspending
such use the Company provides the Investors with written notice of such
suspension, which notice need not specify the nature of the event giving rise to
such suspension. At the end of any such suspension period, the Company shall
provide the Investors with written notice of the termination of such suspension;
(b) During the Registration Period, comply with the provisions of the
Securities Act with respect to the Registrable Securities of the Company covered
by the Registration Statement until such time as all of such Registrable
Securities have been disposed of in accordance with the intended methods of
disposition by the Investors as set forth in the Prospectus forming part of the
Registration Statement;
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<PAGE>
(c) (i) Prior to the filing with the Commission of any Registration
Statement (including any amendments thereto) and the distribution or delivery of
any Prospectus (including any supplements thereto), provide (A) draft copies
thereof to the Investors and reflect in such documents all such comments as the
Investors (and their counsel) reasonably may propose and (B) to the Investors a
copy of the accountant's consent letter to be included in the filing and (ii)
furnish to each Investor whose Registrable Securities are included in the
Registration Statement and its legal counsel identified to the Company, (A)
promptly after the same is prepared and publicly distributed, filed with the
Commission, or received by the Company, one copy of the Registration Statement,
each Prospectus, and each amendment or supplement thereto, and (B) such number
of copies of the Prospectus and all amendments and supplements thereto and such
other documents, as such Investor may reasonably request in order to facilitate
the disposition of the Registrable Securities owned by such Investor;
(d) (i) Register or qualify the Registrable Securities covered by the
Registration Statement under such securities or "blue sky" laws of such
jurisdictions as the Investors who hold a majority-in-interest of the
Registrable Securities being offered reasonably request, (ii) prepare and file
in such jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof at all times during the Registration Period,
(iii) take all such other lawful actions as may be necessary to maintain such
registrations and qualifications in effect at all times during the Registration
Period, and (iv) take all such other lawful actions reasonably necessary or
advisable to qualify the Registrable Securities for sale in such jurisdictions;
provided, however, that the Company shall not be required in connection
therewith or as a condition thereto to (A) qualify to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 3(d), (B) subject itself to general taxation in any such jurisdiction or
(C) file a general consent to service of process in any such jurisdiction;
(e) As promptly as practicable after becoming aware of such event,
notify each Investor of the occurrence of any event, as a result of which the
Prospectus included in the Registration Statement, as then in effect, includes
an untrue statement of a material fact or omits to state a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading, and
promptly prepare an amendment to the Registration Statement and supplement to
the Prospectus to correct such untrue statement or omission, and deliver a
number of copies of such supplement and amendment to each Investor as such
Investor may reasonably request;
(f) As promptly as practicable after becoming aware of such event,
notify each Investor who holds Registrable Securities being sold (or, in the
event of an underwritten offering, the managing underwriters) of the issuance by
the Commission of any stop order or other suspension of the effectiveness of the
Registration Statement at the earliest possible time and take all lawful action
to effect the withdrawal, recession or removal of such stop order or other
suspension;
(g) Cause all the Registrable Securities covered by the Registration
Statement to be listed on the principal national securities exchange, and
included in an inter-dealer quotation system of a registered national securities
association, on or in which securities of the same class or series issued by the
Company are then listed or included;
(h) Maintain a transfer agent and registrar, which may be a single
entity, for the Registrable Securities not later than the effective date of the
Registration Statement;
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<PAGE>
(i) Cooperate with the Investors who hold Registrable Securities being
offered to facilitate the timely preparation and delivery of certificates for
the Registrable Securities to be offered pursuant to the registration statement
and enable such certificates for the Registrable Securities to be in such
denominations or amounts, as the case may be, as the Investors reasonably may
request and registered in such names as the Investor may request; and, within
three business days after a registration statement which includes Registrable
Securities is declared effective by the Commission, deliver and cause legal
counsel selected by the Company to deliver to the transfer agent for the
Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such registration statement) an appropriate
instruction and, to the extent necessary, an opinion of such counsel;
(j) Take all such other lawful actions reasonably necessary to
expedite and facilitate the disposition by the Investors of their Registrable
Securities in accordance with the intended methods therefor provided in the
Prospectus which are customary under the circumstances;
(k) Make generally available to its security holders as soon as
practicable, but in any event not later than three (3) months after (i) the
effective date (as defined in Rule 158(c) under the Securities Act) of the
Registration Statement, and (ii) the effective date of each post-effective
amendment to the Registration Statement, as the case may be, an earnings
statement of the Company and its subsidiaries complying with Section 11(a) of
the Securities Act and the rules and regulations of the Commission thereunder
(including, at the option of the Company, Rule 158);
(l) In the event of an underwritten offering, promptly include or
incorporate in a Prospectus supplement or post-effective amendment to the
Registration Statement such information as the managers reasonably agree should
be included therein and to which the Company does not reasonably object and make
all required filings of such Prospectus supplement or post-effective amendment
as soon as practicable after it is notified of the matters to be included or
incorporated in such Prospectus supplement or post-effective amendment;
(m) (i) Make reasonably available for inspection by Investors, any
underwriter participating in any disposition pursuant to the Registration
Statement, and any attorney, accountant or other agent retained by such
Investors or any such underwriter all relevant financial and other records,
pertinent corporate documents and properties of the Company and its
subsidiaries, and (ii) cause the Company's officers, directors and employees to
supply all information reasonably requested by such Investors or any such
underwriter, attorney, accountant or agent in connection with the Registration
Statement, in each case, as is customary for similar due diligence examinations;
provided, however, that all records, information and documents that are
designated in writing by the Company, in good faith, as confidential,
proprietary or containing any material nonpublic information shall be kept
confidential by such Investors and any such underwriter, attorney, accountant or
agent (pursuant to an appropriate confidentiality agreement in the case of any
such holder or agent), unless such disclosure is made pursuant to judicial
process in a court proceeding (after first giving the Company an opportunity
promptly to seek a protective order or otherwise limit the scope of the
information sought to be disclosed) or is required by law, or such records,
information or documents become available to the public generally or through a
third party not in violation of an accompanying obligation of confidentiality;
and provided, further, that, if the foregoing inspection and information
gathering would otherwise disrupt the Company's conduct of its business, such
inspection and information gathering shall, to the maximum extent possible, be
coordinated on behalf of the Investors and the other parties entitled thereto by
one firm of counsel designed by and on behalf of the majority in interest of
Investors and other parties;
8
<PAGE>
(n) In connection with any underwritten offering, make such
representations and warranties to the Investors participating in such
underwritten offering and to the managers, in form, substance and scope as are
customarily made by the Company to underwriters in secondary underwritten
offerings;
(o) In connection with any underwritten offering, obtain opinions of
counsel to the Company (which counsel and opinions (in form, scope and
substance) shall be reasonably satisfactory to the managers) addressed to the
underwriters, covering such matters as are customarily covered in opinions
requested in secondary underwritten offerings (it being agreed that the matters
to be covered by such opinions shall include, without limitation, as of the date
of the opinion and as of the Effective Time of the Registration Statement or
most recent post-effective amendment thereto, as the case may be, the absence
from the Registration Statement and the Prospectus, including any documents
incorporated by reference therein, of an untrue statement of a material fact or
the omission of a material fact required to be stated therein or necessary to
make the statements therein (in the case of the Prospectus, in light of the
circumstances under which they were made) not misleading, subject to customary
limitations);
(p) In connection with any underwritten offering, obtain "cold
comfort" letters and updates thereof from the independent public accountants of
the Company (and, if necessary, from the independent public accountants of any
subsidiary of the Company or of any business acquired by the Company, in each
case for which financial statements and financial data are, or are required to
be, included in the Registration Statement), addressed to each underwriter
participating in such underwritten offering (if such underwriter has provided
such letter, representations or documentation, if any, required for such cold
comfort letter to be so addressed), in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
secondary underwritten offerings;
(q) In connection with any underwritten offering, deliver such
documents and certificates as may be reasonably required by the managers, if
any; and
(r) In the event that any broker-dealer registered under the Exchange
Act shall be an "Affiliate" (as defined in Rule 2729(b)(1) of the rules and
regulations of the National Association of Securities Dealers, Inc. (the "NASD
Rules") (or any successor provision thereto)) of the Company or has a "conflict
of interest" (as defined in Rule 2720(b)(7) of the NASD Rules (or any successor
provision thereto)) and such broker-dealer shall underwrite, participate as a
member of an underwriting syndicate or selling group or assist in the
distribution of any Registrable Securities covered by the Registration
Statement, whether as a holder of such Registrable Securities or as an
underwriter, a placement or sales agent or a broker or dealer in respect
thereof, or otherwise, the Company shall assist such broker-dealer in complying
with the requirements of the NASD Rules, including, without limitation, by (A)
engaging a "qualified independent underwriter" (as defined in Rule 2720(b)(15)
of the NASD Rules (or any successor provision thereto)) to participate in the
preparation of the Registration Statement relating to such Registrable
Securities, to exercise usual standards of due diligence in respect thereof and
to recommend the public offering price of such Registrable Securities, (B)
indemnifying such qualified independent underwriter to the extent of the
indemnification of underwriters provided in Section 6 hereof, and (C) providing
such information to such broker-dealer as may be required in order for such
broker-dealer to comply with the requirements of the NASD Rules.
4. Obligations of the Investors
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
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<PAGE>
(a) It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. As least seven
days prior to the first anticipated filing date of the Registration Statement,
the Company shall notify each Investor of the information the Company requires
from each such Investor (the "Requested Information") if such Investor elects to
have any of its Registrable Securities included in the Registration Statement.
If at least two business days prior to the anticipated filing date the Company
has not received the Requested Information from an Investor (a "Non-Responsive
Investor"), then the Company may file the Registration Statement without
including Registrable Securities of such Non-Responsive Investor and have no
further obligations to the Non-Responsive Investor;
(b) Each Investor by its acceptance of the Registrable Securities
agrees to cooperate with the Company in connection with the preparation and
filing of the Registration Statement hereunder, unless such Investor has
notified the Company in writing of its election to exclude all of its
Registrable Securities from the Registration Statement; and
(c) Each Investor agrees that, upon receipt of any notice from the
Company of the occurrence of any event of the kind described in Section 3(e) or
3(f), it shall immediately discontinue its disposition of Registrable Securities
pursuant to the Registration Statement covering such Registrable Securities
until such Investor's receipt of the copies of the supplemented or amended
Prospectus contemplated by Section 3(e) and, if so directed by the Company, such
Investor shall deliver to the Company (at the expense of the Company) or destroy
(and deliver to the Company a certificate of destruction) all copies in such
Investor's possession, of the Prospectus covering such Registrable Securities
current at the time of receipt of such notice.
5. Expenses of Registration
All expenses, other than underwriting discounts and commissions,
incurred in connection with registrations, filings or qualifications pursuant to
Section 3, but including, without limitation, all registration, listing, and
qualifications fees, printing and engraving fees, accounting fees, and the fees
and disbursements of counsel for the Company, and the reasonable fees of one
firm of counsel to the holders of a majority in interest of the Registrable
Securities shall be borne by the Company.
6. Indemnification and Contribution
(a) The Company shall indemnify and hold harmless each Investor and
each underwriter, if any, which facilitates the disposition of Registrable
Securities, and each of their respective officers and directors and each person
who controls such Investor or underwriter within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act (each such person being
sometimes hereinafter referred to as an "Indemnified Person") from and against
any losses, claims, damages or liabilities, joint or several, to which such
Indemnified Person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon an untrue statement or alleged untrue
statement of a material fact contained in any Registration Statement or an
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, not misleading, or
arise out of or are based upon an untrue statement or alleged untrue statement
10
<PAGE>
of a material fact contained in any Prospectus or an omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein, in the light of the circumstances
under which they were made, not misleading; and the Company hereby agrees to
reimburse such Indemnified Person for all reasonable legal and other expenses
incurred by them in connection with investigating or defending any such action
or claim as and when such expenses are incurred; provided, however, that the
Company shall not be liable to any such Indemnified Person in any such case to
the extent that any such loss, claim, damage or liability arises out of or is
based upon (i) an untrue statement or alleged untrue statement made in, or an
omission or alleged omission from, such Registration Statement or Prospectus in
reliance upon and in conformity with written information furnished to the
Company by such Indemnified Person expressly for use therein or (ii) in the case
of the occurrence of an event of the type specified in Section 3(e), the use by
the Indemnified Person of an outdated or defective Prospectus after the Company
has provided to such Indemnified Person an updated Prospectus correcting the
untrue statement or alleged untrue statement or omission or alleged omission
giving rise to such loss, claim, damage or liability.
(b) Indemnification by the Investors and Underwriters. Each Investor
agrees, as a consequence of the inclusion of any of its Registrable Securities
in a Registration Statement, and each underwriter, if any, which facilitates the
disposition of Registrable Securities shall agree, as a consequence of
facilitating such disposition of Registrable Securities, severally and not
jointly, to (i) indemnify and hold harmless the Company, its directors
(including any person who, with his or her consent, is named in the Registration
Statement as a director nominee of the Company), its officers who sign any
Registration Statement and each person, if any, who controls the Company within
the meaning of either Section 15 of the Securities Act or Section 20 of the
Exchange Act, against any losses, claims, damages or liabilities to which the
Company or such other persons may become subject, under the Securities Act or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or alleged
untrue statement of a material fact contained in such Registration Statement or
Prospectus or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to make
the statements therein (in light of the circumstances under which they were
made, in the case of the Prospectus), not misleading, in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission was made in reliance upon and in
conformity with written information furnished to the Company by such holder or
underwriter expressly for use therein; provided, however, that no Investor or
underwriter shall be liable under this Section 6(b) for any amount in excess of
the net proceeds paid to such Investor or underwriter in respect of shares sold
by it, and (ii) reimburse the Company for any legal or other expenses incurred
by the Company in connection with investigating or defending any such action or
claim as such expenses are incurred.
(c) Notice of Claims, etc. Promptly after receipt by a party seeking
indemnification pursuant to this Section 6 (an "Indemnified Party") of written
notice of any investigation, claim, proceeding or other action in respect of
which indemnification is being sought (each, a "Claim"), the Indemnified Party
promptly shall notify the party against whom indemnification pursuant to this
Section 6 is being sought (the "Indemnifying Party") of the commencement
thereof; but the omission to so notify the Indemnifying Party shall not relieve
it from any liability that it otherwise may have to the Indemnified Party,
except to the extent that the Indemnifying Party is materially prejudiced and
forfeits substantive rights and defenses by reason of such failure. In
connection with any Claim as to which both the Indemnifying Party and the
Indemnified Party are parties, the Indemnifying Party shall be entitled to
assume the defense thereof. Notwithstanding the assumption of the defense of any
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<PAGE>
Claim by the Indemnifying Party, the Indemnified Party shall have the right to
employ separate legal counsel and to participate in the defense of such Claim,
and the Indemnifying Party shall bear the reasonable fees, out-of-pocket costs
and expenses of such separate legal counsel to the Indemnified Party if (and
only if): (x) the Indemnifying Party shall have agreed to pay such fees, costs
and expenses, (y) the Indemnified Party and the Indemnifying Party shall
reasonably have concluded that representation of the Indemnified Party by the
Indemnifying Party by the same legal counsel would not be appropriate due to
actual or, as reasonably determined by legal counsel to the Indemnified Party,
potentially differing interests between such parties in the conduct of the
defense of such Claim, or if there may be legal defenses available to the
Indemnified Party that are in addition to or disparate from those available to
the Indemnifying Party, or (z) the Indemnifying Party shall have failed to
employ legal counsel reasonably satisfactory to the Indemnified Party within a
reasonable period of time after notice of the commencement of such Claim. If the
Indemnified Party employs separate legal counsel in circumstances other than as
described in clauses (x), (y) or (z) above, the fees, costs and expenses of such
legal counsel shall be borne exclusively by the Indemnified Party. Except as
provided above, the Indemnifying Party shall not, in connection with any Claim
in the same jurisdiction, be liable for the fees and expenses of more than one
firm of counsel for the Indemnified Party (together with appropriate local
counsel). The Indemnified Party shall not, without the prior written consent of
the Indemnifying Party (which consent shall not unreasonably be withheld),
settle or compromise any Claim or consent to the entry of any judgment that does
not include an unconditional release of the Indemnifying Party from all
liabilities with respect to such Claim or judgment.
(d) Contribution. If the indemnification provided for in this Section
6 is unavailable to or insufficient to hold harmless an Indemnified Person under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
Indemnifying Party shall contribute to the amount paid or payable by such
Indemnified Party as a result of such losses, claims, damages or liabilities (or
actions in respect thereof) in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party and the Indemnified Party in connection
with the statements or omissions which resulted in such losses, claims, damages
or liabilities (or actions in respect thereof), as well as any other relevant
equitable considerations. The relative fault of such Indemnifying Party and
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or omission or
alleged omission to state a material fact relates to information supplied by
such Indemnifying Party or by such Indemnified Party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or prevent
such statement or omission. The parties hereto agree that it would not be just
and equitable if contribution pursuant to this Section 6(d) were determined by
pro rata allocation (even if the Investors or any underwriters were treated as
one entity for such purpose) or by any other method of allocation which does not
take account of the equitable considerations referred to in this Section 6(d).
The amount paid or payable by an Indemnified Party as a result of the losses,
claims, damages or liabilities (or actions in respect thereof) referred to above
shall be deemed to include any legal or other fees or expenses reasonably
incurred by such Indemnified Party in connection with investigating or defending
any such action or claim. No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The obligations of the Investors and any underwriters in this
Section 6(d) to contribute shall be several in proportion to the percentage of
Registrable Securities registered or underwritten, as the case may be, by them
and not joint.
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<PAGE>
(e) Notwithstanding any other provision of this Section 6, in no event
shall any (i) Investor be required to undertake liability to any person under
this Section 6 for any amounts in excess of the dollar amount of the proceeds to
be received by such Investor from the sale of such Investor's Registrable
Securities (after deducting any fees, discounts and commissions applicable
thereto) pursuant to any Registration Statement under which such Registrable
Securities are to be registered under the Securities Act and (ii) underwriter be
required to undertake liability to any Person hereunder for any amounts in
excess of the aggregate discount, commission or other compensation payable to
such underwriter with respect to the Registrable Securities underwritten by it
and distributed pursuant to the Registration Statement.
(f) The obligations of the Company under this Section 6 shall be in
addition to any liability which the Company may otherwise have to any
Indemnified Person and the obligations of any Indemnified Person under this
Section 6 shall be in addition to any liability which such Indemnified Person
may otherwise have to the Company. The remedies provided in this Section 6 are
not exclusive and shall not limit any rights or remedies which may otherwise be
available to an indemnified party at law or in equity.
7. Rule 144
With a view to making available to the Investors the benefits of Rule
144 under the Securities Act or any other similar rule or regulation of the
Commission that may at any time permit the Investors to sell securities of the
Company to the public without registration ("Rule 144"), the Company agrees to
use its best efforts to:
(a) comply with the provisions of paragraph (c) (1) of Rule 144; and
(b) file with the Commission in a timely manner all reports and other
documents required to be filed by the Company pursuant to Section 13 or 15(d)
under the Exchange Act; and, if at any time it is not required to file such
reports but in the past had been required to or did file such reports, it will,
upon the request of any Investor, make available other information as required
by, and so long as necessary to permit sales of, its Registrable Securities
pursuant to Rule 144.
8. Assignment
The rights to have the Company register Registrable Securities
pursuant to this Agreement shall be automatically assigned by the Investors to
any permitted transferee of all or any portion of such Registrable Securities
(or all or any portion of any Preferred Shares or Warrant of the Company which
is convertible into such securities) only if: (a) the Investor agrees in writing
with the transferee or assignee to assign such rights, and a copy of such
agreement is furnished to the Company within a reasonable time after such
assignment, (b) the Company is, within a reasonable time after such transfer or
assignment, furnished with written notice of (i) the name and address of such
transferee or assignee and (ii) the securities with respect to which such
registration rights are being transferred or assigned, (c) immediately following
such transfer or assignment, the securities so transferred or assigned to the
transferee or assignee constitute Restricted Securities, and (d) at or before
the time the Company received the written notice contemplated by clause (b) of
this sentence the transferee or assignee agrees in writing with the Company to
be bound by all of the provisions contained herein.
9. Amendment and Waiver
Any provision of this Agreement may be amended and the observance
thereof may be waived (either generally or in a particular instance and either
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<PAGE>
retroactively or prospectively), only with the written consent of the Company
and Investors who hold a majority-in-interest of the Registrable Securities. Any
amendment or waiver effected in accordance with this Section 9 shall be binding
upon each Investor and the Company.
10. Changes in Common Stock
If, and as often as, there are any changes in the Common Stock by way
of stock split, stock dividend, reverse split, combination or reclassification,
or through merger, consolidation, reorganization or recapitalization, or by any
other means, appropriate adjustment shall be made in the provisions hereof, as
may be required, so that the rights and privileges granted hereby shall continue
with respect to the Common Stock as so changed.
11. Miscellaneous
(a) A person or entity shall be deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
(b) If, after the date hereof and prior to the Commission declaring
the Registration Statement to be filed pursuant to Section 2(a) effective under
the Securities Act, the Company grants to any Person any registration rights
with respect to any Company securities which are more favorable to such other
Person than those provided in this Agreement, then the Company forthwith shall
grant (by means of an amendment to this Agreement or otherwise) identical
registration rights to all Investors hereunder.
(c) Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or, if mailed,
three days after the date of deposit in the United States mails, as follows:
(i) if to the Company, to:
Educational Video Conferencing, Inc.
35 East Grassy Sprain Road
Yonkers, NY 10710
Attention: Dr. Arol I. Buntzman
(914) 787-3500
(914) 395-3498 (fax)
with a copy to:
Fischbein, Badillo, Wagner, Harding
909 3rd Avenue, 17th Floor
New York, NY 10022
Attention: Joseph D. Alperin, Esq.
(212) 826-2000
(212) 644-3601 (fax)
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(ii) if to the Initial Investor, to:
The Shaar Fund Ltd.,
c/o Levinson Capital Management
2 World Trade Center, Suite 1820
New York, NY 10048
Attention: Samuel Levinson
(212) 432-7711
(212) 432-7771 (Fax)
with a copy to:
Cadwalader, Wickersham & Taft
100 Maiden Lane
New York, NY 10038
Attention: Dennis J. Block, Esq.
(212) 504-5555
(212) 504-5557 (Fax)
(iii) if to any other Investor, at such address as such Investor shall
have provided in writing to the Company.
The Company, the Initial Investor or any Investor may change the foregoing
address by notice given pursuant to this Section 11(c).
(d) Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
(e) This Agreement shall be governed by and interpreted in accordance
with the laws of the State of New York. Each of the parties consents to the
jurisdiction of the federal courts whose districts encompass any part of the
City of New York or the state courts of the State of New York sitting in the
City of New York in connection with any dispute arising under this Agreement and
hereby waives, to the maximum extent permitted by law, any objection including
any objection based on forum non conveniens, to the bringing of any such
proceeding in such jurisdictions.
(f) The remedies provided in this Agreement are cumulative and not
exclusive of any remedies provided by law. If any term, provision, covenant or
restriction of this Agreement is held by a court of competent jurisdiction to be
invalid, illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
(g) The Company shall not enter into any agreement with respect to its
securities that is inconsistent with the rights granted to the holders of
Registrable Securities in this Agreement or otherwise conflicts with the
provisions hereof. The Company is not currently a party to any agreement
granting any registration rights with respect to any of its securities to any
person which conflicts with the Company's obligations hereunder or gives any
other party the right to include any securities, other than those securities
listed on Schedule 2(a), in any Registration Statement filed pursuant hereto,
except for such rights and conflicts as have been irrevocably waived. Without
limiting the generality of the foregoing, without the written consent of the
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<PAGE>
holders of a majority in interest of the Registrable Securities, the Company
shall not grant to any person the right to request it to register any of its
securities under the Securities Act unless the rights so granted are subject in
all respect to the prior rights of the holders of Registrable Securities set
forth herein, and are not otherwise in conflict or inconsistent with the
provisions of this Agreement. The restrictions on the Company's rights to grant
registration rights under this paragraph shall terminate on the date the
Registration Statement to be filed pursuant to Section 2(a) is declared
effective by the Commission.
(h) This Agreement, the Securities Purchase Agreement, the Escrow
Instructions, dated as of a date even herewith (the "Escrow Instructions"),
between the Company, the Initial Investor and Cadwalader, Wickersham & Taft, the
Preferred Shares and the Warrants constitute the entire agreement among the
parties hereto with respect to the subject matter hereof. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred to herein. This Agreement, the Securities Purchase Agreement, the
Escrow Instructions, the Certificate of Designation and the Warrants supersede
all prior agreements and undertakings among the parties hereto with respect to
the subject matter hereof.
(i) Subject to the requirements of Section 8 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
(j) All pronouns and any variations thereof refer to the masculine,
feminine or neuter, singular or plural, as the context may require.
(k) The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning thereof.
(l) The Company acknowledges that any failure by the Company to
perform its obligations under Section 3, or any delay in such performance could
result in direct damages to the Investors and the Company agrees that, in
addition to any other liability the Company may have by reason of any such
failure or delay, the Company shall be liable for all direct damages caused by
such failure or delay.
(m) This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. A facsimile transmission of this signed Agreement shall be
legal and binding on all parties hereto.
[SIGNATURE PAGE FOLLOWS.]
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In Witness Whereof, the parties have caused this Agreement to be duly
executed and delivered as of the date first above written.
Educational Video Conferencing, Inc.
By: /s/ Dr. Arol I. Buntzman
----------------------------------------------
Name: Dr. Arol I. Buntzman
Title: Chairman & CEO
The Shaar Fund Ltd.
By: /s/ Declan Quilligan /s/ Henriette DeVries
------------------------------------------
Name: Inter Caribbean Services Ltd.
Title: Director
By: /s/ Uri Wolfson
------------------------------------------
Uri Wolfson
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SCHEDULE 2(a)
REGISTRATION RIGHTS
The following persons and entities have registration rights with respect to
the number of shares of Common Stock appearing opposite their names below:
Shareholders Number of Shares
- ------------ ----------------
American International Investors 20,000(1)
Ellen and Alan Rutsky 2,500(1)
Cynthee and Steve Karlin 2,500(1)
Robin and Steven Levy 2,500(1)
George Sinel 6,250(1)
Tayside Trading, Ltd. 250,000(1)
B&H Investments Ltd. 221,864(1)
Andrew Lee 1,250(1)
Estate of Jack Geddy Goldberg 6,250(1)
John Daly 2,500(1)
CJG Holding Corp. 2,500(1)
Gerald W. Lanclos 7,250(1)
Richard and Maureen Wiencek 6,250(1)
James Molitor 7,250(1)
Joseph Lietner 63,637(1)
Russell Lascala 5,000(1)
Arthur H. Goldberg 10,000(1)
DEWI Investments 533,334(1)
American Intl Investors 10,000(2)
Mr. Eugene L. Crance 1,000(2)
Mr. Leonard M. Goldberg 500(2)
Ellen and Alan Rutsky 1,000(2)
Cynthee and Steve Karlin 1,000(2)
Robin and Steven Levy 1,000(2)
George Sinel 2,500(2)
Tayside Trading, LTD 100,000(2)
Tayside Trading, LTD 50,000(2)
Andrew Lee 500(2)
Estate of Jack Geddy Goldberg 2,500(2)
John Daly 1,000(2)
CJG Holding Corp. 1,000(2)
<PAGE>
Shareholders Number of Shares
- ------------ ----------------
Gerald W. Lanclos 3,000(2)
Richard and Maureen Wiencek 7,500(2)
James Mollitor 2,500(2)
Joseph Leitner 25,455(2)
First Geneve Holdings S.A. 18,296(2)
B&H Investments LTD. 24,727(2)
First Geneve Holdings S.A. 10,978(2)
Russell Lascala 2,000(2)
American International Investors 8,000(2)
Arthur H. Goldberg 4,000(2)
Adelphi University warrants 37,500(2)
B&H Investments 21,818(2)
First Geneve Holdings S.A. 4,773(2)
First Geneve Holdings S.A. 25,000(2)
Arthur H. Goldberg 25,000(2)
Arthur H. Goldberg 75,000(2)
Peter J. Solomon Limited 50,000(2)
Prime Charter Ltd. 120,000(2)
Bruce R. Kalisch 25,000(2)
J.P. Turner & Company, L.L.C. (3)
Alfus Financial Services, LLC (4)
___________________
(1) Shares of common stock owned (1,150,085).
(2) Shares of stock purchasable upon exercise of warrants.
(3) The Company is obligated to issue warrants, upon the closing of this
Agreement to J.P. Turner & Company, L.L.C. to purchase two-thirds of the
.
number of shares of Common Stock that is equal to 80,000 - 115% of the
.
average of the closing prices of the Common Stock for the five days prior to
the closing of this Agreement.
(4) The Company is obligated to issu warrants, upon the closing of this
Agreement, to Alfus Financial Services, LLC to purchase one-third of the
number of shares of Common Stock that is equal to 80,000 - 115% of the
.
average of the closing prices of the Common Stock for the five days prior
to the closing of this Agreement
2
THIS COMMON STOCK PURCHASE WARRANT AND THE SECURITIES REPRESENTED HEREBY HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
TRANSFERRED IN VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER OR
THE PROVISIONS OF THIS COMMON STOCK PURCHASE WARRANT.
Number of Shares of Common Stock:_____
Warrant No. _____
COMMON STOCK PURCHASE WARRANT
To Purchase Common Stock of
Educational Video Conferencing, Inc.
THIS IS TO CERTIFY THAT ________________________________, or registered
assigns, is entitled, at any time from the Closing Date (as hereinafter defined)
to the Expiration Date (as hereinafter defined), to purchase from Educational
Video Conferencing, Inc., a Delaware corporation (the "Company"), ______________
shares of Common Stock (as hereinafter defined and subject to adjustment as
provided herein), in whole or in part, including fractional parts, at a purchase
price per share equal to $20.67, subject to adjustment as provided herein, all
on the terms and conditions and pursuant to the provisions hereinafter set
forth.
1. DEFINITIONS
As used in this Common Stock Purchase Warrant (this "Warrant"), the
following terms shall have the respective meanings set forth below:
"Additional Shares of Common Stock" shall mean all shares of Common Stock
issued by the Company after the Closing Date, other than Warrant Stock.
"Business Day" shall mean any day that is not a Saturday or Sunday or a day
on which banks are required or permitted to be closed in the State of New York.
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency then administering the Securities Act and other federal
securities laws.
"Common Stock" shall mean (except where the context otherwise indicates)
the Common Stock, par value $.0001 per share, of the Company as constituted on
the Closing Date, and any capital stock into which such Common Stock may
thereafter be changed, and shall also include (i) capital stock of the Company
of any other class (regardless of how denominated) issued to the holders of
<PAGE>
shares of Common Stock upon any reclassification thereof which is also not
preferred as to dividends or assets over any other class of stock of the Company
and which is not subject to redemption and (ii) shares of common stock of any
successor or acquiring corporation received by or distributed to the holders of
Common Stock of the Company in the circumstances contemplated by Section 4.4.
"Convertible Securities" shall mean evidences of indebtedness, shares of
stock or other securities which are convertible into or exchangeable, with or
without payment of additional consideration in cash or property, for shares of
Common Stock, either immediately or upon the occurrence of a specified date or a
specified event.
"Current Market Price" shall mean on any date of determination the closing
price of a share of Common Stock on such day as reported on Nasdaq; provided, if
such security bid is not listed or admitted to trading on Nasdaq, as reported on
the principal national security exchange or quotation system on which such
security is quoted or listed or admitted to trading, or, if not quoted or listed
or admitted to trading on any national securities exchange or quotation system,
the closing bid price of such security on the over-the-counter market on the day
in question as reported by Bloomberg LP, or a similar generally accepted
reporting service, as the case may be.
"Current Warrant Price" shall mean, in respect of a share of Common Stock
at any date herein specified, the price at which a share of Common Stock may be
purchased pursuant to this Warrant on such date, as set forth in the first
paragraph hereof.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any successor federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect from time to time.
"Exercise Period" shall mean the period during which this Warrant is
exercisable pursuant to Section 2.1.
"Expiration Date" shall mean February 2, 2003.
"Fundamental Corporate Change" shall have the meaning set forth in Section
4.4.
"Holder" shall mean the Person in whose name the Warrant or Warrant Stock
set forth herein is registered on the books of the Company maintained for such
purpose.
"Other Property" shall have the meaning set forth in Section 4.4.
"Outstanding" shall mean, when used with reference to Common Stock, at any
date as of which the number of shares thereof is to be determined, all issued
shares of Common Stock, except shares then owned or held by or for the account
of the Company or any subsidiary thereof, and shall include all shares issuable
in respect of outstanding scrip or any certificates representing fractional
interests in shares of Common Stock.
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<PAGE>
"Person" shall mean any individual, sole proprietorship, partnership, joint
venture, trust, incorporated organization, association, corporation,
institution, public benefit corporation, entity or government (whether federal,
state, county, city, municipal or otherwise, including, without limitation, any
instrumentality, division, agency, body or department thereof).
"Restricted Common Stock" shall mean shares of Common Stock which are, or
which upon their issuance on their exercise of this Warrant would be, evidenced
by a certificate bearing the restrictive legend set forth in Section 9.1(a).
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
successor federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Transfer" shall mean any disposition of any Warrant or Warrant Stock or of
any interest in either thereof, which would constitute a sale thereof within the
meaning of the Securities Act.
"Transfer Notice" shall have the meaning set forth in Section 9.2.
"Warrant Price" shall mean an amount equal to (i) the number of shares of
Common Stock being purchased upon exercise of this Warrant pursuant to Section
2.1, multiplied by (ii) the Current Warrant Price as of the date of such
exercise.
"Warrant Stock" shall mean the shares of Common Stock purchased by the
holders of the Warrants upon the exercise thereof.
"Warrants" shall mean this Warrant, all other warrants originally issued as
of the same date, and in substantially the same form, as this Warrant, and all
warrants issued upon transfer, division or combination of, or in substitution
for, any thereof. All Warrants shall at all times be identical as to terms and
conditions and date, except as to the number of shares of Common Stock for which
they may be exercised.
2. EXERCISE OF WARRANT
2.1 Manner of Exercise
From and after the earlier to occur of (i) the first anniversary of the
Closing Date and (ii) the date immediately succeeding a period of sixty (60)
consecutive trading days during which the Common Stock trades above $23.50 (as
adjusted for any stock splits or similar corporate actions) and until 5:00 p.m.,
New York time, on the Expiration Date, Holder may exercise this Warrant, on any
Business Day, for all or any part of the number of shares of Common Stock
purchasable hereunder.
In order to exercise this Warrant, in whole or in part, Holder shall
deliver to the Company at its principal office at 35 East Grassy Sprain Road,
Yonkers, NY 10710, or at the office or agency designated by the Company pursuant
to Section 13, (i) a written notice of Holder's election to exercise this
Warrant, which notice shall specify the number of shares of
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<PAGE>
Common Stock to be purchased, (ii) to the extent such exercise is not being
effected through a Cashless Exercise, payment of the Warrant Price in cash or
wire transfer or cashier's check drawn on a United States bank and (iii) this
Warrant. Such notice shall be substantially in the form of the subscription form
appearing at the end of this Warrant as Exhibit A, duly executed by Holder or
its agent or attorney. Upon receipt of the items referred to in clauses (i),
(ii) and (iii) of this paragraph, the Company shall, as promptly as practicable,
and in any event within five Business Days thereafter, execute or cause to be
executed and deliver or cause to be delivered to Holder a certificate or
certificates representing the aggregate number of full shares of Common Stock
issuable upon such exercise, together with cash in lieu of any fraction of a
share, as hereinafter provided. The stock certificate or certificates so
delivered shall be, to the extent possible, in such denomination or
denominations as Holder shall request in the notice and shall be registered in
the name of Holder or, subject to Section 9, such other name as shall be
designated in the notice. This Warrant shall be deemed to have been exercised
and such certificate or certificates shall be deemed to have been issued, and
Holder or any other Person so designated to be named therein shall be deemed to
have become a holder of record of such shares for all purposes, as of the date
the notice, together with payment in full of the Warrant Price and this Warrant,
is received by the Company as described above and all taxes required to be paid
by Holder, if any, pursuant to Section 2.2 prior to the issuance of such shares
have been paid. If this Warrant shall have been exercised in part, the Company
shall, at the time of delivery of the certificate or certificates representing
Warrant Stock, deliver to Holder a new Warrant evidencing the rights of Holder
to purchase the unpurchased shares of Common Stock called for by this Warrant,
which new Warrant shall in all other respects be identical with this Warrant.
Notwithstanding any provision herein to the contrary, the Company shall not be
required to register shares in the name of any Person who acquired this Warrant
(or part hereof) or any Warrant Stock otherwise than in accordance with this
Warrant.
Simultaneously with the exercise of this Warrant, payment in full of the
Warrant Price shall be made, at the option of the Holder, (i) by payment of the
Warrant Price in cash or by wire transfer or cashier's check drawn on a United
States bank, (ii) through a net exercise without payment of the Warrant Price in
cash by providing notice to the Company of the Holder's election to receive a
number of shares of Common Stock in a Cashless Exercise equal to the product of
(1) the number of shares for which such Warrant is exercisable with payment in
cash of the Warrant Price as of the date of exercise and (2) the Cashless
Exercise Ratio or (iii) by any combination of clauses (i) and (ii). For purposes
of this Agreement, the "Cashless Exercise Ratio" shall equal a fraction, the
numerator of which is the excess of the Current Market Price per share of the
Common Stock on the date of exercise over the Current Warrant Price as of the
date of exercise, and the denominator of which is the Current Market Price per
share of the Common Stock on the date of exercise. An exercise of a Warrant in
accordance with clause (ii) above is herein called a "Cashless Exercise."
Following a Cashless Exercise, this Warrant shall be canceled in all respects
with regard to (a) the number of shares of Common Stock issued in accordance
with the Cashless Exercise plus (b) the number of shares used as consideration
for the Cashless Exercise.
2.2 Payment of Taxes and Charges
All shares of Common Stock issuable upon the exercise of this Warrant
pursuant to the terms hereof shall be validly issued, fully paid and
nonassessable, and without any
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<PAGE>
preemptive rights. The Company shall pay all expenses in connection with, and
all taxes and other governmental charges that may be imposed with respect to,
the issuance or delivery thereof, unless such tax or charge is imposed by law
upon Holder, in which case such taxes or charges shall be paid by Holder. The
Company shall not be required, however, to pay any tax or other charge imposed
in connection with any transfer involved in the issuance of any certificate for
shares of Common Stock issuable upon exercise of this Warrant in any name other
than that of Holder, and in such case the Company shall not be required to issue
or deliver any stock certificate until such tax or other charge has been paid or
it has been established to the satisfaction of the Company that no such tax or
other charge is due.
2.3 Fractional Shares
The Company shall not be required to issue a fractional share of Common
Stock upon exercise of any Warrant. As to any fraction of a share which Holder
would otherwise be entitled to purchase upon such exercise, the Company shall
pay a cash adjustment in respect of such final fraction in an amount equal to
the same fraction of the current Market Price per share of Common Stock as of
the applicable exercise date.
3. TRANSFER, DIVISION AND COMBINATION
3.1 Transfer
Subject to compliance with Section 9, transfer of this Warrant and all
rights hereunder, in whole or in part, shall be registered on the books of the
Company to be maintained for such purpose, upon surrender of this Warrant at the
principal office of the Company referred to in Section 2.1 or the office or
agency designated by the Company pursuant to Section 12, together with a written
assignment of this Warrant substantially in the form of Exhibit B hereto duly
executed by Holder or its agent or attorney and funds sufficient to pay any
transfer taxes payable upon the making of such transfer. Upon such surrender
and, if required, such payment, the Company shall, subject to Section 9, execute
and deliver a new Warrant or Warrants in the name of the assignee or assignees
and in the denomination specified in such instrument of assignment, and shall
issue to the assignor a new Warrant evidencing the portion of this Warrant not
so assigned, and this Warrant shall promptly be canceled. A Warrant, if properly
assigned in compliance with Section 9, may be exercised by a new Holder for the
purchase of shares of Common Stock without having a new warrant issued.
3.2 Division and Combination
Subject to Section 9, this Warrant may be divided or combined with other
Warrants upon presentation hereof at the aforesaid office or agency of the
Company, together with a written notice specifying the names and denominations
in which new Warrants are to be issued, signed by Holder or its agent or
attorney. Subject to compliance with Sections 3.1 and 9, as to any transfer
which may be involved in such division or combination, the Company shall execute
and deliver a new Warrant or Warrants in exchange for the Warrant or Warrants to
be divided or combined in accordance with such notice.
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<PAGE>
3.3 Expenses
The Company shall prepare, issue and deliver at its own expense (other than
transfer taxes) the new Warrants or Warrants under this Section 3.
3.4 Maintenance of Books
The Company agrees to maintain, at its aforesaid office or agency, books
for the registration and the registration of transfer of the Warrants.
4. ADJUSTMENTS
The number of shares of Common Stock for which this Warrant is exercisable,
or the price at which such shares may be purchased upon exercise of this
Warrant, shall be subject to adjustment from time to time as set forth in this
Section 4. The Company shall give Holder notice of any event described below
which requires an adjustment pursuant to this Section 4 at the time of such
event.
4.1 Stock Dividends, Subdivisions and Combinations
If at any time the Company shall:
(a) take a record of the holders of its Common Stock for the purpose of
entitling them to receive a dividend payable in, or other distribution of,
Additional Shares of Common Stock;
(b) subdivide its outstanding shares of Common Stock into a larger number
of shares of Common Stock; or
(c) combine its outstanding shares of Common Stock into a smaller number of
shares of Common Stock;
then (i) the number of shares of Common Stock for which this Warrant is
exercisable immediately after the occurrence of any such event shall be adjusted
to equal the number of shares of Common Stock which a record holder of the same
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the occurrence of such event would own or be entitled to
receive after the happening of such event, and (ii) the Current Warrant Price
shall be adjusted to equal (A) the Current Warrant Price multiplied by the
number of shares of Common Stock for which this Warrant is exercisable
immediately prior to the adjustment divided by (B) the number of shares for
which this Warrant is exercisable immediately after such adjustment.
4.2 Other Provisions Applicable to Adjustments under this Section
The following provisions shall be applicable to the making of adjustments
of the number of shares of Common Stock for which this Warrant is exercisable
and the Current Warrant Price provided for in this Section 4:
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<PAGE>
(a) When Adjustments to be Made. The adjustments required by this Section 4
shall be made whenever and as often as any specified event requiring an
adjustment shall occur. For the purpose of any adjustment, any specified event
shall be deemed to have occurred at the close of business on the date of its
occurrence.
(b) Fractional Interests. In computing adjustments under this Section 4,
fractional interests in Common Stock shall be taken into account to the nearest
1/10th of a share.
(c) When Adjustment not Required. If the Company shall take a record of the
holders of its Common Stock for the purpose of entitling them to receive a
dividend or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to stockholders thereof, legally abandon
its plan to pay or deliver such dividend, distribution, subscription or purchase
rights, then thereafter no adjustment shall be required by reason of the taking
of such record and any such adjustment previously made in respect thereof shall
be rescinded and annulled.
(d) Good Faith Determination. Whenever the Board of Directors of the
Company shall be required to make a determination in good faith of the fair
value of any item under this Section 4, such determination may be challenged in
good faith by the Holder, and any dispute shall be resolved by an investment
banking firm of recognized national standing selected by the Company and
acceptable to Holder.
4.3 Reorganization, Reclassification, Merger, Consolidation or
Disposition of Assets
In case the Company shall reorganize its capital, reclassify its capital
stock, consolidate or merge with or into another Person (where the Company is
not the survivor or where there is a change in or distribution with respect to
the Common Stock of the Company), or sell, convey, transfer or otherwise dispose
of all or substantially all its property, assets or business to another Person
(each, a "Fundamental Corporate Change") and, pursuant to the terms of such
Fundamental Corporate Change, shares of common stock of the successor or
acquiring corporation, or any cash, shares of stock or other securities or
property of any nature whatsoever (including warrants or other subscription or
purchase rights) in addition to or in lieu of common stock of the successor or
acquiring corporation ("Other Property"), are to be received by or distributed
to the holders of Common Stock of the Company, then Holder shall have the right
thereafter to receive, upon exercise of the Warrant, such number of shares of
common stock of the successor or acquiring corporation or of the Company, if it
is the surviving corporation, and Other Property as is receivable upon or as a
result of such Fundamental Corporate Change by a holder of the number of shares
of Common Stock for which this Warrant is exercisable immediately prior to such
Fundamental Corporate Change. In case of any such Fundamental Corporate Change,
the successor or acquiring corporation (if other than the Company) shall
expressly assume the due and punctual observance and performance of each and
every covenant and condition of this Warrant to be performed and observed by the
Company and all the obligations and liabilities hereunder, subject to such
modifications as may be deemed appropriate (as determined by resolution of the
Board of Directors of the Company) in order to provide for adjustments of shares
of Common Stock for which this Warrant is exercisable which shall be as nearly
equivalent as practicable to the adjustments provided for in this Section 4. For
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<PAGE>
purposes of this Section 4.3, "common stock of the successor or acquiring
corporation" shall include stock of such corporation of any class which is not
preferred as to dividends or assets over any other class of stock of such
corporation and which is not subject to redemption and shall also include any
evidences of indebtedness, shares of stock or other securities which are
convertible into or exchangeable for any such stock, either immediately or upon
the arrival of a specified date or the happening of a specified event and any
warrants or other rights to subscribe for or purchase any such stock. The
foregoing provisions of this Section 4.3 shall similarly apply to successive
Fundamental Corporate Change.
4.4 Certain Limitations
Notwithstanding anything herein to the contrary, the Company agrees not to
enter into any transaction which, by reason of any adjustment hereunder, would
cause the Current Warrant Price to be less than the par value per share of
Common Stock.
5. NOTICES TO HOLDER
Whenever the number of shares of Common Stock for which this Warrant is
exercisable, or whenever the price at which a share of such Common Stock may be
purchased upon exercise of the Warrants, shall be adjusted pursuant to Section
4, the Company shall forthwith prepare a certificate to be executed by the chief
financial officer of the Company setting forth, in reasonable detail, the event
requiring the adjustment and the method by which such adjustment was calculated,
specifying the number of shares of Common Stock for which this Warrant is
exercisable and (if such adjustment was made pursuant to Section 4.3) describing
the number and kind of any other shares of stock or Other Property for which
this Warrant is exercisable, and any change in the purchase price or prices
thereof, after giving effect to such adjustment or change. The Company shall
promptly cause a signed copy of such certificate to be delivered to the Holder
in accordance with Section 15.2. The Company shall keep at its office or agency
designated pursuant to Section 13 copies of all such certificates and cause the
same to be available for inspection at said office during normal business hours
by the Holder or any prospective purchaser of a Warrant designated by Holder.
6. NO IMPAIRMENT
The Company shall not by any action, including, without limitation,
amending its certificate of incorporation or through any reorganization,
transfer of assets, consolidation, merger, dissolution, issuance or sale of
securities or other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of this Warrant, but will at all times in good
faith assist in the carrying out of all such terms and in the taking of all such
actions as may be necessary or appropriate to protect the rights of Holder
against impairment.
7. RESERVATION AND AUTHORIZATION OF COMMON STOCK
From and after the Closing Date, the Company shall at all times reserve and
keep available for issuance upon the exercise of Warrants such number of its
authorized but unissued shares of Common Stock as will be sufficient to permit
the exercise in full of all outstanding
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<PAGE>
Warrants. All shares of Common Stock which shall be so issuable, when
issued upon exercise of any Warrant and payment therefor in accordance with the
terms of such Warrant, shall be duly and validly issued and fully paid and
nonassessable and not subject to preemptive rights.
Before taking any action which would cause an adjustment reducing the
Current Warrant Price below the then par value, if any, of the shares of Common
Stock issuable upon exercise of the Warrants, the Company shall take any
corporate action which may be necessary in order that the Company may validly
and legally issue fully paid and nonassessable shares of such Common Stock at
such adjusted Current Warrant Price.
8. TAKING OF RECORD; STOCK AND WARRANT TRANSFER BOOKS
In the case of all dividends or other distributions by the Company to the
holders of its Common Stock with respect to which any provision of Section 4
refers to the taking of record of such holders, the Company will in each case
take such a record and will take such record as of the close of business on a
Business Day.
9. RESTRICTIONS ON TRANSFERABILITY
The Warrants and the Warrant Stock shall not be transferred, hypothecated
or assigned before satisfaction of the conditions specified in this Section 9,
which conditions are intended to ensure compliance with the provisions of the
Securities Act with respect to the Transfer of any Warrant or any Warrant Stock.
Holder, by acceptance of this Warrant, agrees to be bound by the provisions of
this Section 9.
9.1 Restrictive Legend
(a) Holder, by accepting this Warrant and any Warrant Stock agrees that
this Warrant and the Warrant Stock issuable upon exercise hereof may not be
assigned or otherwise transferred unless and until (i) the Company has received
an opinion of counsel for Holder that such securities may be sold pursuant to an
exemption from registration under the Securities Act or (ii) a registration
statement relating to such securities has been filed by the Company and declared
effective by the Commission.
Each certificate for Warrant Stock issuable hereunder shall bear a legend
as follows until such securities have been sold pursuant to an effective
registration statement under the Securities Act:
"THESE SECURITIES HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "SECURITIES ACT"), OR THE SECURITIES LAWS OF
ANY STATE, AND ARE BEING OFFERED AND SOLD
PURSUANT TO AN EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF THE SECURITIES
ACT AND SUCH LAWS. THESE SECURITIES
MAY NOT BE SOLD OR TRANSFERRED EXCEPT PURSUANT TO AN
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EFFECTIVE REGISTRATION STATEMENT UNDER THE
SECURITIES ACT OR PURSUANT TO AN AVAILABLE
EXEMPTION FROM THE REGISTRATION REQUIREMENTS
OF THE SECURITIES ACT OR SUCH OTHER LAWS."
(b) Except as otherwise provided in this Section 9, the Warrant shall be
stamped or otherwise imprinted with a legend in substantially the following
form:
"THIS COMMON STOCK PURCHASE WARRANT AND THE SECURITIES
REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE TRANSFERRED
IN VIOLATION OF SUCH ACT, THE RULES AND REGULATIONS THEREUNDER
OR THE PROVISIONS OF THIS COMMON STOCK PURCHASE WARRANT."
9.2 Notice of Proposed Transfers
Prior to any Transfer or attempted Transfer of any Warrants or any shares
of Restricted Common Stock, the Holder shall give ten days' prior written notice
(a "Transfer Notice") to the Company of Holder's intention to effect such
Transfer, describing the manner and circumstances of the proposed Transfer, and
obtain from counsel to Holder who shall be reasonably satisfactory to the
Company, an opinion that the proposed Transfer of such Warrants or such
Restricted Common Stock may be effected without registration under the
Securities Act. After receipt of the Transfer Notice and opinion, the Company
shall, within five days thereof, notify the Holder as to whether such opinion is
reasonably satisfactory and, if so, such holder shall thereupon be entitled to
Transfer such Warrants or such Restricted Common Stock, in accordance with the
terms of the Transfer Notice. Each certificate, if any, evidencing such shares
of Restricted Common Stock issued upon such Transfer shall bear the restrictive
legend set forth in Section 9.1(a), and the Warrant issued upon such Transfer
shall bear the restrictive legend set forth in Section 9.1(b), unless in the
opinion of such counsel such legend is not required in order to ensure
compliance with the Securities Act. Holder shall not be entitled to Transfer
such Warrants or such Restricted Common Stock until receipt of notice from the
Company under this Section 9.2 that such opinion is reasonably satisfactory.
10. REGISTRATION OF WARRANT STOCK
10.1 Piggyback Registration
If any time prior to February 3, 2003 the Company proposes to register any
voting equity securities under the Securities Act in a secondary registration on
behalf of holders of such securities, who or which do not have the right to
preclude Warrant Stock from such registration, and the registration form to be
used may be used for registration of the Warrant Stock, the Company shall give
prompt written notice (which shall be at least 30 days prior to the date of the
initial filing of the applicable registration statement) to the Holder of
Warrants and/or Warrant Stock of its intention to effect registration and shall
offer to include in such registration such number of Warrant Shares with respect
to which the Company has received written requests for inclusion therein within
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<PAGE>
10 Business Days after receipt of such notice from the Company, upon generally
the same terms and conditions as the person or persons for whom such
registration is being effected has agreed to. The Company shall not be obligated
to cause to be effective any registration statement as to which it has given
notice to the Holder of Warrants and/or Warrant Stock and shall have discretion
to withdraw any such registration without liability to Holder of Warrants and/or
Warrant Stock. The Company's obligation to register Warrant Stock is limited to
one registration statement covering all of the Warrant Stock underlying Warrants
that becomes effective and remains effective as provided in Section 10.2(e).
Notwithstanding the foregoing, if the offering is underwritten and the
managing underwriter of the offering shall determine in good faith and advise
the Company in writing that the inclusion of the Warrant Stock with the other
securities being offered in such registration would materially and adversely
affect the marketability of the offering, then the Company and the managing
underwriter may reduce the number of Warrant Stock to be registered on a pro
rata basis proportionate to the reduction of all other holders of securities
participating in such registration pursuant to the exercise of piggyback
registration rights. In such event, the Company may reduce the number of shares
of Warrant Stock to be registered to zero as long as no other securities are
registered in such registration statement pursuant to an exercise of piggyback
registration rights. Subject to the foregoing, the Company shall be obligated to
include all excluded Warrant Stock in a subsequent secondary registration.
10.2 Registration Procedures
If and whenever the Company is required by the provisions of this Section
10 to effect the registration of any Warrant Stock under the Securities Act, the
Company will:
(a) furnish to each seller of Warrant Stock such number of copies of the
registration statement and the prospectus included therein (including each
preliminary prospectus) as such persons reasonably may request in order to
facilitate the public sale or other disposition of the Warrant Stock covered by
such registration statement;
(b) use its reasonable best efforts to register or qualify the Warrant
Shares covered by such registration statement under such securities or blue sky
laws of such jurisdictions as each seller shall request, and do any and all
other acts and things which may be necessary under such securities or blue sky
laws to enable such seller to consummate the public sale or other disposition in
such jurisdictions of the securities to be sold by such seller, except that the
Company shall not for any such purpose be required to qualify to do business as
a foreign corporation in any jurisdiction wherein it is not qualified or to file
any general consent to service of process;
(c) use its reasonable best efforts to list the Warrant Stock covered by
such registration statement with any securities exchange or automated quotation
system on which the Common Stock of the Company is then listed;
(d) immediately notify each seller of Warrant Stock, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any events of which the Company has knowledge, as
result of which the prospectus contained in such registration statement, as then
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in effect, included 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; and
(e) subject to Section 10.2(d), keep the registration statement
continuously effective so as to permit the Prospectus forming part thereof to be
current and useable by sellers for the sales of Warrant Stock for a period of
twenty-four (24) months from the date on which the registration statement is
declared effective or such shorter period that terminates when all of the
Warrant Stock has been sold under such registration statement is otherwise free
of Transfer restrictions.
10.3 Seller Covenants.
In connection with each registration pursuant to this Section 9, the
sellers of Warrant Stock will furnish to the Company in writing such information
with respect to themselves and the proposed distribution by them as reasonably
shall be necessary and shall be requested by the Company in order to comply with
Federal and applicable state securities laws.
In connection with each registration pursuant to this Section 10 covering
an underwritten public offering, each seller of Warrant Stock agrees to enter
into a written agreement with the managing underwriter in such form and
containing such provisions as are customary in the securities business for such
an arrangement between such underwriter and companies of the Company's size and
investment stature.
Each seller of Warrant Stock severally agrees that, upon receipt of any
notice from the Company of the happening of any event of the kind described in
Section 10.2(d), such seller will immediately discontinue disposition of Warrant
Stock pursuant to the registration statement until such seller's receipt of the
copies of the supplemented or amended prospectus, and, if so directed by the
Company, such seller will deliver to the Company all copies, other than
permanent file copies then in such seller's possession, of the most recent
prospectus covering such Warrant Shares at the time of receipt of such notice.
If the Company shall give such notice, the Company shall extend the period
during which the registration statement shall be maintained effective by the
number of days during the period from and including the date of the giving of
notice pursuant to Section 10.2(d) to the date when the Company shall make
available to such seller a prospectus supplemented or amended to conform with
the requirements of the Securities Act.
Each seller of Warrant Stock agrees that, if requested, such seller will
enter into an agreement containing customary indemnification and contribution
provisions as a condition to registration of such seller's Warrant Stock.
10.4 Expenses.
All expenses incurred by the Company in complying with this Sections 10,
including, without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel and independent public accountants
for the Company, fees and expenses (including counsel fees) incurred in
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connection with complying with state securities or "blue sky" laws, fees of the
National Association of Securities Dealers, Inc., transfer taxes, fees of
transfer agents and registrars, costs of insurance, but excluding any Selling
Expenses, are herein referred to as "Registration Expenses." "Selling Expenses,"
as used herein, means all underwriting discounts and selling commissions
applicable to the sale of Warrant Shares and expenses of counsel for the sellers
of Warrant Stock.
The Company will pay or cause to be paid all Registration Expenses of the
participating sellers of Warrant Stock in connection with each registration
statement under this Section 10. All Selling Expenses in connection with each
registration statement under this Section 10 shall be borne by the participating
sellers of Warrant Stock in proportion to the number of Warrant Shares sold by
each, or by such participating sellers of Warrant Stock as they may agree.
10.5 Listing on Securities Exchange
If the Company shall list any shares of Common Stock on any securities
exchange or quotation system, it will, at its expense, list thereon, maintain
and, when necessary, increase such listing of, all shares of Common Stock issued
or, to the extent permissible under the applicable securities exchange rules,
issuable upon the exercise of this Warrant so long as any shares of Common Stock
shall be so listed during any such Exercise Period.
11. SUPPLYING INFORMATION
The Company shall cooperate with Holder in supplying such information as
may be reasonably necessary for Holder to complete and file any information
reporting forms presently or hereafter required by the Commission as a condition
to the availability of an exemption from the Securities Act for the sale of any
Warrant or Restricted Common Stock.
12. LOSS OR MUTILATION
Upon receipt by the Company from Holder of evidence reasonably satisfactory
to it of the ownership of and the loss, theft, destruction or mutilation of this
Warrant and indemnity reasonably satisfactory to it (it being understood that
the written agreement of the Holder shall be sufficient indemnity), and in case
of mutilation upon surrender and cancellation hereof, the Company will execute
and deliver in lieu hereof a new Warrant of like tenor to Holder; provided, in
the case of mutilation no indemnity shall be required if this Warrant in
identifiable form is surrendered to the Company for cancellation.
13. OFFICE OF THE COMPANY
As long as any of the Warrants remain outstanding, the Company shall
maintain an office or agency (which may be the principal executive offices of
the Company) where the Warrants may be presented for exercise, registration of
transfer, division or combination as provided in this Warrant.
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14. LIMITATION OF LIABILITY
No provision hereof, in the absence of affirmative action by Holder to
purchase shares of Common Stock, and no enumeration herein of the rights or
privileges of Holder hereof, shall give rise to any liability of Holder for the
purchase price of any Common Stock or as a stockholder of the Company, whether
such liability is asserted by the Company or by creditors of the Company.
15. MISCELLANEOUS
15.1 Nonwaiver and Expenses
No course of dealing or any delay or failure to exercise any right
hereunder on the part of Holder shall operate as a waiver of such right or
otherwise prejudice Holder's rights, powers or remedies. If the Company fails to
make, when due, any payments provided for hereunder, or fails to comply with any
other provision of this Warrant, the Company shall pay to Holder such amounts as
shall be sufficient to cover any costs and expenses including, without
limitation, reasonable attorneys' fees, including those of appellate
proceedings, incurred by Holder in collecting any amounts due pursuant hereto or
in otherwise enforcing any of its rights, powers or remedies hereunder.
15.2 Notice Generally
Except as may be otherwise provided herein, any notice or other
communication or delivery required or permitted hereunder shall be in writing
and shall be delivered personally or sent by certified mail, postage prepaid, or
by a nationally recognized overnight courier service, and shall be deemed given
when so delivered personally or by overnight courier service, or, if mailed,
three days after the date of deposit in the United States mails, as follows:
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(a) if to the Company, to:
Educational Video Conferencing, Inc.
35 East Grassy Sprain Road
Yonkers, NY 10710
Attention: Dr. Arol I. Buntzman
(914) 787-3500
(914) 395-3498 (fax)
with a copy to:
Fischbein, Badillo, Wagner, Harding
909 3rd Avenue, 17th Floor
New York, NY 10022
Attention: Joseph D. Alperin, Esq.
(212) 826-2000
(212) 644-3601 (fax)
(b) if to the Holder, to:
_______________________________
_______________________________
_______________________________
Attention:_____________________
________________
________________ (Fax)
with a copy to:
_______________________________
_______________________________
_______________________________
Attention:_____________________
________________
________________ (Fax)
The Company or the Holder may change the foregoing address by notice given
pursuant to this Section 15.2.
15.3 Indemnification
The Company agrees to indemnify and hold harmless Holder from and against
any liabilities, obligations, losses, damages, penalties, actions, judgments,
suits, claims, costs, attorneys' fees, expenses and disbursements of any kind
which may be imposed upon, incurred by or asserted against Holder in any manner
relating to or arising out of any failure by the Company to perform or observe
in any material respect any of its covenants, agreements, undertakings or
obligations set forth in this Warrant; provided, however, that the Company will
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not be liable hereunder to the extent that any liabilities, obligations, losses,
damages, penalties, actions, judgments, suits, claims, costs, attorneys' fees,
expenses or disbursements are found in a final nonappealable judgment by a court
to have resulted from Holder's gross negligence, bad faith or willful misconduct
in its capacity as a stockholder or warrantholder of the Company.
15.4 Remedies
Holder in addition to being entitled to exercise all rights granted by law,
including recovery of damages, will be entitled to specific performance of its
rights under Section 9 of this Warrant. The Company agrees that monetary damages
would not be adequate compensation for any loss incurred by reason of a breach
by it of the provisions of Section 9 of this Warrant and hereby agrees to waive
the defense in any action for specific performance that a remedy at law would be
adequate.
15.5 Successors and Assigns
Subject to the provisions of Sections 3.1 and 9, this Warrant and the
rights evidenced hereby shall inure to the benefit of and be binding upon the
successors of the Company and the successors and assigns of Holder. The
provisions of this Warrant are intended to be for the benefit of all Holders
from time to time of this Warrant and, with respect to Section 9 hereof, holders
of Warrant Stock, and shall be enforceable by any such Holder or holder of
Warrant Stock.
15.6 Amendment
This Warrant and all other Warrants may be modified or amended or the
provisions hereof waived with the written consent of the Company and Holder.
15.7 Severability
Wherever possible, each provision of this Warrant shall be interpreted in
such manner as to be effective and valid under applicable law, but if any
provision of this Warrant shall be prohibited by or invalid under applicable
law, such provision shall only be ineffective to the extent of such prohibition
or invalidity, without invalidating the remainder of such provision or the
remaining provisions of this Warrant.
15.8 Headings
The headings used in this Warrant are for the convenience of reference only
and shall not, for any purpose, be deemed a part of this Warrant.
15.9 Governing Law
This Warrant shall be governed by the laws of the State of New York,
without regard to the provisions thereof relating to conflicts of law.
[SIGNATURE PAGE FOLLOWS.]
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IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed
and its corporate seal to be impressed hereon and attested by its Secretary or
an Assistant Secretary.
Dated: February 3, 2000
EDUCATIONAL VIDEO CONFERENCING, INC.
By: ------------------------------------
Name:
Title:
Attest:
By:
--------------------------
Name:
Title:
<PAGE>
EXHIBIT A
SUBSCRIPTION FORM
[To be executed only upon exercise of Warrant]
The undersigned registered owner of this Warrant irrevocably exercises this
Warrant for the purchase of __________ shares of Common Stock of Educational
Video Conferencing, Inc. and herewith makes payment therefor, all at the price
and on the terms and conditions specified in this Warrant and requests that
certificates for the shares of Common Stock hereby purchased (and any securities
or other property issuable upon such exercise) be issued in the name of and
delivered to
________________________________________________________________________________
whose address is
________________________________________________________________________________
and, if such shares of Common Stock shall not include all of the shares of
Common Stock issuable as provided in this Warrant, that a new Warrant of like
tenor and date for the balance of the shares of Common Stock issuable hereunder
be delivered to the undersigned.
_____________________________________
(Name of Registered Owner)
_____________________________________
(Signature of Registered Owner)
_____________________________________
(Street Address)
_____________________________________
(City) (State) (Zip Code)
Notice: The signature on this
subscription must correspond with the
name as written upon the face of the
within Warrant in every particular.
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EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED the undersigned registered owner of this Warrant hereby
sells, assigns and transfers unto the Assignee named below all of the rights of
the undersigned under this Warrant, with respect to the number of shares of
Common Stock set forth below:
No. of Shares of
Name and Address of Assignee Common Stock
_____________________________ _________________
and does hereby irrevocably constitute and appoint
_______________________________________________________________________________
attorney-in-fact to register such transfer on the books of Educational
Video Conferencing, Inc. maintained for the purpose, with full power of
substitution in the premises.
Dated:___________________________________
_____________________________________
(Print Name)
_____________________________________
(Signature)
_____________________________________
(Print Name of Witness)
_____________________________________
(Witness's Signature)
Notice: The signature on this
assignment must correspond with the
name as written upon the face of the
within Warrant in every particular.
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