<PAGE>
As filed with the Securities and Exchange Commission on July 2, 1999
Registration No. 333-81107
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
Amendment No. 1
To
FORM S-1
REGISTRATION STATEMENT
Under
THE SECURITIES ACT OF 1933
----------------
LOISLAW.COM, INC.
(Exact name of Registrant as specified in its charter)
Delaware 7374 71-0655999
(State or other (Primary Standard (I.R.S. Employer
jurisdiction of Industrial Identification No.)
incorporation or Classification Code
organization) Number)
----------------
105 North 28th Street
Van Buren, Arkansas 72956
(501) 471-5581
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
----------------
KYLE D. PARKER
Chairman of the Board and Chief Executive Officer
Loislaw.com, Inc.
105 North 28th Street
Van Buren, Arkansas 72956
(501) 471-5581
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies to:
Kenn W. Webb, Esq. Lawrence S. Wittenberg, Esq.
Thompson & Knight, P.C. Testa, Hurwitz & Thibeault, LLP
1700 Pacific Avenue, Suite 3300 125 High Street
Dallas, Texas 75201 Boston, Massachusetts 02110
(214) 969-1700 (617) 248-7000
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an Offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same Offering. [_]
If this Form is a post effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same Offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same Offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until this Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
ITEM 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
***1.1 Form of Underwriting Agreement
*2.1 Agreement and Plan of Merger, dated as of June 16, 1999
*2.2 Certificate and Articles of Merger of Law Office Information Systems,
Inc. (an Arkansas Corporation) with and into Loislaw.com, Inc. (a
Delaware Corporation).
*3.1 Certificate of Incorporation of Loislaw.com, as filed with the
Secretary of State of Delaware on June 16, 1999.
*3.2 Bylaws of Loislaw.com
**3.3 Certificate of Designation as filed with the State of Delaware
***4.1 Specimen Certificate for shares of common stock
*4.2 Amended and Restated Stockholders' Agreement, dated as of May 25,
1999 by and among Loislaw.com and certain stockholders
*4.3 Amended and Restated Registration Rights Agreement, dated as of May
25, 1999 by and among Loislaw.com and certain stockholders
***5.1 Opinion of Thompson & Knight, P.C.
*10.1 1996 Stock Option Plan
*10.2 Form of Employment Agreement by and between Loislaw.com and Kyle D.
Parker
*10.3 Form of Employment Agreement by and between Loislaw.com and Mark O.
Beyland
*10.4 Reimbursement Agreement by and among Kyle D. Parker, as Trustee for
The Parker Trust, Melissa Ann Parker and Capital Resource Lenders
III, L.P. dated as of November 24, 1997, as amended on June 17, 1999.
*10.5 Employment Agreement, effective as of July 2, 1996, by and between
Loislaw.com and W. Clark Wigley
*10.6 Corporate License and Services Agreement, effective as of February
18, 1998, by and between Loislaw.com and Verity, Inc., as amended
*10.7 Credit Agreement between Loislaw.com and Fleet National Bank, N.A.,
dated August 20, 1998
*10.8 First Amendment to Credit Agreement, by and between Loislaw.com and
Fleet National Bank, N.A., dated December 31, 1998
*10.9 Second Amendment and Waiver to Credit Agreement, by and between
Loislaw.com and Fleet National Bank, N.A., dated April 30, 1999
*10.10 Third Amendment to Credit Agreement, by and between Loislaw.com and
Fleet National Bank, N.A., dated May 25, 1999
*10.11 Form of Indemnity Agreement with a schedule of pending director and
officer signatories.
*10.12 Lease Agreement by and between Loislaw.com and the Parker Law Office
dated May 5, 1999.
**10.13 Agreement by and between Loislaw.com and Pacific Data Conversion
Corporation, dated December 29, 1998.
**10.14 Agreement by and between Loislaw.com and Infocon, dated July 1, 1998
**10.15 Master Services Agreement by and among Loislaw.com, Digital
Publishing International Ltd. and Innodata Corporation, dated June
10, 1998
***10.16 Employee Stock Purchase Plan.
***10.17 1999 Nonqualified Stock Option Plan for Nonemployee Directors
*10.18 Senior Subordinated Note and Securities Purchase Agreement, dated as
of November 24, 1997, by and between Loislaw.com and Capital Resource
Lenders III, L.P., as amended.
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
*10.19 Internet Services General Agreements by and between Loislaw.com and
AT&T, dated as of December 21, 1998.
*10.20 AT&T Contract Tariff Order Form by and between AT&T Corp. and
Loislaw.com, dated as of April 6, 1999.
*10.21 Agreement by and between AT&T Corp. and Loislaw.com for AT&T
WorldNetSM Services, dated as of September 25, 1995.
*10.22 Form of Customer Subscription Agreement.
*21.0 Subsidiaries of Loislaw.com
***23.1 Consent of Thompson & Knight, P.C. (included in its opinion filed as
Exhibit 5 hereto)
*23.2 Consent of KPMG LLP
*24.1 Power of Attorney (included on signature page of the Registration
Statement as initially filed)
*27.1 Financial Data Schedule
</TABLE>
- --------
* Previously filed on June 18, 1999.
** Filed herewith.
*** To be filed by amendment.
(b) Financial Statement Schedules
None.
Schedules not listed above have been omitted because they are not required,
are not applicable, or the information is included in the Financial Statements
or Notes thereto.
II-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
Loislaw.com, Inc. has duly caused this Amendment No. 1 to the Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Van Buren, State of Arkansas, on July 2, 1999.
Loislaw.com, Inc.
/s/ Kyle D. Parker
By: _________________________________
Kyle D. Parker
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to the Registration Statement has been signed by the following
persons on July 2, 1999 in the capacities indicated:
<TABLE>
<CAPTION>
Signature Title
--------- -----
<S> <C> <C>
/s/ Kyle D. Parker Chairman of the Board and
______________________________________ Chief Executive Officer
Kyle D. Parker (principal executive
officer)
/s/ Mark O. Beyland President, Chief Financial
______________________________________ Officer and Director
Mark O. Beyland
/s/ Pamela G. Rogers Controller and chief
______________________________________ accounting officer
Pamela G. Rogers
Robert C. Ammerman* Director
______________________________________
Robert C. Ammerman
Randy Laney* Director
______________________________________
D. Randy Laney
Hannah C. Stone* Director
______________________________________
Hannah C. Stone
*BY: /s/ Kyle D. Parker
______________________________________
Kyle D. Parker
Attorney-in-Fact
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
***1.1 Form of Underwriting Agreement
*2.1 Agreement and Plan of Merger, dated as of June 16, 1999
*2.2 Certificate and Articles of Merger of Law Office Information Systems,
Inc. (an Arkansas Corporation) with and into Loislaw.com, Inc. (a
Delaware Corporation).
*3.1 Certificate of Incorporation of Loislaw.com, as filed with the
Secretary of State of Delaware on June 16, 1999.
*3.2 Bylaws of Loislaw.com
**3.3 Certificate of Designation as filed with the State of Delaware
***4.1 Specimen Certificate for shares of common stock
*4.2 Amended and Restated Stockholders' Agreement, dated as of May 25,
1999 by and among Loislaw.com and certain stockholders
*4.3 Amended and Restated Registration Rights Agreement, dated as of May
25, 1999 by and among Loislaw.com and certain stockholders
***5.1 Opinion of Thompson & Knight, P.C.
*10.1 1996 Stock Option Plan
*10.2 Form of Employment Agreement by and between Loislaw.com and Kyle D.
Parker
*10.3 Form of Employment Agreement by and between Loislaw.com and Mark O.
Beyland
*10.4 Reimbursement Agreement by and among Kyle D. Parker, as Trustee for
The Parker Trust, Melissa Ann Parker and Capital Resource Lenders
III, L.P. dated as of November 24, 1997, as amended on June 17, 1999.
*10.5 Employment Agreement, effective as of July 2, 1996, by and between
Loislaw.com and W. Clark Wigley
*10.6 Corporate License and Services Agreement, effective as of February
18, 1998, by and between Loislaw.com and Verity, Inc., as amended
*10.7 Credit Agreement between Loislaw.com and Fleet National Bank, N.A.,
dated August 20, 1998
*10.8 First Amendment to Credit Agreement, by and between Loislaw.com and
Fleet National Bank, N.A., dated December 31, 1998
*10.9 Second Amendment and Waiver to Credit Agreement, by and between
Loislaw.com and Fleet National Bank, N.A., dated April 30, 1999
*10.10 Third Amendment to Credit Agreement, by and between Loislaw.com and
Fleet National Bank, N.A., dated May 25, 1999
*10.11 Form of Indemnity Agreement with a schedule of pending director and
officer signatories.
*10.12 Lease Agreement by and between Loislaw.com and the Parker Law Office
dated May 5, 1999.
**10.13 Agreement by and between Loislaw.com and Pacific Data Conversion
Corporation, dated December 29, 1998.
**10.14 Agreement by and between Loislaw.com and Infocon, dated July 1, 1998
**10.15 Master Services Agreement by and among Loislaw.com, Digital
Publishing International Ltd. and Innodata Corporation, dated June
10, 1998
***10.16 Employee Stock Purchase Plan.
***10.17 1999 Nonqualified Stock Option Plan for Nonemployee Directors
*10.18 Senior Subordinated Note and Securities Purchase Agreement, dated as
of November 24, 1997, by and between Loislaw.com and Capital Resource
Lenders III, L.P., as amended.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number
-------
<C> <S>
*10.19 Internet Services General Agreements by and between Loislaw.com and
AT&T, dated as of December 21, 1998.
*10.20 AT&T Contract Tariff Order Form by and between AT&T Corp. and
Loislaw.com, dated as of April 6, 1999.
*10.21 Agreement by and between AT&T Corp. and Loislaw.com for AT&T
WorldNetSM Services, dated as of September 25, 1995.
*10.22 Form of Customer Subscription Agreement.
*21.0 Subsidiaries of Loislaw.com
***23.1 Consent of Thompson & Knight, P.C. (included in its opinion filed as
Exhibit 5 hereto)
*23.2 Consent of KPMG LLP
*24.1 Power of Attorney (included on signature page of the Registration
Statement as initially filed)
*27.1 Financial Data Schedule
</TABLE>
- --------
* Previously filed on June 18, 1999.
** Filed herewith
*** To be filed by amendment.
<PAGE>
EXHIBIT 3.3
CERTIFICATE OF DESIGNATIONS
of
SERIES A CONVERTIBLE PREFERRED STOCK
(Par Value $0.001 Per Share)
and
SERIES B REDEEMABLE PREFERRED STOCK
(Par Value $0.001 Per Share)
and
SERIES C CONVERTIBLE PREFERRED STOCK
(Par Value $0.001 Per Share)
of
LOISLAW.COM, INC.
____________________________
Pursuant to Section 151
of the General Corporation Law of the State of Delaware
____________________________
LOISLAW.COM, INC., a corporation organized and existing under the laws of
the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY that, pursuant to
the authority conferred on the Board of Directors of the Corporation by the
Certificate of Incorporation of the Corporation and in accordance with Section
151 of the General Corporation Law of the State of Delaware, the Board of
Directors of the Corporation on June 17, 1999 duly adopted the following
preamble and resolution establishing and creating a series of 931,044 shares of
Series A Convertible Preferred Stock, par value $0.001 per share, a series of
439,589 shares of Series B Redeemable Preferred Stock, par value $0.001 per
share, and a series of 2,495,697 shares of Series C Convertible Preferred Stock,
par value $0.001.
NOW, THEREFORE, BE IT RESOLVED, that, pursuant to the authority vested in
the Board of Directors of the Corporation in accordance with the provisions of
the Certificate of Incorporation of the Corporation, this Board of Directors
hereby:
(a) designates 931,044 authorized but unissued shares of preferred stock
as Series A Convertible Preferred Stock, par value $.001 per share
(the "Series A Stock"), the shares of such series to have the voting
and other powers, preferences and relative, participating, optional
and other special rights, and the qualifications, limitations and
restrictions, as set forth in Part A of Exhibit A attached hereto;
---------
<PAGE>
(b) designates 439,589 authorized but unissued shares of preferred stock
as Series B Redeemable Preferred Stock, par value $.001 per share (the
"Series B Stock"), the shares of such series to have the powers,
preferences and relative, participating, optional and other special
rights, and the qualifications, limitations and restrictions, as set
forth in Part B of Exhibit A attached hereto; and
---------
(c) designates 2,495,697 authorized but unissued shares of preferred stock
as Series C Convertible Preferred Stock, par value $.001 per share
(the "Series C Stock"), the shares of such series to have the voting
and other powers, preferences and relative, participating, optional
and other special rights, and the qualifications, limitations and
restrictions, as set forth in Part C of Exhibit A attached hereto.
---------
IN WITNESS WHEREOF, the undersigned has executed this Certificate of
Designations on the 17th day of June, 1999.
LOISLAW.COM, INC.
By: /s/ Kyle D. Parker
---------------------------
Name: Kyle D. Parker
--------------------------
Title: Chief Executive Officer
--------------------------
2
<PAGE>
EXHIBIT A
TERMS OF THE PREFERRED STOCK
PART A: TERMS OF THE SERIES A CONVERTIBLE PREFERRED STOCK
-------------------------------------------------
The series of Preferred Stock designated and known as "Series A Convertible
Preferred Stock" shall consist of 931,044 shares. All shares of Series A
Convertible Preferred Stock shall rank equally and be identical in all respects.
The relative rights preferences, restrictions and other matters relating to the
Series A Convertible Preferred Stock are as follows:
1. Rank. The Series A Convertible Preferred Stock shall, with respect to
----
priority as to dividend rights, rights on liquidation, winding up and
dissolution and rights upon redemption, rank on a parity basis with the Series C
Convertible Preferred Stock and prior to (i) the Common Stock, (ii) the Series B
Redeemable Preferred Stock, and (iii) any other class or series of capital stock
of the Company, whether now existing or hereafter created.
2. Dividends
---------
2.1. General. The holders of shares of the outstanding Series A
-------
Convertible Preferred Stock shall be entitled to receive non-cumulative
dividends ratably and on a parity with such dividends as may be paid on the
Common Stock and the Series C Convertible Preferred Stock as and when dividends
on the Common Stock are declared by the Board of Directors of the Company out of
funds legally available therefor, such dividends to be paid with respect to the
Series A Convertible Preferred Stock as though each share of Series A
Convertible Preferred Stock had been converted into shares of Common Stock
pursuant to Section 6 hereof immediately prior to the record date for such
dividend.
2.2. Coordination With Conversion Right. To the extent that any provision
----------------------------------
of this Part A provides for an adjustment to the Applicable Conversion Value (or
the number, amount or kind of securities issuable upon conversion of a share of
Series A Convertible Preferred Stock) by reason of any dividend or distribution
on the Common Stock referred to in Section 2.1 of this Part A, the holders of at
least a majority of the outstanding shares of the Series A Convertible Preferred
Stock ("Majority Series A Holders") shall have the right to elect either (i) to
require that the corresponding dividend or distribution contemplated by Section
2.1 be declared and paid or made with respect to the Series A Convertible
Preferred Stock as provided in Section 2.1, in which case such adjustment shall
not be made to such extent, or (ii) to require such adjustment to be made, in
which case such corresponding dividend or distribution shall not be declared or
paid or made with respect to the Series A Convertible Preferred Stock to such
extent. In declaring, making and paying dividends and distributions on the
Common Stock as to which such right of election exists, the Company shall
provide the holders of the Series A Convertible Preferred Stock with reasonable
advance notice and forms of election, and shall otherwise act in good faith, so
that such holders may effectively exercise all rights of election provided for
in this Section 2.2 on a timely basis.
3
<PAGE>
2.3. Record and Payment Dates. The Board may fix a record date for the
------------------------
determination of holders of Series A Convertible Preferred Stock entitled to
receive a dividend or distribution pursuant to Section 2.1 of this Part A, which
date shall be the same as the record date for the corresponding dividend or
distribution on the Common Stock. The payment date for any such dividend or
distribution shall be on or before the payment date for the corresponding
dividend or distribution on the Common Stock.
3. Liquidation, Dissolution or Winding Up.
--------------------------------------
3.1. Treatment at Liquidation, Dissolution or Winding Up.
---------------------------------------------------
(a) In the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, holders of each share of Series A
Convertible Preferred Stock and Series C Convertible Preferred Stock (together,
the "Senior Preferred Stock") shall be entitled to be paid first out of the
assets of the Company available for distribution to holders of the Company's
capital stock of all classes, whether such assets are capital, surplus, or
earnings, an amount equal to the Liquidation Price of such share of Senior
Preferred Stock as of the date of the payment or distribution thereof to the
holders of Senior Preferred Stock.
"Liquidation Price" means
(i) with respect to the Series A Convertible Preferred Stock, an amount
equal to the greater of
(A) $3.2222 per share (the "Series A Issue Price") of Series A
Convertible Preferred Stock (which amount shall be subject to equitable
adjustment whenever there shall occur a stock split, combination,
reclassification or other similar event involving the Series A Convertible
Preferred Stock) plus all declared and unpaid dividends thereon, to and
including the date full payment shall be tendered to the holders of the
Series A Convertible Preferred Stock with respect to such liquidation,
dissolution or winding up; or
(B) such amount per share of Series A Convertible Preferred Stock as
would have been payable had each such share been converted into shares of
Common Stock pursuant to Section 6 of this Part A and each share of Series
C Convertible Preferred Stock been converted into shares of Common Stock
pursuant to Section 6 of Part C immediately prior to such event of
liquidation, dissolution or winding up and all assets of the Company
available for distribution to holders of the Company's capital stock of all
classes been distributed to the holders of the Series B Redeemable
Preferred Stock and the Common Stock; and
(ii) with respect to the Series C Convertible Preferred Stock, the amount
set forth as the Liquidation Price of the Series C Convertible Preferred
Stock in Section 3.1(a) of Part C.
(b) If the assets of the Company shall be insufficient to permit the
payment in full of the amounts thus distributable to the holders of the Series A
Convertible Preferred Stock
4
<PAGE>
and Series C Convertible Preferred Stock, then the entire assets of the Company
available for such distribution shall be distributed ratably among the holders
of the Series A Convertible Preferred Stock and the holders of the Series C
Convertible Preferred Stock in proportion to the respective full preferential
amounts to which such holders would otherwise be entitled. After such payment
shall have been made in full to the holders of the Series A Convertible
Preferred Stock or funds necessary for such payment shall have been set aside by
the Company in trust for the account of holders of the Series A Convertible
Preferred Stock so as to be available for such payment, the holders of Series A
Convertible Preferred Stock shall be entitled to no further participation in the
distribution of the assets of the Company and shall have no further rights of
conversion and the remaining assets available for distribution shall be
distributed among the holders of any other series of Preferred Stock ranking
junior in liquidation to the Series A Convertible Preferred Stock and the Common
Stock.
3.2. Treatment of Reorganizations, Consolidations, Mergers, and Sales of
-------------------------------------------------------------------
Assets. A reorganization as provided in Section 6.7 or a consolidation or
- ------
merger of the Company or a sale of all or substantially all of the assets of the
Company shall be regarded as a liquidation, dissolution or winding up of the
affairs of the Company within the meaning of this Section 3; provided, however,
that each holder of Series A Convertible Preferred Stock shall have the right to
elect the benefits of the provisions of Section 6.7 hereof in lieu of receiving
payment in liquidation, dissolution or winding up of the Company pursuant to
this Section 3.
3.3. Distributions Other than Cash. Whenever the distribution provided for
-----------------------------
in this Section 3 shall be payable in property other than cash, the value of
such distribution shall be the Fair Market Value (as defined in Section 6.4(d))
of such property as determined on the basis of an independent appraisal.
3.4. Record Date and Notice. In the event of any liquidation, dissolution
----------------------
or winding up of the Company, whether voluntary or involuntary, the following
shall apply:
(a) Any distribution to the holders of capital stock of the Company of
any class or series of assets of the Company available for distribution to its
stockholders will be made to the holders of record of such class or series on a
record date that is not less than 10 days nor more than 30 days prior to the
date such distribution is proposed to be made (each, a "Distribution Date").
(b) The Company shall give to each holder of Series A Convertible
Preferred Stock at least 20 days' prior written notice of the record date to be
fixed for any payment or distribution to any of the holders of any capital stock
of the Company of any class or series. In addition to any other information
required by the Company's Articles of Incorporation, (as amended or restated
from time to time, these "Articles"), the Company's by-laws or applicable law,
such notice shall describe in reasonable detail each payment or distribution
proposed to be made, identify all classes and series of capital stock that will
participate in such payment or distribution and the relative participations of
the holders of each such class or series and state the record date and
Distribution Date for such payment or distribution. Such notice shall be
5
<PAGE>
accompanied by a statement, in reasonable detail, showing the amount, kind and
value of all assets of the Company available for payment or distribution to its
stockholders.
4. Voting Power. Except as otherwise expressly provided in Section 8
------------
hereof, or as required by law, each holder of Series A Convertible Preferred
Stock shall be entitled to vote on all matters and shall be entitled to that
number of votes equal to the largest number of whole shares of Common Stock into
which such holder's shares of Series A Convertible Preferred Stock could be
converted, pursuant to the provisions of Section 6 hereof, at the record date
for the determination of stockholders entitled to vote on such matter or, if no
such record date is established, at the date such vote is taken or any written
consent of stockholders is solicited. Except as otherwise expressly provided
herein or as required by law, the holders of shares of Series A Convertible
Preferred Stock, Series C Convertible Preferred Stock and Common Stock shall
vote together as a single class on all matters. Whenever in these Articles it
is provided that any action, determination or decision requires the approval,
consent or vote of the holders of a specified number or percentage of the then
outstanding shares of Series A Convertible Preferred Stock or Series C
Convertible Preferred Stock, separately as a class, or any two or more series of
Preferred Stock, together as a single class, on an "as converted basis," such
provision means the specified number or percentage, respectively, of the shares
of Common Stock into which the then outstanding shares of the specified series
or combined series are convertible as of the applicable record date for
determination of holders of such series or combined series entitled to vote on
such matter or, if no such record date is established, at the date such
approval, consent or vote is requested or solicited. Similarly, whenever in
these Articles it is provided that any right, privilege or benefit endures or is
available or any provision of these Articles remains operative only so long as a
specified number or percentage of shares of a specified series of Preferred
Stock of any one or more series remain outstanding or are held by some specified
Person(s) or categories of Person(s), such provision means the specified number
or percentage, respectively, of the shares of Common Stock into which the then
outstanding shares of the specified series or combined series of Preferred Stock
are convertible as of the applicable time of determination.
5. Redemption.
----------
5.1. Optional Redemption. The Majority Series A Holders shall have the
-------------------
right to require the Company to redeem all of the outstanding shares of Series A
Convertible Preferred Stock upon the occurrence of any of the following (each a
"Redemption Event"): (i) the fifth anniversary of the Series C Issue Date (as
defined in Section 5.1 of Part C), (ii) a Change of Control, or (iii) a
Reorganization Event. The Majority Series A Holders may exercise such right by
delivering written notices ("Exercise Notices") to such effect, which,
----------------
collectively, have been signed by the Majority Series A Holders, to the Company
at any time after the date of the occurrence of the Redemption Event and prior
to the expiration of the 30 day period following the Company's delivery of
written notice of the Redemption Event to the holders of Series A Convertible
Preferred Stock. If such right is so exercised, the redemption date
("Redemption Date") shall be a Business Day selected by the Majority Series A
- -----------------
Holders that is not sooner than the 90th day after and not later than the 120th
day after the Company delivers notice of the Redemption Event to the Series A
Holders; provided, however, that if, in connection with such Redemption Event,
the Exercising Series C Holders (as defined in Section 2.2 of Part C) have
6
<PAGE>
exercised their right to redeem the Series C Convertible Preferred Stock
pursuant to Section 5.1 of Part C, then the Redemption Date shall be the date
within such period, and within the corresponding period specified in Section 5.1
of Part C, agreed to by the Majority Series A Holders and the Exercising Series
C Holders; and provided further, that in the case of any Reorganization Event,
--------
the Redemption Date shall be postponed by a number of days equal to the number
of days, if any, during which either the exercise of such right or the
redemption by the Company of the Series A Convertible Preferred Stock (or, if
applicable, the Series C Convertible Preferred Stock) shall be enjoined, stayed
or otherwise prevented or delayed by order or decree of any court or tribunal
having jurisdiction. The Company shall deliver written notice to all holders of
Series A Convertible Preferred Stock promptly upon the occurrence of a
Redemption Event. The redemption price per share ("Redemption Price") shall be
an amount equal to the amount that would be distributed in respect of each share
of Series A Convertible Preferred Stock if the Company were sold for its Fair
Market Value (as defined in Section 6.4(d)) as of the date of the Redemption
Event and the proceeds of such sale were distributed as provided in Section 3.1.
In such event, the Fair Market Value of the Company shall be determined by an
investment bank of national standing selected by the Company and approved by the
Majority Series A Holders. The following definitions are applicable to this
Section 5 and to any other Section in this Part A in which these terms are used:
"Change of Control" means any of the following:
(i) any person other than Kyle D. Parker or a Person controlled
by Kyle D. Parker at any time becomes the Beneficial Owner, directly or
indirectly and whether as a result of issuances, redemptions or repurchases
by the Company of Common Stock or transfers of Common Stock by stockholders
of the Company, of Common Stock representing 50% or more of the combined
voting power with respect to the election of directors of the Company
represented by all then outstanding Common Stock of the Company;
(ii) the Company consolidates with, or merges with or into,
another person, sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets directly or indirectly
to any Person, or any Person consolidates with, or merges with or into, the
Company, in any such event pursuant to a transaction in which the
outstanding Common Stock of the Company is converted into or exchanged for
cash, securities, equity interests or other property and immediately after
such transaction the persons who were the Beneficial Owners of the
outstanding Common Stock of the Company immediately prior to such
transaction are not the beneficial owners, directly or indirectly, of more
than 50% of the combined voting power represented by all then outstanding
common stock of the surviving or transferee Person; or
(iii) the Company or any of its Subsidiaries purchase, lease or
otherwise acquire assets of any Person or Persons, in one or a series of
related transactions, for consideration consisting in whole or in part of
Common Stock, Convertible Securities or Rights and the number of shares of
Common Stock issued by the Company (including all shares issuable or
purchasable upon exercise of all such Convertible Securities and Rights)
7
<PAGE>
in such transaction is equal to 50% or more of the number of fully diluted
shares of Common Stock outstanding immediately prior to such transaction
(or the first of such series of transactions).
A "Reorganization Event" shall be deemed to have occurred upon the
happening of any of the following:
(i) the appointment of a receiver or trustee to administer all
or a substantial portion of the assets of the Company or
any Significant Subsidiary, which shall remain in effect
for 60 days;
(ii) the filing by the Company or any Significant Subsidiary of
a voluntary petition for relief under any Insolvency Law or
of a pleading in any court of record admitting in writing
its inability to pay its debts as they become due;
(iii) the making by the Company or any Significant Subsidiary of
a general assignment for the benefit of creditors;
(iv) the filing by the Company or any Significant Subsidiary of
an answer admitting the material allegations of, or its
consenting to or defaulting in answering, a petition for
relief filed against it in any proceeding under any
Insolvency Law; or
(v) the entry of an order, judgment or decree by any court of
competent jurisdiction granting relief against the Company
or any Significant Subsidiary in an involuntary proceeding
under any Insolvency Law and the continuance of any such
decree or order for relief unstayed and in effect for a
period of 60 consecutive days.
"Person" means any individual, corporation, limited liability company,
general or limited partnership, joint venture, association, joint stock
company, trust, unincorporated business or organization, government or
agency or political subdivision thereof, or other entity, whether acting in
an individual, fiduciary or other capacity.
"Beneficial Owner" means a beneficial owner within the meaning of
Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as amended
("Exchange Act"), as interpreted by the Securities and Exchange Commission,
provided that a Person shall be deemed to have beneficial ownership of all
securities that such Person has a right to acquire without regard to the 60
day limitation in subdivision (d)(i) of such Rule 13d-3. The terms (whether
or not capitalized) "beneficially own" and "owned beneficially" shall have
correlative meanings.
"Convertible Securities" means evidences of indebtedness, shares of
stock or other securities or obligations that are convertible into or
exchangeable, with or without payment of additional consideration in cash
or property, for any Common Stock, either
8
<PAGE>
immediately or upon the occurrence of a specified date or a specified event
or the satisfaction or happening of any other condition or contingency.
"Rights" means any options, warrants or other rights (except
Convertible Securities), however denominated, to subscribe for, purchase or
otherwise acquire any Common Stock or Convertible Securities, with or
without payment of additional consideration in cash or property, either
immediately or upon the occurrence of a specified date or a specified event
or the satisfaction or happening of any other condition or contingency.
"Insolvency Law" means the United States Bankruptcy Code and any other
law, foreign, federal or state, relating to bankruptcy, receivership,
reorganization, insolvency, adjustment, compromise or extension of debt or
other relief of a debtor from creditors.
"Subsidiary" of any Person as of any relevant date means a
corporation, company or other entity (i) more than fifty percent (50%) of
whose outstanding shares or equity securities are, as of such date, owned
or controlled, directly or indirectly through one or more Subsidiaries, by
such Person, and the shares or securities so owned entitle such Person
and/or its Subsidiaries to elect at least a majority of the members of the
board of directors or other managing authority of such corporation, company
or other entity notwithstanding the vote of the holders of the remaining
shares or equity securities so entitled to vote or (ii) which does not have
outstanding shares or securities, as may be the case in a partnership,
joint venture or unincorporated association, but more than fifty percent
(50%) of whose ownership interest is, as of such date, owned or controlled,
directly or indirectly through one or more Subsidiaries, by such Person,
and in which the ownership interest so owned entitles such Person and/or
Subsidiaries to make the decisions for such corporation, company or other
entity.
"Significant Subsidiary" means a Subsidiary in which the Company's and
its other Subsidiaries' (i) investments in and advances to the Subsidiary
exceed 20% of the total assets of the Company and its Subsidiaries
consolidated as of the end of the most recently completed fiscal year, (ii)
proportionate share of the total assets of the Subsidiary exceeds 20% of
the total assets of the Company and its Subsidiaries consolidated as of the
end of the most recently completed fiscal year; or (iii) equity in the
income from continuing operations before income taxes, extraordinary items
and cumulative effect of a Change in accounting principle of the Subsidiary
exceeds 20% of such income of the Company and its Subsidiaries consolidated
for the most recently completed fiscal year.
5.2. Form and Source of Redemption Payments. The Redemption Price for all
--------------------------------------
shares redeemed pursuant to Section 5.1 shall be paid in cash from unrestricted
funds legally available for such purpose.
5.3. Notice of Redemption. Notice of any redemption by the Company
--------------------
pursuant to Section 5.1 shall be given to the holders of record of the shares of
Series A Convertible Preferred Stock to be redeemed, at their respective
addresses as the same appear upon the books of the
9
<PAGE>
Company or are supplied by them in writing to the Company for the purpose of
such notice. Such notice shall be given not more than 45 days nor less than 10
days prior to the Redemption Date. In addition to any information required by
law or by the applicable rules of any national stock exchange or national
interdealer quotation system, such notice shall set forth the Redemption Price,
the Redemption Date, the number of shares to be redeemed and the place at which
the shares called for redemption will, upon presentation and surrender of the
stock certificates evidencing such shares, be redeemed, and shall state the name
and address of the Redemption Agent appointed in accordance with Section 5.4.
5.4. Deposit of Redemption Price. If any shares of Series A Convertible
---------------------------
Preferred Stock are to be redeemed pursuant to Section 5.1, then on or before
the Redemption Date the Company shall deposit, in an irrevocable trust fund for
the sole purpose of redeeming the shares of Series A Convertible Preferred Stock
to be redeemed on the Redemption Date, with any bank or trust company organized
under the laws of the United States of America or any state thereof having
capital, undivided profits and surplus aggregating at least $250,000,000 or
having capital, undivided profits and surplus aggregating at least $250,000,000
on a consolidated basis with such bank's or trust company's parent, provided,
however, that, in such case, such parent has guaranteed all of the existing and
future obligations of such bank or trust company (a "Redemption Agent"),
immediately available unrestricted funds legally available for such purpose
sufficient to redeem all outstanding shares of Series A Convertible Preferred
Stock to be redeemed pursuant to Section 5.1 for the applicable Redemption Price
on the Redemption Date, with irrevocable instructions and authority to the
Redemption Agent, on behalf and at the expense of the Company, to pay,
commencing on the Redemption Date or prior thereto, the Redemption Price of such
shares of Series A Convertible Preferred Stock to their respective holders upon
the surrender of their share certificates and, from and after the later of the
date of such deposit and the Redemption Date, such shares shall be deemed to be
no longer outstanding and the holders thereof shall cease to be stockholders
with respect to such shares and shall have no rights with respect thereto,
except the right to receive payment, as provided in these Articles, of the
Redemption Price of such shares, calculated through the Redemption Date, upon
surrender of the certificates therefor. Until such date, the shares of Series A
Convertible Preferred Stock shall continue to be convertible into Common Stock
in accordance with Section 6 and shall continue to be issued and outstanding for
all other purposes. Any funds so deposited with the Redemption Agent by the
Company and unclaimed for six months from the Redemption Date shall (unless an
applicable escheat or abandoned property law designates another Person) be paid
to the Company, after which repayment the holders of such shares of Series A
Convertible Preferred Stock shall look to the Company for the payment of the
Redemption Price therefor, without interest.
5.5. Actions to Facilitate Required Redemptions. If in connection with any
------------------------------------------
Redemption Event the Company has insufficient cash to (A) redeem all shares of
Series A Convertible Preferred Stock and Series C Convertible Preferred Stock
that it is required to redeem pursuant to these Articles on the Redemption Date
and (B) purchase all Warrants and Warrant Shares (as those terms are defined in
the Amended and Restated Stockholders Agreement ("Stockholders Agreement"),
entered into on or about the Series C Issue Date, by and among the Company and
certain holders of securities of the Company) pursuant to Section 4 of the
Stockholders
10
<PAGE>
Agreement, then the Company shall (i) promptly give written notice to such
effect to the holders of the Series A Convertible Preferred Stock, (ii) take, as
hereafter provided in this Section 5.5, all reasonable lawful actions to obtain
sufficient cash to enable the Company to make such redemption and purchase,
including (A) the sale of additional equity securities, (B) any necessary action
under applicable law to reduce the Company's stated capital or otherwise
increase the Company's surplus or other funds legally available, (C) a
refinancing of the debt of the Company, (D) asset sales by the Company and (E) a
sale of the Company to a third party and (iii) no later than 30 days after the
date of delivery of the notice referred to in clause (i) of this sentence,
engage (at the Company's sole expense, which expense may be paid prior to the
redemption of the Preferred Stock and the purchase of the Warrants and Warrant
Shares) a nationally recognized independent investment banking firm (such firm,
the "Advisor") reasonably acceptable to both the Majority Series A Holders and
the Majority Series C Holders (together, the "Majority Preferred Holders") in
order to advise and assist the Company in connection with the actions to be
taken by the Company (each such action, an "Action"), including without
limitation the actions enumerated in subclauses (A)-(E) of clause (ii) of this
sentence. The Company and the Advisor shall submit to the holders of the Series
A Convertible Preferred Stock, no later than 60 days after the date of the
notice referred to in clause (i) of the immediately preceding sentence, a
proposal setting forth the Actions proposed to be taken by the Company. Any
proposed Action that is approved by the affirmative vote of the Majority
Preferred Holders (each, an "Approved Action") shall be pursued by the Company
in good faith as quickly as practicable. In the event that the Approved Actions
include a sale of the Company or its assets, then no later than 120 days after
such approval (150 days if the Advisor assisting in the sale shall advise the
Company in writing that such additional period is reasonably likely, in its good
faith judgment, to result in a higher price being obtained in such sale) or such
later date as may be agreed upon by the Company and the Majority Preferred
Holders, the Board of Directors shall accept the highest bid submitted for such
sale deemed by the Advisor to represent an "adequate" price for such assets or
the Company (the values of such bids to be determined by the Advisor). Any
holder of shares of Series A Convertible Preferred Stock or Series C Convertible
Preferred stock and any Affiliate of any such holder or of the Company shall be
entitled to submit its own bid in the competitive bidding process. In the event
that the Approved Actions include (i) a sale of additional equity securities or
debt securities of the Company or (ii) a refinancing of the debt of the Company,
the Company will use its best efforts to consummate such proposed Action within
120 days after such approval or by such later date as may be agreed upon by the
Company and the Majority Preferred Holders. Consistent with his or her fiduciary
duties as a director of the Company, each director of the Company shall approve
the taking by the Company of each Approved Action and, if any approval or other
action by any of the Company's stockholders is required by applicable law in
order to authorize, or otherwise in connection with, the taking of such Approved
Action, shall recommend that such stockholders give such approval and take such
other action, but this sentence shall not be construed as establishing any
requirement for unanimous approval by the Board of Directors in order to
authorize any Approved Action or otherwise the vote required under applicable
law or these Articles. Nothing contained in this Section 5.5 is intended to
eliminate, qualify, modify or limit the rights of the holders of the Series A
Convertible Preferred Stock under any provision of these Articles or any other
rights or remedies which such holders may have at law, in equity or by contract
in the event of the failure of the Company to redeem shares of Series A
Convertible Preferred Stock as and when required by these Articles.
11
<PAGE>
6. Conversion Rights. The holders of the Series A Convertible Preferred
-----------------
Stock shall have the following rights with respect to the conversion of the
Series A Convertible Preferred Stock into shares of Common Stock:
6.1. General. Subject to and in compliance with the provisions of this
-------
Section 6, any share of the Series A Convertible Preferred Stock may, at the
option of the holder, be converted at any time into fully paid and nonassessable
shares of Common Stock. The number of shares of Common Stock to which a holder
of Series A Convertible Preferred Stock shall be entitled upon conversion shall
be the product obtained by multiplying the Applicable Conversion Rate
(determined as provided in Section 6.2) by the number of shares of Series A
Convertible Preferred Stock being converted.
6.2. Applicable Conversion Rate. The conversion rate in effect at any time
--------------------------
(the "Applicable Conversion Rate") shall be the quotient obtained by dividing
$3.2222 by the Applicable Conversion Value, calculated as provided in Section
6.3.
6.3. Applicable Conversion Value. The Applicable Conversion Value shall be
---------------------------
$3.2222, except that such amount shall be adjusted from time to time in
accordance with this Section 6. All references to the Applicable Conversion
Value in this Part A are to the Applicable Conversion Value as so adjusted.
6.4. Adjustments to Applicable Conversion Value.
------------------------------------------
(a) Upon Sale of Common Stock. If the Company shall, while there are
-------------------------
any shares of Series A Convertible Preferred Stock outstanding, issue or sell
shares of Common Stock for a price per share less than the Applicable Conversion
Value in effect immediately prior to such issuance or sale, then in each such
case the Applicable Conversion Value upon each such issuance or sale shall be
lowered so as to be equal to an amount determined by multiplying the Applicable
Conversion Value by a fraction, the numerator of which shall be the sum of (x)
the number of shares of Common Stock outstanding immediately prior to the
issuance of such additional shares of Common Stock, plus (y) the number of
shares of Common Stock which the net aggregate consideration received by the
Company for the total number of such additional shares of Common Stock so issued
would purchase at the Applicable Conversion Value immediately prior to such
issuance, and the denominator of which shall be the sum of (w) the number of
shares of Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock plus (z) the number of such additional shares
of Common Stock so issued. Notwithstanding the foregoing, no adjustment shall
be made pursuant to this Section 6.4(a) in respect of any issuance of Common
Stock if an adjustment is made in respect of such issuance pursuant to Section
6.4(f).
(b) Upon Issuance of Warrants, Options and Rights to Common Stock.
-------------------------------------------------------------
(1) For the purposes of this Section 6.4, the issuance or sale of
any warrants, options, subscriptions, or purchase rights with respect to
shares of Common Stock and the issuance or sale of any securities
convertible into or exchangeable for shares of Common Stock (or the
issuance or sale of any warrants, options or any rights with
12
<PAGE>
respect to such convertible or exchangeable securities and including, in
each case, without limitation, dividends or distributions of such
convertible or exchangeable securities) shall be deemed an issuance or
sale, as applicable, at such time of such Common Stock if the Net
Consideration Per Share (as defined in paragraph (3) below) which may be
received by the Company for such Common Stock shall be less than the
Applicable Conversion Value of the Common Stock at the time of such
issuance. Any obligation, agreement, or undertaking to issue or sell
warrants, options, subscriptions, or purchase rights at any time in the
future shall be deemed to be an issuance or sale, as applicable, at the
time such obligation, agreement or undertaking is made or arises. No
adjustment of the Applicable Conversion Value shall be made under this
Section 6.4 upon the issuance of any shares of Common Stock which are
issued pursuant to the exercise of any warrants, options, subscriptions, or
purchase rights or pursuant to the exercise of any conversion or exchange
rights in any convertible or exchangeable securities if any adjustment
shall previously have been made upon the issuance or sale of any such
warrants, options, subscriptions or purchase rights or upon the issuance or
sale of any convertible or exchangeable securities (or upon the issuance of
any warrants, options or any rights therefor) as above provided.
(2) Should the Net Consideration Per Share of any such warrants,
options, subscriptions, or purchase rights or convertible securities be
decreased or increased from time to time, then, upon the effectiveness of
each such change, the Applicable Conversion Value shall be adjusted to such
Applicable Conversion Value as would have obtained (a) had the adjustments
made upon the issuance of such warrants, options, rights, or convertible
securities been made upon the basis of the actual Net Consideration Per
Share of such securities, and (b) had adjustments made to the Applicable
Conversion Value since the date of issuance of such securities been made to
the Applicable Conversion Value as adjusted pursuant to this paragraph. Any
adjustment of the Applicable Conversion Value with respect to this
paragraph which relates to warrants, options, subscriptions, or purchase
rights with respect to shares of Common Stock shall be disregarded as, and
when all of such warrants, options, subscriptions, or purchase rights
expire or are canceled without being exercised, so that the Applicable
Conversion Value effective immediately upon such cancellation or expiration
shall be equal to the Applicable Conversion Value in effect at the time of
the issuance of the expired or canceled warrants, options, subscriptions,
or purchase rights, with such additional adjustments as would have been
made to that Applicable Conversion Value had the expired or canceled
warrants, options, subscriptions, or purchase rights not been issued.
(3) For purposes of this Section 6.4(b), the "Net Consideration
Per Share" which may be received by the Company shall be determined as
follows:
(A) The "Net Consideration Per Share" shall mean the amount equal
to the total amount of consideration, if any, received by the Company
for the issuance of such warrants, options, subscriptions, or other
purchase rights or convertible or exchangeable securities, plus the
minimum amount of consideration, if any, payable
13
<PAGE>
to the Company upon exercise or conversion thereof, divided by the
aggregate number of shares of Common Stock that would be issued if all
such warrants, options, subscriptions, or other purchase rights or
convertible or exchangeable securities were exercised, exchanged, or
converted.
(B) The "Net Consideration Per Share" which may be received by
the Company shall be determined initially in each instance as of the
date of issuance of warrants, options, subscriptions, or other
purchase rights or convertible or exchangeable securities without
giving effect to any possible future upward price adjustments or rate
adjustments which may be applicable with respect to such warrants,
options, subscriptions, or other purchase rights or convertible or
exchangeable securities.
(c) Stock Dividends. In the event the Company shall make or issue, or
---------------
shall fix a record date for the determination of holders of any stock of the
Company other than Common Stock entitled to receive a dividend or other
distribution payable in Common Stock or securities of the Company convertible
into or otherwise exchangeable for the Common Stock of the Company, then such
Common Stock or other securities issued in payment of such dividend or
distribution shall be deemed to have been issued without consideration and the
adjustments required by subsections (a) and (b) of this Section 6.4 shall be
made; provided however, that if the Majority Series A Holders consent to such a
dividend or distribution, then no adjustments required by subsections (a) and
(b) of this Section 6.4 shall be made. The making or payment of any such
distribution or dividend in Common Stock on the Series A Convertible Preferred
Stock shall not reduce the number of shares of Common Stock the holders of such
shares of Series A Convertible Preferred Stock are otherwise entitled to receive
upon conversion of such shares.
(d) Consideration. For the purpose of making any adjustment required
-------------
under this Section 6.4, the consideration received by the Company for any issue
or sale of securities shall (A) to the extent it consists of cash, be computed
at the net amount of cash received by the Company after deduction of any
underwriting or similar commissions, compensation or concessions paid or allowed
by the Company in connection with such issue or sale but without deduction of
any expenses payable by the Company, and (B) to the extent it consists of
property other than cash, be computed at the Fair Market Value of that property
as determined in good faith by the Board of Directors.
"Fair Market Value" means, in respect of any security, asset or other
property, the price at which a willing seller would sell and a willing
buyer would buy such security, asset or other property having full
knowledge of the facts, in an arm's-length auction transaction without time
constraints, and without being under any compulsion to buy or sell. The
Fair Market Value of a share of Common Stock as of any time shall be
determined as of the last day of the most recent calendar month which ended
prior to such time, shall be determined without giving effect to any
discount for a minority interest, to any lack of liquidity of the Common
Stock or to the fact that the Company may have no class of equity security
registered under the Exchange Act. The Fair Market Value of the Company
shall be determined on a going concern basis, and on the basis that the
14
<PAGE>
management and other key employees of the Company and its subsidiaries will
continue to be employed indefinitely and without treating as liabilities
the amount, if any, payable or which may be payable by the Company pursuant
to the indemnification provisions of the Note Purchase Agreement (as
defined in Section 8).
"Current Market Price" means, in respect of any share of Common Stock
as of any time,
(A) if the Common Stock shall not then be Publicly Traded, the Fair Market
Value per share of Common Stock as at such date as determined by the
Board in good faith, or
(B) if the Common Stock is then Publicly Traded, the average of the
reported last sales prices for the ten consecutive Trading Days
commencing 20 Trading Days before the date in question.
The reported last sales price for each Trading Day shall be
(i) the reported last sales price, regular way, as reported on the
New York Stock Exchange Composite Tape, or
(ii) if not listed or admitted to trading on the New York Stock
Exchange, on the National Market tier of The Nasdaq Stock
Market, or
(iii) if the Common Stock is not listed or admitted to trading on the
National Market tier of the Nasdaq Stock Market at such time, in
the principal consolidated or composite transaction reporting
system on the principal national securities exchange on which
such security is listed or admitted to trading, or
(iv) if such security is not quoted on such National Market tier or
any national securities exchange, the average of the highest bid
and lowest asked prices on such day as reported by The Nasdaq
Stock Market.
As used herein, the term "Trading Day" means a day on which the New York
Stock Exchange, each national securities exchange on which the Common Stock
is listed and The Nasdaq Stock Market are open for business, provided that
if no sales of the Common Stock take place on such day on the relevant
exchange or stock market determined under the immediately preceding
sentence, such day shall not be a Trading Day. The Common Stock shall be
considered to be "Publicly Traded" as of any date if on such date (i) the
Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act
and (ii) the Common Stock is listed for trading on a national securities
exchange registered under the Exchange Act or traded in the over-the-
counter market and quoted on The Nasdaq Stock Market.
15
<PAGE>
(e) Adjustment for Stock Splits and Combinations. If the Company
--------------------------------------------
shall at any time or from time to time effect a subdivision of the outstanding
Common Stock without a corresponding subdivision of the Series A Convertible
Preferred Stock, the Applicable Conversion Value in effect immediately before
that subdivision shall be proportionately decreased. Conversely, if the Company
shall at any time or from time to time combine the outstanding shares of Common
Stock into a smaller number of shares without a corresponding combination of the
Series A Convertible Preferred Stock, the Applicable Conversion Value in effect
immediately before the combination shall be proportionately increased. Any
adjustment under this Section 6.4(e) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(f) Common Stock Dividends and Distributions. If the Company at any
----------------------------------------
time or from time to time makes, or fixes a record date for the determination of
holders of Common Stock entitled to receive any distribution payable in shares
of Common Stock, the Applicable Conversion Value shall be decreased as of the
time of such issuance or, if such a record date is fixed, as of the close of
business on such record date by multiplying the Applicable Conversion Value by a
fraction (A) the numerator of which is the total number of shares of Common
stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date (as the case may be) and (B) the
denominator of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date (as the case may be) plus the number of shares of
Common Stock issuable in payment of such dividend or distribution.
(g) Other Dividends. In the event the Company shall make or issue, or
---------------
shall fix a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution with respect to the Common
Stock payable in (i) securities of the Company other than shares of Common Stock
or (ii) cash or assets, then, subject to Section 2.2, the Applicable Conversion
Value shall be adjusted by multiplying the then effective Applicable Conversion
Value by a fraction, the denominator of which shall be the Current Market Price
per share of the Common Stock immediately prior to such issuance or the close of
business on such record date (as the case may be) and the numerator of which is
the excess of (x) the Current Market Price per share of the Common Stock as of
such date over (y) the amount allocable to each share of Common Stock
outstanding as of such date of the sum of (A) the Fair Market Value (as
determined as of such date in good faith by the Board) of such securities or
assets so distributable, plus (B) any such cash so distributable; provided
however, that if such adjustment would result in an Applicable Conversion Value
that is greater than the Applicable Conversion Value in effect prior to such
adjustment, then such adjustment shall not be made and, in lieu thereof,
provision shall be made so that the holders of Series A Convertible Preferred
Stock shall receive upon conversion thereof in addition to the number of shares
of Common Stock receivable thereupon, the number of securities or such other
assets of the Company which they would have received had their Series A
Convertible Preferred Stock been converted into Common Stock on the date of such
event and had they thereafter, during the period from the date of such event to
and including the Conversion Date (as defined in Section 6.9), retained such
securities or such other assets receivable by them as aforesaid during such
period, giving application to all
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<PAGE>
adjustments called for during such period under this Section 6 with respect to
the rights of the holders of the Series A Convertible Preferred Stock.
(h) Exceptions. The provisions of this Section 6.4 (other than
----------
Section 6.4(b)(2)) shall not apply to (A) the issuance of shares of Common Stock
issued upon conversion of the Series C Convertible Preferred Stock issued on the
Series C Issue Date or upon conversion of the Series A Convertible Preferred
Stock, (B) the issuance of Common Stock and/or options, warrants or other Common
Stock purchase rights, and the issuance of Common Stock pursuant to such
options, warrants or other rights (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like) before, on or after the
Series A Issue Date to employees, officers or directors of, or consultants or
advisors to the Company or any Subsidiary that is approved by the Compensation
Committee of the Board of Directors of the Company pursuant to the Company's
1996 Stock Option Plan (or pursuant to any other incentive compensation plan
approved by the Compensation Committee); provided that such issuances shall not
exceed, or be convertible into or exercisable for more than, in the aggregate,
500,000 shares of Common Stock (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like) and (C) the issuance of
shares of Common Stock pursuant to the exercise of any Warrants (as defined in
the Note Purchase Agreement) or any other options, warrants or rights
outstanding as of the Series C Issue Date and disclosed on a schedule to the
Series C Purchase Agreement (as defined in Section 6.4(d) of Part C).
6.5. Certain Provisions Applicable to Adjustments Generally.
------------------------------------------------------
(a) If, as a result of any adjustment made pursuant to Section 6.4 or
otherwise, the holders of Series A Convertible Preferred Stock, would, upon
conversion, become the holders of more than one class or series of capital stock
of the Company, then (A) the Applicable Conversion Value (and the number, amount
or kind of securities issuable upon conversion of a share of Series A
Convertible Preferred Stock) shall be subject to adjustment in respect of each
such class and series of capital stock in a manner and on terms as nearly as
equivalent as practicable to all the provisions set forth in Section 6.4, which
manner and terms shall be promptly determined by the Board of Directors, in good
faith, and (B) the Board of Directors shall determine, in good faith, the
equitable allocation of the Applicable Conversion Value between or among the
classes of capital stock. Promptly after the Board of Directors makes any such
determination, the Company shall deliver to each holder of Series A Convertible
Preferred Stock a written notice which shall describe in reasonable detail the
manner and terms so determined.
(b) Adjustments of the Applicable Conversion Value (and the number,
amount or kind of securities issuable upon conversion of a share of each such
series) shall be cumulative and shall be made successively on each and every
occasion that any event requiring any such adjustment shall occur.
(c) If, after the event giving rise to such adjustment but prior to
the effective time for such adjustment, any holder converts any Series A
Convertible Preferred Stock and such holder would have received any additional
shares of Common Stock, cash or other securities, property or consideration if
such conversion had been made immediately after such effective time,
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<PAGE>
the Company shall deliver to such holder, promptly after such effective time,
all such additional shares of Common Stock, cash or other securities, property
or consideration.
6.6. Capital Reorganization or Reclassification. If the Common Stock
------------------------------------------
issuable upon the conversion of the Series A Convertible Preferred Stock shall
be changed into the same or different number of shares of any class or classes
of stock, whether by capital reorganization, reclassification or otherwise
(other than a subdivision or combination of shares or stock dividend provided
for elsewhere in this Section 6, or the sale of all or substantially all of the
Company's properties and assets to any other person), then and in each such
event provision shall be made so that the holder of each share of Series A
Convertible Preferred Stock shall have the right thereafter to convert such
share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification or other change
by holders of the number of shares of Common Stock into which such shares of
Series A Convertible Preferred Stock might have been converted immediately prior
to such reorganization, reclassification or change, all subject to further
adjustment as provided herein.
6.7. Capital Reorganization, Merger or Sale of Asset.
-----------------------------------------------
(a) If at any time or from time to time there shall be a capital
reorganization of the Common Stock (other than a subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this Section 6)
or a merger or consolidation of the Company with or into another Company, or the
sale of all or substantially all of the Company's properties and assets to any
other person, then, as a part of such reorganization, merger, or consolidation
or sale, provision shall be made so that the holders of the Series A Convertible
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series A Convertible Preferred Stock, the number of shares of stock or other
securities or property of the Company, or of the successor Company resulting
from such merger, consolidation or sale, to which such holder would have been
entitled if such holder had converted its shares of Series A Convertible
Preferred Stock immediately prior to such capital reorganization, merger,
consolidation, or sale. In any such case, appropriate adjustment shall be made
in the application of the provisions of this Section 6 with respect to the
rights of the holders of the Series A Convertible Preferred Stock after the
reorganization, merger, consolidation or sale to the end that the provisions of
this Section 6 (including adjustment of the Applicable Conversion Value then in
effect and the number of shares issuable upon conversion of the Series A
Convertible Preferred Stock) shall be applicable after that event in as nearly
equivalent a manner as may be practicable.
(b) Each holder of Series A Convertible Preferred Stock upon the
occurrence of a capital reorganization, merger or consolidation of the Company,
or the sale of all or substantially all its assets and properties, as such
events are more fully set forth in the first paragraph of this Section 6.7,
shall have the option of electing treatment of his shares of Series A
Convertible Preferred Stock under either this Section 6.7 or Section 3 hereof,
notice of which election shall be submitted in writing to the Company at its
principal offices no later than five (5) business days before the effective date
of such event (provided that the Company has given notice of the record date for
such event to such holder as required under Section 10). If a holder of Series
A Convertible Preferred Stock elects treatment of any of its shares under
Section 3 as
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<PAGE>
permitted in this Section 6.7, then the Company shall purchase such shares for
the amount per share which would be payable to such holder if such event were
treated as a liquidation, dissolution or winding up of the Company effective as
of the date of such event entitling the holders of the Series A Convertible
Preferred Stock to receive, in cash and promptly after the date of the closing,
consummation or occurrence of such event, the respective amounts specified in
Section 3.1 that they would receive if the Company were being liquidated and
dissolved on such date and the Company were sold for its Fair Market Value (as
determined by an investment bank of national standing selected by the Company
and approved by the Majority Series A Holders) on such date and all proceeds of
such sale were distributed to the Company's stockholders as contemplated by
Section 3.
6.8. Accountant's Certificate as to Adjustment Notice by Company. In each
-----------------------------------------------------------
case of an adjustment or readjustment of the Applicable Conversion Rate, the
Company at its expense will furnish each holder of Series A Convertible
Preferred Stock with a certificate, executed by the president and chief
financial officer (or in the absence of a person designated as the chief
financial officer, by the treasurer) showing such adjustment or readjustment,
and stating in detail the facts upon which such adjustment or readjustment is
based. However, if the holder or holders of at least fifty percent (50%) of the
then outstanding shares of Series A Convertible Preferred Stock so request, such
certificate shall be prepared by independent public accountants of recognized
national standing (which may be the Company's principal outside auditors).
6.9. Exercise of Conversion Privilege. To exercise its conversion
--------------------------------
privilege, a holder of Series A Convertible Preferred Stock shall surrender the
certificate or certificates representing the shares being converted to the
Company at its principal office, and shall give written notice to the Company at
that office that such holder elects to convert such shares. Such notice shall
also state the name or names (with address or addresses) in which the
certificate or certificates for shares of Common Stock issuable upon such
conversion shall be issued. The certificate or certificates for shares of
Series A Convertible Preferred Stock surrendered for conversion shall be
accompanied by proper assignment thereof to the Company or in blank. The date
when such written notice is received by the Company, together with the
certificate or certificates representing the shares of Series A Convertible
Preferred Stock being converted, shall be the "Conversion Date." As promptly as
practicable after the Conversion Date, the Company shall issue and shall deliver
to the holder of the shares of Series A Convertible Preferred Stock being
converted, or on its written order, such certificate or certificates as it may
request for the number of whole shares of Common Stock issuable upon the
conversion of such shares of Series A Convertible Preferred Stock in accordance
with the provisions of this Section 6, cash in the amount of all declared and
unpaid dividends on such shares of Series A Convertible Preferred Stock up to
and including the Conversion Date, cash, as provided in Section 6.10, in respect
of any fraction of a share of Common Stock that otherwise would be issuable upon
such conversion, and all other cash, other securities and other property, if
any, to which such holder is entitled by virtue of the conversion of such Series
A Convertible Preferred Stock. Such conversion shall be deemed to have been
effected immediately prior to the close of business on the Conversion Date, and
at such time the rights of the holder as holder of the converted shares of
Series A Convertible Preferred Stock shall cease and the person or persons in
whose name or names any certificate or certificates for shares of Common Stock
shall be issuable upon such conversion shall be deemed to have become
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<PAGE>
the holder or holders of record of the shares of Common Stock represented
thereby; provided, that, such holder, at its option, may state in its notice of
conversion that the conversion is not to be effective until a specified later
date or the occurrence or satisfaction of any specified contingency or
condition, in which event the share(s) of Series A Convertible Preferred Stock
covered by such notice shall not be deemed to have been converted until
immediately prior to the closing of such sale or such other date (as the case
may be). If any holder of Series A Convertible Preferred Stock is advised by its
legal counsel that its intended conversion of any or all of its Series A
Convertible Preferred Stock would or might be subject to the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, or any other law, rule or
regulation which requires any filing with or review or approval by any
governmental authority or agency, the Company shall promptly comply with any
requirements of such law, rule or regulation applicable to it, and the Company
and such holder shall each cooperate with the other in its efforts to comply
with the requirements of such law, rule or regulation applicable to it on a
timely basis. In such event, each of the Company and such holder shall pay one
half of any filing fees required in connection therewith.
6.10. Cash in Lieu of Fractional Shares. No fractional shares of Common
---------------------------------
Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series A Convertible Preferred Stock. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of Series A Convertible Preferred Stock, the Company shall pay to the
holder of the shares of Series A Convertible Preferred Stock which were
converted a cash adjustment in respect of such fractional shares in an amount
equal to the same fraction of the Current Market Price (as defined in Section
6.4(d)) per share of the Common Stock at the close of business on the Conversion
Date. The determination as to whether or not any fractional shares are issuable
shall be based upon the total number of shares of Series A Convertible Preferred
Stock being converted at any one time by any holder thereof and not upon each
share of Series A Convertible Preferred Stock being converted.
6.11. Partial Conversion. In the event some but not all of the shares of
------------------
Series A Convertible Preferred Stock represented by a certificate or
certificates surrendered by a holder are converted, the Company shall execute
and deliver to or on the order of the holder, at the expense of the Company, a
new certificate representing the number of shares of Series A Convertible
Preferred Stock which were not converted.
6.12. Automatic Conversion Upon Initial Public Offering.
-------------------------------------------------
(a) Immediately upon the closing of an underwritten public offering on
a firm commitment basis pursuant to an effective registration statement under
the Securities Act of 1933, as amended, covering the offer and sale of Common
Stock in which (A) the aggregate proceeds to the Company in such underwritten
public offering equals or exceeds $20,000,000, and (B) the per share price of
the Common Stock offered for sale in such offering is at least two (2) times the
Series A Issue Price (as adjusted for stock splits, dividends, recapitalizations
and the like) (such offering a "Qualified Public Offering"), all outstanding
shares of Series A Convertible Preferred Stock shall be converted automatically
into the number of shares of Common Stock into which such Series A Convertible
Preferred Stock is convertible pursuant to this Section 6 as of
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<PAGE>
the closing of such underwritten public offering without any further action by
the holders of such shares and whether or not the certificates representing such
shares are surrendered to the Company or its transfer agent for the Common
Stock; provided that all adjustments to the Applicable Conversion Value required
pursuant to Section 6 by reason of any event, transaction or action occurring on
or before the date of such conversion shall be made, whether or not the
effectiveness of such adjustment is stated by the provision requiring such
adjustment to be after the date of such conversion and even if the calculation,
nature or size of the adjustment is dependent on facts or events occurring, or
not ascertainable until, after such date.
(b) Upon the occurrence of the conversion specified in Section
6.12(a), the holders of such Series A Convertible Preferred Stock shall, a
reasonable time after notice from the Company, surrender the certificates
representing such shares at the office of the Company or of its transfer agent
for the Common Stock. Thereupon, there shall be issued and delivered to such
holder a certificate or certificates for the number of shares of Common Stock
into which the shares of the Series A Convertible Preferred Stock surrendered
were convertible on the date on which such conversion occurred. The Company
shall not be obligated to issue such certificates unless certificates evidencing
such shares of the Series A Convertible Preferred Stock being converted are
either delivered to the Company or any such transfer agent, or the holder
notifies the Company or any such transfer agent that such certificates have been
lost, stolen or destroyed and executes an agreement satisfactory to the Company
to indemnify the Company from any loss incurred by it in connection therewith.
6.13. Reservation of Common Stock. The Company shall at all times reserve
---------------------------
and keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the conversion of the shares of the Series A
Convertible Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of the Series A Convertible Preferred Stock, and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series A
Convertible Preferred Stock, the Company shall take such corporate action as may
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose.
7. Reacquired Shares of Series A Convertible Preferred Stock. All shares
---------------------------------------------------------
of Series A Convertible Preferred Stock acquired by the Company by reason of
redemption, purchase, conversion or otherwise shall be retired and canceled
promptly after the acquisition thereof. All such shares shall upon their
cancellation become authorized, unissued shares of undesignated preferred stock
available for issuance by the Company.
8. Restrictions and Limitations. Except as expressly provided herein or
----------------------------
as required by law, so long as any shares of the Series A Convertible Preferred
Stock remain outstanding, the Company shall not, and shall not permit any
Subsidiary to, without the approval by vote or by written consent of the
Majority Series A Holders, do any of the following:
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<PAGE>
(i) authorize or issue, or obligate itself to authorize or issue,
any new shares (or securities convertible into shares) of Series A
Convertible Preffered Stock, Series C Convertible Preferred Stock or of
any other class or series of capital stock of the Company having
liquidation, redemption or dividend rights which are senior to or pari
passu with the Series A Convertible Preffered Stock or that is redeemable
(mandatorily, at the option of the holders, upon the occurrence of any
date or event or otherwise) at any time while any shares of Series A
Convertible Preferred Stock are outstanding;
(ii) merge or consolidate with any other person, or sell, assign,
lease or otherwise dispose of or voluntarily part with the control of
(whether in one transaction or in a series of transactions) all, or
substantially all, of its assets (whether now owned or hereinafter
acquired), or dissolve, liquidate or wind-up its business or affairs or
otherwise terminate or permit the termination of its legal existence,
except that any wholly-owned Subsidiary may merge into or consolidate with
or transfer assets to the Company or any wholly-owned Subsidiary;
(iii) offer or confer any right, benefit, privilege or opportunity to
or upon, or waive, release or forbear from enforcing any obligation or
liability (whether arising by contract, these Articles or otherwise) of,
any holder, or the holders generally, of any series of Preferred Stock, in
such holder's or holders' capacities as such, unless the same right,
benefit, privilege, opportunity, waiver, release or forbearance is offered
or granted to or conferred upon all holders of Preferred Stock on an
equitable basis;
(iv) (A) amend, modify or supplement the terms, provisions or
conditions of any agreement or instrument pursuant to which any Person
acquired any shares of the Company's capital stock, or any options,
warrants or other rights to acquire shares of the Company's capital stock
(except that the Company may amend, modify or supplement employee or
director options with the approval of the Compensation Committee), or (B)
waive, release, compromise or settle any remedy or claim existing or
arising by virtue of the terms, provisions or conditions of any such
agreement or instrument;
(v) redeem, purchase or otherwise acquire for value (or pay into or
set aside for a sinking fund for such purpose) any share or shares of the
Company's Common Stock, Series A Convertible Preferred Stock, Series B
Redeemable Preferred Stock, Series C Convertible Preferred Stock or any
other capital stock of the Company, or apply any of the Company's assets to
the redemption, retirement, purchase or acquisition, directly or
indirectly, through subsidiaries or otherwise, of any of the Company's
Common Stock, Series A Convertible Preferred Stock, Series B Redeemable
Preferred Stock, Series C Convertible Preferred Stock or any other equity
securities of the Company, except that the Company may (A) redeem the
Series A Convertible Preferred Stock if required by the Majority Series A
Holders in accordance with, and subject to, the provisions of Section 5 of
this Part A, (B) redeem the Series C Convertible Preferred Stock if
required by the Exercising Series C Holders in accordance with, and subject
to, the provisions of Section 5 of Part C, (C) repurchase the Warrants and
Warrant Shares if required by the Majority Warrant Holders in accordance
with, and subject to, the provisions of Section 4 of the
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<PAGE>
Stockholders Agreement and, as applicable, Section 5 of this Part A and
Section 5 of Part C, and (D) make repurchases from employees, or
consultants or directors of the Company upon termination of employment or
services pursuant to the terms of option agreements or restrictive stock
agreements that (1) are approved by the Compensation Committee of the Board
of Directors of the Company and entered into with such employees,
consultants or directors and (2) do not exceed $250,000, in the aggregate,
in any 12 month period; provided that no such repurchase shall be effected
while a default exists with respect to the Company's obligations under
Section 5 of this Part A;
(vi) amend or repeal any provision of, add any provision to, or
waive any provision (including any of these protective provisions) of these
Articles or the Company's By-laws, or any resolution of the Board of
Directors or any other instrument establishing and designating the Series A
Convertible Preferred Stock, the Series B Redeemable Preferred Stock, the
Series C Convertible Preferred Stock or any other capital stock of the
Company now or hereafter existing and determining the relative rights,
preferences, privileges or powers thereto;
(vii) make any material change in the nature of the business
conducted by the Company as of May 1, 1999;
(viii) enter into any agreement with any Person which, in the absence
of a default thereunder, would prevent the Company from paying dividends or
making redemption payments on the Series A Convertible Preferred Stock in
accordance with these Articles or from fully performing on a timely basis
any of its obligations with respect to the Series A Convertible Preferred
Stock, or would condition or otherwise limit or restrict the ability of any
Subsidiary to (1) pay dividends or make any other distributions permitted
by applicable law to the Company or any other Subsidiary; (2) pay any Debt
owed to the Company or any other Subsidiary; (3) make loans or advances to
the Company or any other Subsidiary; (4) transfer any of its property or
assets to the Company or any other Subsidiary; or (5) otherwise create or
suffer to become effective any consensual arrangement which would have any
effect referred to in this clause (viii);
(ix) sell, transfer, convey, mortgage, pledge or otherwise dispose
of or encumber any of their respective properties (including any property
consisting of an equity interest or other investment or interest in any
Subsidiary), except for (A) sales of property in the ordinary course of
business, consistent with past practices, in arm's length transactions with
non-affiliates, (B) encumbrances of assets on customary terms and
consistent with past practices to secure indebtedness permitted by clause
(x) of this Section 8, and (C) the sale of property not permitted by
subclause (A) or (B) of this clause (x) if such sale is to a non-Affiliate
of the Company, is at a price not less than Fair Market Value and the
aggregate sale price for such sale and all other sales (whether or not
related) during any single fiscal year made in reliance on this subclause
(C) does not exceed $1,000,000 provided that at least 50% of the net
proceeds from any such dispositions in excess of $250,000 during any single
fiscal year are applied to reduce outstanding Debt;
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<PAGE>
(x) create, incur, assume or suffer to exist, or permit any
Subsidiary to create, incur, assume or suffer to exist, any liability with
respect to Indebtedness except for (1) up to $12,500,000 in the aggregate
(exclusive of interest, fees, expenses, costs, protective advances and
other amounts which may be added to principal under any applicable loan
agreement) in Senior Debt, (2) current liabilities, other than for
Indebtedness for Money Borrowed, which are incurred in the ordinary course
of business, (3) purchase money security interests securing the purchase of
equipment to be used in connection with the business of the Company and its
Subsidiaries, and (4) the Notes.
(xi) declare or pay any dividend on, or declare or make any
distribution to holders of any capital stock or other equity interests of
the Company or any Subsidiary; or
(xii) enter into any contract or agreement with or for the benefit of,
make any loan or advance to or investment in, obtain any loan, advance or
other extension of credit from, sell, assign or otherwise transfer any
assets to, purchase or otherwise acquire any assets from, guarantee, assume
or otherwise become liable for any Debt or other liabilities or obligations
of or engage in any other transaction with or for the benefit of any
Restricted Person, except (A) payment or provision of salaries and other
employee compensation to officers or directors of the Company or such
Subsidiary commensurate with compensation levels and deferred compensation
amounts in effect on the date of and disclosed pursuant to the Series C
Purchase Agreement or approved by the Compensation Committee or pursuant to
any employment agreement disclosed pursuant to the Series C Purchase
Agreement or approved by the Compensation Committee and (B) sales by the
Company of its goods and services to customers in the ordinary course of
business at the Company's standard rates and contracts or agreements
related to such sales.
To the extent that the Company proposes to take any action or
consummate any transaction of any kind specified in any clause in this
Section 8 in order to redeem, or in connection with the redemption of all
outstanding shares of the Series A Convertible Preferred Stock required or
permitted by Section 5, the consent or approval of the Majority Series A
Holders shall not be required to the extent that the Company provides
assurances, reasonably satisfactory to the Majority Series A Holders, that
such action or transaction will not be taken or consummated unless such
redemption is first or simultaneously effected in accordance with all
applicable provisions of Section 5 (including the requirements of Section
5.4 with respect to the indefeasible deposit of the Redemption Price) and
all applicable requirements of law and that the Company will not incur any
liability or obligation (other than the payment of expenses incurred in
connection therewith) in the event that such action or transaction is
abandoned or any condition to the taking or consummation thereof (including
the redemption of the Series A Convertible Preferred Stock in accordance
with the terms of Section 5 and as required by this sentence) is not
satisfied.
The following terms have the meanings indicated wherever such terms
are used in this Part A:
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<PAGE>
"capital stock" when used with respect to any corporation means
(unless the context otherwise indicates) any and all shares of capital
stock (however designated) of such corporation, including each class and
series of common stock and preferred stock of such corporation, any class
or series, any and all stock appreciation rights and any and all
equivalents of any of the foregoing, and including any security or interest
convertible into or warrant, option or other right (absolute or contingent)
to subscribe for, purchase or otherwise acquire any of the foregoing, in
each case whether or not evidenced by any certificate, instrument or other
document and whether voting or nonvoting.
"Indebtedness" has the meaning given to such term in the Note Purchase
Agreement.
"Indebtedness for Money Borrowed" has the meaning given to such term
in the Note Purchase Agreement.
"Senior Debt" has the meaning given to such term in the Note Purchase
Agreement.
"Notes" means the Company's 12.5% Senior Subordinated Notes due
November 30, 2003 in an aggregate principal amount of $10,000,000.
"Note Purchase Agreement" means the Senior Subordinate Note and
Securities Purchase Agreement dated as of November 24, 1997 by and between
the Company and Capital Resource Lenders III, L.P., as from time to time
amended and in effect between the parties thereto.
"Restricted Person" means (i) any Beneficial Owner of 5% or more of
any class or series of equity interests in the Company, (ii) any Affiliate
of the Company other than a wholly owned Subsidiary, (iii) any director or
officer of the Company or of any Subsidiary, (iv) any Beneficial Owner of
5% or more of any class or series of equity interests in any Subsidiary and
any director, officer or Affiliate of any such owner, and (iv) any Related
Party of any Person covered by clause (i), (ii), (iii) or (iv) of this
sentence.
"Related Party" means, with respect to any Person, (i) any Person
(other than the Company or a Subsidiary) of which such Person is a
director, officer, partner, manager or other member of management, or is,
directly or indirectly, the beneficial owner of ten percent (10%) or more
of any class or series of equity interests, and (ii) any trust or estate in
which such Person has a substantial beneficial interest or as to which such
Person serves as trustee or in a similar capacity. If such Person is a
natural person, such Person's "Related Parties" shall also include such
Person's parents, children, siblings and spouse, the parents and siblings
of such Person's spouse and the spouses of such Person's children and any
Person (other than the Company or a Subsidiary), trust or estate with which
any such relative of such Person has any relationship specified in clause
(i) or (ii) of the first sentence of this definition.
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<PAGE>
9. No Dilution or Impairment. The Company will not, by amendment of its
-------------------------
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of the Series A Convertible Preferred Stock set forth herein, but will
at all times in good faith assist in the carrying out of all such terms and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the holders of the Series A Convertible Preferred Stock
against dilution or other impairment. Without limiting the generality of the
foregoing, the Company will not increase the par value of any shares of stock
receivable on the conversion of the Series A Convertible Preferred Stock above
the amount payable therefor on such conversion, (b) will take all such action as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of stock on the conversion of
all Series A Convertible Preferred Stock from time to time outstanding, (c) will
not transfer all or substantially all of its properties and assets to any other
Person, or consolidate with or merge into any other Person or permit any such
Person to consolidate with or merge into the Company (if the Company is not the
surviving person), unless such other Person shall expressly assume in writing
and will be bound by all the terms of the Series A Convertible Preferred Stock
set forth herein.
10. Notices of Record Date. In the event of
----------------------
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right,
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any merger or
consolidation of the Company, or any transfer of all or substantially all of the
assets of the Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or winding
up of the Company,
then and in each such event the Company shall mail or cause to be mailed to each
holder of Series A Convertible Preferred Stock a notice specifying (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right and a description of such dividend, distribution or right,
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective and (iii) the time, if any, that is
to be fixed, as to when the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common Stock (or other
securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding up. Such notice shall be mailed at
least thirty (30) days prior to the date specified in such notice on which such
action is to be taken. In addition to the foregoing, each holder of Series A
Convertible Preferred Stock shall be given, at the same times as holders of
Common Stock, all notices of corporate action or proposed corporate action given
to holders of Common Stock.
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11. Sections References; Definitions. Except as specifically stated
--------------------------------
otherwise, all references in this Part A to Sections are references to Sections
in this Part A. All references to "Part A" or "Part C" are references to Part A
and Part C of this Article Fourth of these Articles. Unless specifically
provided otherwise, the definitions specified in this Part A for certain terms
are only for such terms as used in this Part A.
12. Amendment. The provisions of this Part A may be amended from time to
---------
time by the Board of Directors with the affirmative vote at a meeting duly
called and held or written consent of the Majority Series A Holders; provided,
--------
however, any such amendment which, by its terms, would have an adverse effect
- -------
upon the shares of Series A Convertible Preferred Stock of any holder that does
not affect all shares of Series A Convertible Preferred Stock on an equal per
share basis shall also require the prior approval of such holder. Unless
otherwise required by mandatory provisions of applicable law or by these
Articles, no vote or consent of the holders of any other class or series of the
Company's stock shall be necessary.
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<PAGE>
PART B: TERMS OF THE SERIES B REDEEMABLE PREFERRED STOCK
------------------------------------------------
The series of Preferred Stock designated and known as "Series B Redeemable
Preferred Stock" shall consist of 439,589 shares. All shares of Series B
Redeemable Preferred Stock shall rank equally and be identical in all respects.
The relative rights, preferences, restrictions and other matters relating to the
Series B Redeemable Preferred Stock are as follows:
1. Dividends. The holders of shares of the outstanding Series B
---------
Redeemable Preferred Stock shall be entitled to receive, out of funds legally
available therefor, cumulative dividends at the per annum rate of $0.7735 per
share. Such dividends shall accrue from day to day on each share of Series B
Redeemable Preferred Stock from the date of original issuance of such share, and
shall be paid as and when declared by the Board of Directors of the Company.
2. Preference on Liquidation.
-------------------------
2.1 Treatment at Liquidation, Dissolution or Winding Up. In the event of
---------------------------------------------------
any liquidation, dissolution or winding up of the Company, after payment to the
holders of the Series A Convertible Preferred Stock and the holders of the
Series C Convertible Preferred Stock of the full amounts distributable to them
under Section 3 of Part A and Section 3 of Part C, respectively, and after
payment to the holders of any other series of Preferred Stock ranking senior in
liquidation to the Series B Redeemable Preferred Stock of any amounts to which
they may be entitled under these Articles, the holders of shares of the Series B
Redeemable Preferred Stock shall be entitled to be paid out of the assets of the
Company, and prior and in preference to any distribution of any assets, capital,
surplus or earnings of the Company to the holders of any other capital stock of
the Company (including the Common Stock), the amount of $10.00 per share for
each share of Series B Redeemable Preferred Stock then held by them (adjusted
for any stock split, combination, consolidation, or stock distributions or stock
dividends with respect to such shares) together with all accrued but unpaid
cumulative dividends on the Series B Redeemable Preferred Stock (the
"Liquidation Preference Amount"). If the assets of the Company shall be
insufficient to permit the payment to such holders of the full Liquidation
Preference Amount then the entire assets of the Company legally available for
distribution shall be distributed ratably among the holders of the Series B
Redeemable Preferred Stock. After such payment shall have been made in full to
the holders of the Series B Redeemable Preferred Stock or funds necessary for
such payment shall have been set aside by the Company in trust for the account
of the holders of the Series B Redeemable Preferred Stock so as to be available
for such payment, the holders of the Series B Redeemable Preferred Stock shall
be entitled to no further participation in the distribution of the assets of the
Company.
2.2 Treatment of Consolidations, Mergers and Sales of Assets. A
--------------------------------------------------------
consolidation or merger of the Company (unless the Company is the surviving
entity), or a sale of all or substantially all of the assets of the Company
shall be deemed to be a liquidation, dissolution or winding up of the Company
within the meaning of this Section 2.
2.3 Distributions other than Cash. Whenever the distribution provided for
-----------------------------
in this Section 2 shall be payable in property other than cash, the value of
such distribution shall be the fair market value of such property as determined
on the basis of an independent appraisal.
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3. Redemption.
----------
3.1 Mandatory Redemption. The Company shall redeem all of the Shares of
--------------------
Series B Redeemable Preferred Stock then outstanding on December 31, 2005 (the
"Redemption Date"); provided, that (i) if any shares of Series A Convertible
Preferred Stock are outstanding as of such date, such redemption shall require
the prior consent of the Majority Series A Holders (as defined in Section 2.2 of
Part A) as provided in Section 8 of Part A, and (ii) if any shares of Series C
Convertible Preferred Stock are outstanding as of such date, such redemption
shall require the prior consent of the Majority Series C Holders (as defined in
Section 2.2 of Part C) as provided in Section 8 of Part C. If the consent of
the Majority Series A Holders and/or Majority Series C Holders to the redemption
of the Series B Redeemable Preferred Stock on such date is required under these
Articles but such consent is not obtained, then the Redemption Date shall be
such later date as to which such consent is obtained, or, if such consent is not
obtained, the date 90 days after the date as of which no shares of Series A
Convertible Preferred Stock or Series C Convertible Preferred Stock remain
outstanding. On or prior to the 90th day preceding the Redemption Date, the
Company shall give written notice ("Redemption Notice") by mail, postage
prepaid, to the holders of the then outstanding Series B Redeemable Preferred
Stock at the address of each such holder appearing on the books of the Company
or given by such holder to the Company for the purpose of notice. Such notice
shall set forth the date specified for redemption and the Redemption Price
(which shall be the Liquidation Preference Amount). The notice shall further
call upon such holders to surrender to the Company on or before the Redemption
Date at the place designated in the notice such holder's certificate or
certificates representing the shares to be redeemed or an indemnification and
loss certificate. On or before the Redemption Date, each holder of shares of
Series B Redeemable Preferred Stock called for redemption shall surrender the
certificate evidencing such shares, or such indemnification and loss
certificate, to the Company. At such time, the Company shall pay to each of the
holders of Series B Redeemable Preferred Stock a per share cash price equal to
the Redemption Price.
3.2 Termination of Rights. From and after the Redemption Date, unless
---------------------
there shall have been a default in payment or tender by the Company of the
Redemption Price, all rights of the holders with respect to such redeemed shares
of Series B Redeemable Preferred Stock (except the right to receive the
Redemption Price upon surrender of their certificate) shall cease and such
shares shall not thereafter be transferred on the books of the Company or be
deemed to be outstanding for any purpose whatsoever.
3.3 Insufficient Funds. If the funds of the Company legally available for
------------------
redemption of shares of Series B Redeemable Preferred Stock on the Redemption
Date are insufficient to redeem the total number of shares of Series B
Redeemable Preferred Stock on such Redemption Date, the Company shall use those
funds which are legally available to redeem the maximum possible number of such
shares ratably among the holders of such shares to be redeemed. At any time
thereafter when additional funds of the Company are legally available for the
redemption of shares of Series B Redeemable Preferred Stock, such funds will
immediately be used to redeem the balance of the shares which the Company has
become obligated to redeem on the Redemption Date, but which it has not
redeemed, at the Redemption Price. If any shares of Series B Redeemable
Preferred Stock are not redeemed for the foregoing reason or because the Company
otherwise failed to pay or tender to pay the aggregate Redemption Price on all
outstanding shares
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<PAGE>
of Series B Redeemable Preferred Stock, all shares which have not been redeemed
shall remain outstanding and be entitled to all the rights and preferences
provided herein.
4. Voting Power. Except as required by law, the holders of shares of the
------------
Series B Redeemable Preferred Stock shall not have any voting rights or powers.
5. Reacquired Shares of Series B Redeemable Preferred Stock. All shares
--------------------------------------------------------
of Series B Redeemable Preferred Stock acquired by the Company by reason of
redemption, purchase, conversion or otherwise shall be retired and canceled
promptly after the acquisition thereof. All such shares shall upon their
cancellation become authorized, unissued shares of undesignated preferred stock
available for issuance by the Company.
6. Section References; Definitions. Except as specifically stated
-------------------------------
otherwise, all references in this Part B to Sections are references to Sections
in this Part B. All references to "Part A" or "Part C" are references to Part A
and Part C of this Article Fourth of these Articles. Unless specifically
provided otherwise, the definitions specified in this Part B for certain terms
are only for such terms as used in this Part B. "Articles" means the Company's
Articles of Incorporation as they may from time to time be amended or restated.
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<PAGE>
PART C: TERMS OF THE SERIES C CONVERTIBLE PREFERRED STOCK
-------------------------------------------------
Series C Convertible Preferred Stock. The series of Preferred Stock
------------------------------------
designated and known as "Series C Convertible Preferred Stock" shall consist of
2,495,697 shares. All shares of Series C Convertible Preferred Stock shall rank
equally and be identical in all respects. The relative rights preferences,
restrictions and other matters relating to the Series C Convertible Preferred
Stock are as follows:
1. Rank. The Series C Convertible Preferred Stock shall, with respect to
----
priority as to dividend rights, rights on liquidation, winding up and
dissolution and rights upon redemption, rank on a parity basis with the Series A
Convertible Preferred Stock and prior to (i) the Common Stock, (ii) the Series B
Redeemable Preferred Stock, and (iii) any other class or series of capital stock
of the Company, whether now existing or hereafter created.
2. Dividends
---------
2.1. General. The holders of shares of the outstanding Series C
-------
Convertible Preferred Stock shall be entitled to receive non-cumulative
dividends ratably and on a parity with such dividends as may be paid on the
Common Stock and the Series A Convertible Preferred Stock as and when dividends
on the Common Stock are declared by the Board of Directors of the Company out of
funds legally available therefor, such dividends to be paid with respect to the
Series C Convertible Preferred Stock as though each share of Series C
Convertible Preferred Stock had been converted into shares of Common Stock
pursuant to Section 6 hereof immediately prior to the record date for such
dividend.
2.2. Coordination With Conversion Right. To the extent that any provision
----------------------------------
of this Part C provides for an adjustment to the Applicable Conversion Value (or
the number, amount or kind of securities issuable upon conversion of a share of
Series C Convertible Preferred Stock) by reason of any dividend or distribution
on the Common Stock referred to in Section 2.1 of this Part C, the holders of at
least a majority of the outstanding shares of the Series C Convertible Preferred
Stock ("Majority Series C Holders") shall have the right to elect either (i) to
require that the corresponding dividend or distribution contemplated by Section
2.1 be declared and paid or made with respect to the Series C Convertible
Preferred Stock as provided in Section 2.1, in which case such adjustment shall
not be made to such extent, or (ii) to require such adjustment to be made, in
which case such corresponding dividend or distribution shall not be declared or
paid or made with respect to the Series C Convertible Preferred Stock to such
extent. In declaring, making and paying dividends and distributions on the
Common Stock as to which such right of election exists, the Company shall
provide the holders of the Series C Convertible Preferred Stock with reasonable
advance notice and forms of election, and shall otherwise act in good faith, so
that such holders may effectively exercise all rights of election provided for
in this Section 2.2 on a timely basis.
2.3. Record and Payment Dates. The Board may fix a record date for the
------------------------
determination of holders of Series C Convertible Preferred Stock entitled to
receive a dividend or distribution pursuant to Section 2.1 of this Part C, which
date shall be the same as the record date
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for the corresponding dividend or distribution on the Common Stock. The payment
date for any such dividend or distribution shall be on or before the payment
date for the corresponding dividend or distribution on the Common Stock.
3. Liquidation, Dissolution or Winding Up.
--------------------------------------
3.1. Treatment at Liquidation, Dissolution or Winding Up.
---------------------------------------------------
(a) In the event of any liquidation, dissolution or winding up of the
Company, whether voluntary or involuntary, holders of each share of Series C
Convertible Preferred Stock and Series A Convertible Preferred Stock (together,
the "Senior Preferred Stock") shall be entitled to be paid first out of the
assets of the Company available for distribution to holders of the Company's
capital stock of all classes, whether such assets are capital, surplus, or
earnings, an amount equal to the Liquidation Price of such share of Senior
Preferred Stock as of the date of the payment or distribution thereof to the
holders of Senior Preferred Stock.
"Liquidation Price" means
(i) with respect to the Series C Convertible Preferred Stock, an amount
equal to the greater of
(A) $5.81 per share (the "Series C Issue Price") of Series C
Convertible Preferred Stock (which amount shall be subject to equitable
adjustment whenever there shall occur a stock split, combination,
reclassification or other similar event involving the Series C Convertible
Preferred Stock) plus all declared and unpaid dividends thereon, to and
including the date full payment shall be tendered to the holders of the
Series C Convertible Preferred Stock with respect to such liquidation,
dissolution or winding up; or
(B) such amount per share of Series C Convertible Preferred Stock as
would have been payable had each such share been converted into shares of
Common Stock pursuant to Section 6 of this Part C and each share of Series
A Convertible Preferred Stock been converted into shares of Common Stock
pursuant to Section 6 of Part A immediately prior to such event of
liquidation, dissolution or winding up and all assets of the Company
available for distribution to holders of the Company's capital stock of all
classes been distributed to the holders of the Series B Redeemable
Preferred Stock and the Common Stock; and
(ii) with respect to the Series A Convertible Preferred Stock, the amount
set forth as the Liquidation Price of the Series A Convertible Preferred
Stock in Section 3.1(a) of Part A.
(b) If the assets of the Company shall be insufficient to permit the
payment in full of the amounts thus distributable to the holders of the Series C
Convertible Preferred Stock and Series A Convertible Preferred Stock, then the
entire assets of the Company available for such distribution shall be
distributed ratably among the holders of the Series C Convertible Preferred
Stock and the holders of the Series A Convertible Preferred Stock in proportion
to the respective full preferential amounts to which such holders would
otherwise be entitled. After such
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<PAGE>
payment shall have been made in full to the holders of the Series C Convertible
Preferred Stock or funds necessary for such payment shall have been set aside by
the Company in trust for the account of holders of the Series C Convertible
Preferred Stock so as to be available for such payment, the holders of Series C
Convertible Preferred Stock shall be entitled to no further participation in the
distribution of the assets of the Company and shall have no further rights of
conversion and the remaining assets available for distribution shall be
distributed among the holders of any other series of Preferred Stock ranking
junior in liquidation to the Series C Convertible Preferred Stock and the Common
Stock.
3.2. Treatment of Reorganizations, Consolidations, Mergers, and Sales of
-------------------------------------------------------------------
Assets. A reorganization as provided in Section 6.7 or a consolidation or
- ------
merger of the Company or a sale of all or substantially all of the assets of the
Company shall be regarded as a liquidation, dissolution or winding up of the
affairs of the Company within the meaning of this Section 3; provided, however,
that each holder of Series C Convertible Preferred Stock shall have the right to
elect the benefits of the provisions of Section 6.7 hereof in lieu of receiving
payment in liquidation, dissolution or winding up of the Company pursuant to
this Section 3.
3.3. Distributions Other than Cash. Whenever the distribution provided for
-----------------------------
in this Section 3 shall be payable in property other than cash, the value of
such distribution shall be the Fair Market Value (as defined in Section 6.4(d))
of such property as determined on the basis of an independent appraisal.
3.4. Record Date and Notice. In the event of any liquidation, dissolution
----------------------
or winding up of the Company, whether voluntary or involuntary, the following
shall apply:
(a) Any distribution to the holders of capital stock of the Company of
any class or series of assets of the Company available for distribution to its
stockholders will be made to the holders of record of such class or series on a
record date that is not less than 10 days nor more than 30 days prior to the
date such distribution is proposed to be made (each, a "Distribution Date").
(b) The Company shall give to each holder of Series C Convertible
Preferred Stock at least 20 days' prior written notice of the record date to be
fixed for any payment or distribution to any of the holders of any capital stock
of the Company of any class or series. In addition to any other information
required by the Company's Articles of Incorporation (as amended or restated from
time to time, these "Articles"), the Company's by-laws or applicable law, such
notice shall describe in reasonable detail each payment or distribution proposed
to be made, identify all classes and series of capital stock that will
participate in such payment or distribution and the relative participations of
the holders of each such class or series and state the record date and
Distribution Date for such payment or distribution. Such notice shall be
accompanied by a statement, in reasonable detail, showing the amount, kind and
value of all assets of the Company available for payment or distribution to its
stockholders.
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<PAGE>
4. Voting Power. Except as otherwise expressly provided in Section 8
------------
hereof, or as required by law, each holder of Series C Convertible Preferred
Stock shall be entitled to vote on all matters and shall be entitled to that
number of votes equal to the largest number of whole shares of Common Stock into
which such holder's shares of Series C Convertible Preferred Stock could be
converted, pursuant to the provisions of Section 6 hereof, at the record date
for the determination of stockholders entitled to vote on such matter or, if no
such record date is established, at the date such vote is taken or any written
consent of stockholders is solicited. Except as otherwise expressly provided
herein or as required by law, the holders of shares of Series C Convertible
Preferred Stock, Series A Convertible Preferred Stock and Common Stock shall
vote together as a single class on all matters. Whenever in these Articles it
is provided that any action, determination or decision requires the approval,
consent or vote of the holders of a specified number or percentage of the then
outstanding shares of Series A Convertible Preferred Stock or Series C
Convertible Preferred Stock, separately as a class, or any two or more series of
Preferred Stock, together as a single class, on an "as converted basis," such
provision means the specified number or percentage, respectively, of the shares
of Common Stock into which the then outstanding shares of the specified series
or combined series are convertible as of the applicable record date for
determination of holders of such series or combined series entitled to vote on
such matter or, if no such record date is established, at the date such
approval, consent or vote is requested or solicited. Similarly, whenever in
these Articles it is provided that any right, privilege or benefit endures or is
available or any provision of these Articles remains operative only so long as a
specified number or percentage of shares of a specified series of Preferred
Stock of any one or more series remain outstanding or are held by some specified
Person(s) or categories of Person(s), such provision means the specified number
or percentage, respectively, of the shares of Common Stock into which the then
outstanding shares of the specified series or combined series of Preferred Stock
are convertible as of the applicable time of determination.
5. Redemption.
----------
5.1. Optional Redemption. Persons holding at least thirty percent (30%) of
-------------------
the Series C Convertible Preferred Stock outstanding shall have the right to
require the Company to redeem all of the outstanding shares of Series C
Convertible Preferred Stock upon the occurrence of any of the following (each a
"Redemption Event"): (i) the fifth anniversary of the date the Company first
issued shares of Series C Convertible Preferred Stock ("Series C Issue Date"),
(ii) a Change of Control, or (iii) a Reorganization Event. Such Persons may
exercise such right by delivering written notices ("Exercise Notices") to such
effect, which, collectively, have been signed by the Persons holding at least
thirty percent (30%) of the Series C Convertible Preferred Stock outstanding as
of the date of the Redemption Event (the Persons delivering such Exercise
Notices, the "Exercising Series C Holders"), to the Company at any time after
the date of the occurrence of the Redemption Event and prior to the expiration
of the 30 day period following the Company's delivery of written notice of the
Redemption Event to the holders of Series C Convertible Preferred Stock. If
such right is so exercised, the redemption date ("Redemption Date") shall be a
Business Day selected by the majority of the Exercising Series C Holders that is
not sooner than the 90th day after and not later than the 120th day after the
Company delivers notice of the Redemption Event to the Series C Holders;
provided, however, that if, in connection with such Redemption Event, the
Majority Series A Holders (as defined in Section 2.2 of Part A) have exercised
their right to redeem the Series A Convertible Preferred Stock pursuant to
Section
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<PAGE>
5.1 of Part A, then the Redemption Date shall be the date within such period,
and within the corresponding period specified in Section 5.1 of Part A, agreed
to by the Majority Series A Holders and the majority of the Exercising Series C
Holders; and provided further, that in the case of any Reorganization Event, the
--------
Redemption Date shall be postponed by a number of days equal to the number of
days, if any, during which either the exercise of such right or the redemption
by the Company of the Series C Convertible Preferred Stock (or, if applicable,
the Series A Convertible Preferred Stock) shall be enjoined, stayed or otherwise
prevented or delayed by order or decree of any court or tribunal having
jurisdiction. The Company shall deliver written notice to all holders of Series
C Convertible Preferred Stock promptly upon the occurrence of a Redemption
Event. The redemption price per share ("Redemption Price") shall be an amount
equal to the amount that would be distributed in respect of each share of Series
C Convertible Preferred Stock if the Company were sold for its Fair Market Value
(as defined in Section 6.4(d)) as of the date of the Redemption Event and the
proceeds of such sale were distributed as provided in Section 3.1. In such
event, the Fair Market Value of the Company shall be determined by an investment
bank of national standing selected by the Company and approved by the Majority
Series C Holders. The following definitions are applicable to this Section 5 and
to any other Section in this Part C in which these terms are used:
"Change of Control" means any of the following:
(i) any person other than Kyle D. Parker or a Person controlled
by Kyle D. Parker at any time becomes the Beneficial Owner, directly or
indirectly and whether as a result of issuances, redemptions or repurchases
by the Company of Common Stock or transfers of Common Stock by stockholders
of the Company, of Common Stock representing 50% or more of the combined
voting power with respect to the election of directors of the Company
represented by all then outstanding Common Stock of the Company;
(ii) the Company consolidates with, or merges with or into,
another person, sells, assigns, conveys, transfers, leases or otherwise
disposes of all or substantially all of its assets directly or indirectly
to any Person, or any Person consolidates with, or merges with or into, the
Company, in any such event pursuant to a transaction in which the
outstanding Common Stock of the Company is converted into or exchanged for
cash, securities, equity interests or other property and immediately after
such transaction the persons who were the Beneficial Owners of the
outstanding Common Stock of the Company immediately prior to such
transaction are not the beneficial owners, directly or indirectly, of more
than 50% of the combined voting power represented by all then outstanding
common stock of the surviving or transferee Person; or
(iii) the Company or any of its Subsidiaries purchase, lease or
otherwise acquire assets of any Person or Persons, in one or a series of
related transactions, for consideration consisting in whole or in part of
Common Stock, Convertible Securities or Rights and the number of shares of
Common Stock issued by the Company (including all shares issuable or
purchasable upon exercise of all such Convertible Securities and Rights) in
such transaction is equal to 50% or more of the number of fully diluted
shares of
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<PAGE>
Common Stock outstanding immediately prior to such transaction (or the
first of such series of transactions).
A "Reorganization Event" shall be deemed to have occurred upon the
happening of any of the following:
(i) the appointment of a receiver or trustee to administer all
or a substantial portion of the assets of the Company or any Significant
Subsidiary, which shall remain in effect for 60 days;
(ii) the filing by the Company or any Significant Subsidiary of
a voluntary petition for relief under any Insolvency Law or of a pleading
in any court of record admitting in writing its inability to pay its debts
as they become due;
(iii) the making by the Company or any Significant Subsidiary of
a general assignment for the benefit of creditors;
(iv) the filing by the Company or any Significant Subsidiary of
an answer admitting the material allegations of, or its consenting to or
defaulting in answering, a petition for relief filed against it in any
proceeding under any Insolvency Law; or
(v) the entry of an order, judgment or decree by any court of
competent jurisdiction granting relief against the Company or any
Significant Subsidiary in an involuntary proceeding under any Insolvency
Law and the continuance of any such decree or order for relief unstayed and
in effect for a period of 60 consecutive days.
"Person" means any individual, corporation, limited liability company,
general or limited partnership, joint venture, association, joint stock
company, trust, unincorporated business or organization, government or
agency or political subdivision thereof, or other entity, whether acting in
an individual, fiduciary or other capacity.
"Beneficial Owner" means a beneficial owner within the meaning of
Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934, as amended
("Exchange Act"), as interpreted by the Securities and Exchange Commission,
provided that a Person shall be deemed to have beneficial ownership of all
securities that such Person has a right to acquire without regard to the 60
day limitation in subdivision (d)(i) of such Rule 13d-3. The terms (whether
or not capitalized) "beneficially own" and "owned beneficially" shall have
correlative meanings.
"Convertible Securities" means evidences of indebtedness, shares of
stock or other securities or obligations that are convertible into or
exchangeable, with or without payment of additional consideration in cash
or property, for any Common Stock, either immediately or upon the
occurrence of a specified date or a specified event or the satisfaction or
happening of any other condition or contingency.
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<PAGE>
"Rights" means any options, warrants or other rights (except
Convertible Securities), however denominated, to subscribe for, purchase or
otherwise acquire any Common Stock or Convertible Securities, with or
without payment of additional consideration in cash or property, either
immediately or upon the occurrence of a specified date or a specified event
or the satisfaction or happening of any other condition or contingency.
"Insolvency Law" means the United States Bankruptcy Code and any other
law, foreign, federal or state, relating to bankruptcy, receivership,
reorganization, insolvency, adjustment, compromise or extension of debt or
other relief of a debtor from creditors.
"Subsidiary" of any Person as of any relevant date means a
corporation, company or other entity (i) more than fifty percent (50%) of
whose outstanding shares or equity securities are, as of such date, owned
or controlled, directly or indirectly through one or more Subsidiaries, by
such Person, and the shares or securities so owned entitle such Person
and/or its Subsidiaries to elect at least a majority of the members of the
board of directors or other managing authority of such corporation, company
or other entity notwithstanding the vote of the holders of the remaining
shares or equity securities so entitled to vote or (ii) which does not have
outstanding shares or securities, as may be the case in a partnership,
joint venture or unincorporated association, but more than fifty percent
(50%) of whose ownership interest is, as of such date, owned or controlled,
directly or indirectly through one or more Subsidiaries, by such Person,
and in which the ownership interest so owned entitles such Person and/or
Subsidiaries to make the decisions for such corporation, company or other
entity.
"Significant Subsidiary" means a Subsidiary in which the Company's and
its other Subsidiaries' (i) investments in and advances to the Subsidiary
exceed 20% of the total assets of the Company and its Subsidiaries
consolidated as of the end of the most recently completed fiscal year, (ii)
proportionate share of the total assets of the Subsidiary exceeds 20% of
the total assets of the Company and its Subsidiaries consolidated as of the
end of the most recently completed fiscal year; or (iii) equity in the
income from continuing operations before income taxes, extraordinary items
and cumulative effect of a Change in accounting principle of the Subsidiary
exceeds 20% of such income of the Company and its Subsidiaries consolidated
for the most recently completed fiscal year.
5.2. Form and Source of Redemption Payments. The Redemption Price for all
--------------------------------------
shares redeemed pursuant to Section 5.1 shall be paid in cash from unrestricted
funds legally available for such purpose.
5.3. Notice of Redemption. Notice of any redemption by the Company
--------------------
pursuant to Section 5.1 shall be given to the holders of record of the shares of
Series C Convertible Preferred Stock to be redeemed, at their respective
addresses as the same appear upon the books of the Company or are supplied by
them in writing to the Company for the purpose of such notice. Such notice
shall be given not more than 45 days nor less than 10 days prior to the
Redemption Date. In addition to any information required by law or by the
applicable rules of any national stock exchange or national interdealer
quotation system, such notice shall set forth the Redemption
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<PAGE>
Price, the Redemption Date, the number of shares to be redeemed and the place at
which the shares called for redemption will, upon presentation and surrender of
the stock certificates evidencing such shares, be redeemed, and shall state the
name and address of the Redemption Agent appointed in accordance with Section
5.4.
5.4. Deposit of Redemption Price. If any shares of Series C Convertible
---------------------------
Preferred Stock are to be redeemed pursuant to Section 5.1, then on or before
the Redemption Date the Company shall deposit, in an irrevocable trust fund for
the sole purpose of redeeming the shares of Series C Convertible Preferred Stock
to be redeemed on the Redemption Date, with any bank or trust company organized
under the laws of the United States of America or any state thereof having
capital, undivided profits and surplus aggregating at least $250,000,000 or
having capital, undivided profits and surplus aggregating at least $250,000,000
on a consolidated basis with such bank's or trust company's parent, provided,
however, that, in such case, such parent has guaranteed all of the existing and
future obligations of such bank or trust company (a "Redemption Agent"),
immediately available unrestricted funds legally available for such purpose
sufficient to redeem all outstanding shares of Series C Convertible Preferred
Stock to be redeemed pursuant to Section 5.1 for the applicable Redemption Price
on the Redemption Date, with irrevocable instructions and authority to the
Redemption Agent, on behalf and at the expense of the Company, to pay,
commencing on the Redemption Date or prior thereto, the Redemption Price of such
shares of Series C Convertible Preferred Stock to their respective holders upon
the surrender of their share certificates and, from and after the later of the
date of such deposit and the Redemption Date, such shares shall be deemed to be
no longer outstanding and the holders thereof shall cease to be stockholders
with respect to such shares and shall have no rights with respect thereto,
except the right to receive payment, as provided in these Articles, of the
Redemption Price of such shares, calculated through the Redemption Date, upon
surrender of the certificates therefor. Until such date, the shares of Series C
Convertible Preferred Stock shall continue to be convertible into Common Stock
in accordance with Section 6 and shall continue to be issued and outstanding for
all other purposes. Any funds so deposited with the Redemption Agent by the
Company and unclaimed for six months from the Redemption Date shall (unless an
applicable escheat or abandoned property law designates another Person) be paid
to the Company, after which repayment the holders of such shares of Series C
Convertible Preferred Stock shall look to the Company for the payment of the
Redemption Price therefor, without interest.
5.5. Actions to Facilitate Required Redemptions. If in connection with any
------------------------------------------
Redemption Event the Company has insufficient cash to (A) redeem all shares of
Series A Convertible Preferred Stock and Series C Convertible Preferred Stock
that it is required to redeem pursuant to these Articles on the Redemption Date
and (B) purchase all Warrants and Warrant Shares (as those terms are defined in
the Amended and Restated Stockholders Agreement ("Stockholders Agreement"),
entered into on or about the Series C Issue Date, by and among the Company and
certain holders of securities of the Company) pursuant to Section 5 of the
Stockholders Agreement, then the Company shall (i) promptly give written notice
to such effect to the holders of the Series C Convertible Preferred Stock, (ii)
take, as hereafter provided in this Section 5.5, all reasonable lawful actions
to obtain sufficient cash to enable the Company to make such redemption and
purchase, including (A) the sale of additional equity securities, (B) any
necessary action under applicable law to reduce the Company's stated capital or
otherwise increase the
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Company's surplus or other funds legally available, (C) a refinancing of the
debt of the Company, (D) asset sales by the Company and (E) a sale of the
Company to a third party and (iii) no later than 30 days after the date of
delivery of the notice referred to in clause (i) of this sentence, engage (at
the Company's sole expense, which expense may be paid prior to the redemption of
the Preferred Stock and the purchase of the Warrants and Warrant Shares) a
nationally recognized independent investment banking firm (such firm, the
"Advisor") reasonably acceptable to both the Majority Series C Holders and the
Majority Series A Holders (together, the "Majority Preferred Holders") in order
to advise and assist the Company in connection with the actions to be taken by
the Company (each such action, an "Action"), including without limitation the
actions enumerated in subclauses (A)-(E) of clause (ii) of this sentence. The
Company and the Advisor shall submit to the holders of the Series C Convertible
Preferred Stock, no later than 60 days after the date of the notice referred to
in clause (i) of the immediately preceding sentence, a proposal setting forth
the Actions proposed to be taken by the Company. Any proposed Action that is
approved by the affirmative vote of the Majority Preferred Holders (each, an
"Approved Action") shall be pursued by the Company in good faith as quickly as
practicable. In the event that the Approved Actions include a sale of the
Company or its assets, then no later than 120 days after such approval (150 days
if the Advisor assisting in the sale shall advise the Company in writing that
such additional period is reasonably likely, in its good faith judgment, to
result in a higher price being obtained in such sale) or such later date as may
be agreed upon by the Company and the Majority Preferred Holders, the Board of
Directors shall accept the highest bid submitted for such sale deemed by the
Advisor to represent an "adequate" price for such assets or the Company (the
values of such bids to be determined by the Advisor). Any holder of shares of
Series C Convertible Preferred Stock or Series A Convertible Preferred stock and
any Affiliate of any such holder or of the Company shall be entitled to submit
its own bid in the competitive bidding process. In the event that the Approved
Actions include (i) a sale of additional equity securities or debt securities of
the Company or (ii) a refinancing of the debt of the Company, the Company will
use its best efforts to consummate such proposed Action within 120 days after
such approval or by such later date as may be agreed upon by the Company and the
Majority Preferred Holders. Consistent with his or her fiduciary duties as a
director of the Company, each director of the Company (whether or not a Series C
Director) shall approve the taking by the Company of each Approved Action and,
if any approval or other action by any of the Company's stockholders is required
by applicable law in order to authorize, or otherwise in connection with, the
taking of such Approved Action, shall recommend that such stockholders give such
approval and take such other action, but this sentence shall not be construed as
establishing any requirement for unanimous approval by the Board of Directors in
order to authorize any Approved Action or otherwise the vote required under
applicable law or these Articles. Nothing contained in this Section 5.5 is
intended to eliminate, qualify, modify or limit the rights of the holders of the
Series C Convertible Preferred Stock under any provision of these Articles or
any other rights or remedies which such holders may have at law, in equity or by
contract in the event of the failure of the Company to redeem shares of Series C
Convertible Preferred Stock as and when required by these Articles.
6. Conversion Rights. The holders of the Series C Convertible Preferred
-----------------
Stock shall have the following rights with respect to the conversion of the
Series C Convertible Preferred Stock into shares of Common Stock:
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6.1. General. Subject to and in compliance with the provisions of this
-------
Section 6, any share of the Series C Convertible Preferred Stock may, at the
option of the holder, be converted at any time into fully paid and nonassessable
shares of Common Stock. The number of shares of Common Stock to which a holder
of Series C Convertible Preferred Stock shall be entitled upon conversion shall
be the product obtained by multiplying the Applicable Conversion Rate
(determined as provided in Section 6.2) by the number of shares of Series C
Convertible Preferred Stock being converted.
6.2. Applicable Conversion Rate. The conversion rate in effect at any time
--------------------------
(the "Applicable Conversion Rate") shall be the quotient obtained by dividing
$5.81 by the Applicable Conversion Value, calculated as provided in Section 6.3.
6.3. Applicable Conversion Value. The Applicable Conversion Value shall be
---------------------------
$5.81, except that such amount shall be adjusted from time to time in accordance
with this Section 6. All references to the Applicable Conversion Value in this
Part C are to the Applicable Conversion Value as so adjusted.
6.4. Adjustments to Applicable Conversion Value.
------------------------------------------
(a) Upon Sale of Common Stock. If the Company shall, while there are
-------------------------
any shares of Series C Convertible Preferred Stock outstanding, issue or sell
shares of Common Stock for a price per share less than the Applicable Conversion
Value in effect immediately prior to such issuance or sale, then in each such
case the Applicable Conversion Value upon each such issuance or sale shall be
lowered so as to be equal to an amount determined by multiplying the Applicable
Conversion Value by a fraction, the numerator of which shall be the sum of (x)
the number of shares of Common Stock outstanding immediately prior to the
issuance of such additional shares of Common Stock, plus (y) the number of
shares of Common Stock which the net aggregate consideration received by the
Company for the total number of such additional shares of Common Stock so issued
would purchase at the Applicable Conversion Value immediately prior to such
issuance, and the denominator of which shall be the sum of (w) the number of
shares of Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock plus (z) the number of such additional shares
of Common Stock so issued. Notwithstanding the foregoing, no adjustment shall
be made pursuant to this Section 6.4(a) in respect of any issuance of Common
Stock if an adjustment is made in respect of such issuance pursuant to Section
6.4(f).
(b) Upon Issuance of Warrants, Options and Rights to Common Stock.
-------------------------------------------------------------
(1) For the purposes of this Section 6.4, the issuance or sale of
any warrants, options, subscriptions, or purchase rights with respect to
shares of Common Stock and the issuance or sale of any securities
convertible into or exchangeable for shares of Common Stock (or the
issuance or sale of any warrants, options or any rights with respect to
such convertible or exchangeable securities and including, in each case,
without limitation, dividends or distributions of such convertible or
exchangeable securities) shall be deemed an issuance or sale, as
applicable, at such time of such Common Stock if the Net Consideration Per
Share (as defined in paragraph (3) below) which may be received by the
Company for such Common Stock shall be less than the Applicable Conversion
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Value of the Common Stock at the time of such issuance. Any obligation,
agreement, or undertaking to issue or sell warrants, options,
subscriptions, or purchase rights at any time in the future shall be deemed
to be an issuance or sale, as applicable, at the time such obligation,
agreement or undertaking is made or arises. No adjustment of the
Applicable Conversion Value shall be made under this Section 6.4 upon the
issuance of any shares of Common Stock which are issued pursuant to the
exercise of any warrants, options, subscriptions, or purchase rights or
pursuant to the exercise of any conversion or exchange rights in any
convertible or exchangeable securities if any adjustment shall previously
have been made upon the issuance or sale of any such warrants, options,
subscriptions or purchase rights or upon the issuance or sale of any
convertible or exchangeable securities (or upon the issuance of any
warrants, options or any rights therefor) as above provided.
(2) Should the Net Consideration Per Share of any such warrants,
options, subscriptions, or purchase rights or convertible securities be
decreased or increased from time to time, then, upon the effectiveness of
each such change, the Applicable Conversion Value shall be adjusted to such
Applicable Conversion Value as would have obtained (a) had the adjustments
made upon the issuance of such warrants, options, rights, or convertible
securities been made upon the basis of the actual Net Consideration Per
Share of such securities, and (b) had adjustments made to the Applicable
Conversion Value since the date of issuance of such securities been made to
the Applicable Conversion Value as adjusted pursuant to this paragraph. Any
adjustment of the Applicable Conversion Value with respect to this
paragraph which relates to warrants, options, subscriptions, or purchase
rights with respect to shares of Common Stock shall be disregarded as, and
when all of such warrants, options, subscriptions, or purchase rights
expire or are canceled without being exercised, so that the Applicable
Conversion Value effective immediately upon such cancellation or expiration
shall be equal to the Applicable Conversion Value in effect at the time of
the issuance of the expired or canceled warrants, options, subscriptions,
or purchase rights, with such additional adjustments as would have been
made to that Applicable Conversion Value had the expired or canceled
warrants, options, subscriptions, or purchase rights not been issued.
(3) For purposes of this Section 6.4(b), the "Net Consideration
Per Share" which may be received by the Company shall be determined as
follows:
(A) The "Net Consideration Per Share" shall mean the amount equal
to the total amount of consideration, if any, received by the Company
for the issuance of such warrants, options, subscriptions, or other
purchase rights or convertible or exchangeable securities, plus the
minimum amount of consideration, if any, payable to the Company upon
exercise or conversion thereof, divided by the aggregate number of
shares of Common Stock that would be issued if all such warrants,
options, subscriptions, or other purchase rights or convertible or
exchangeable securities were exercised, exchanged, or converted.
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<PAGE>
(B) The "Net Consideration Per Share" which may be received by
the Company shall be determined initially in each instance as of the
date of issuance of warrants, options, subscriptions, or other
purchase rights or convertible or exchangeable securities without
giving effect to any possible future upward price adjustments or rate
adjustments which may be applicable with respect to such warrants,
options, subscriptions, or other purchase rights or convertible or
exchangeable securities.
(c) Stock Dividends. In the event the Company shall make or issue, or
---------------
shall fix a record date for the determination of holders of any stock of the
Company other than Common Stock entitled to receive a dividend or other
distribution payable in Common Stock or securities of the Company convertible
into or otherwise exchangeable for the Common Stock of the Company, then such
Common Stock or other securities issued in payment of such dividend or
distribution shall be deemed to have been issued without consideration and the
adjustments required by subsections (a) and (b) of this Section 6.4 shall be
made; provided, however, that if the Majority Series C Holders consent to such a
dividend or distribution, then no adjustments required by subsections (a) and
(b) of this Section 6.4 shall be made. The making or payment of any such
distribution or dividend in Common Stock on the Series C Convertible Preferred
Stock shall not reduce the number of shares of Common Stock the holders of such
shares of Series C Convertible Preferred Stock are otherwise entitled to receive
upon conversion of such shares.
(d) Consideration. For the purpose of making any adjustment required
-------------
under this Section 6.4, the consideration received by the Company for any issue
or sale of securities shall (A) to the extent it consists of cash, be computed
at the net amount of cash received by the Company after deduction of any
underwriting or similar commissions, compensation or concessions paid or allowed
by the Company in connection with such issue or sale but without deduction of
any expenses payable by the Company, and (B) to the extent it consists of
property other than cash, be computed at the Fair Market Value of that property
as determined in good faith by the Board of Directors.
"Fair Market Value" means, in respect of any security, asset or other
property, the price at which a willing seller would sell and a willing
buyer would buy such security, asset or other property having full
knowledge of the facts, in an arm's-length auction transaction without time
constraints, and without being under any compulsion to buy or sell. The
Fair Market Value of a share of Common Stock as of any time shall be
determined as of the last day of the most recent calendar month which ended
prior to such time, shall be determined without giving effect to any
discount for a minority interest, to any lack of liquidity of the Common
Stock or to the fact that the Company may have no class of equity security
registered under the Exchange Act. The Fair Market Value of the Company
shall be determined on a going concern basis, and on the basis that the
management and other key employees of the Company and its subsidiaries will
continue to be employed indefinitely and without treating as liabilities
the amount, if any, payable or which may be payable by the Company pursuant
to the indemnification provisions of the Stock Purchase Agreement pursuant
to which the Company issued the shares of Series C Convertible Preferred
Stock (the "Series C Purchase Agreement").
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<PAGE>
"Current Market Price" means, in respect of any share of Common Stock
as of any time,
(A) if the Common Stock shall not then be Publicly Traded, the Fair Market
Value per share of Common Stock as at such date as determined by the
Board in good faith, or
(B) if the Common Stock is then Publicly Traded, the average of the
reported last sales prices for the ten consecutive Trading Days
commencing 20 Trading Days before the date in question.
The reported last sales price for each Trading Day shall be
(i) the reported last sales price, regular way, as reported on the
New York Stock Exchange Composite Tape, or
(ii) if not listed or admitted to trading on the New York Stock
Exchange, on the National Market tier of The Nasdaq Stock Market, or
(iii) if the Common Stock is not listed or admitted to trading on the
National Market tier of the Nasdaq Stock Market at such time, in the
principal consolidated or composite transaction reporting system on
the principal national securities exchange on which such security is
listed or admitted to trading, or
(iv) if such security is not quoted on such National Market tier or
any national securities exchange, the average of the highest bid and
lowest asked prices on such day as reported by The Nasdaq Stock
Market.
As used herein, the term "Trading Day" means a day on which the New York
Stock Exchange, each national securities exchange on which the Common Stock
is listed and The Nasdaq Stock Market are open for business, provided that
if no sales of the Common Stock take place on such day on the relevant
exchange or stock market determined under the immediately preceding
sentence, such day shall not be a Trading Day. The Common Stock shall be
considered to be "Publicly Traded" as of any date if on such date (i) the
Common Stock is registered under Section 12(b) or 12(g) of the Exchange Act
and (ii) the Common Stock is listed for trading on a national securities
exchange registered under the Exchange Act or traded in the over-the-
counter market and quoted on The Nasdaq Stock Market.
(e) Adjustment for Stock Splits and Combinations. If the Company
--------------------------------------------
shall at any time or from time to time effect a subdivision of the outstanding
Common Stock without a corresponding subdivision of the Series C Convertible
Preferred Stock, the Applicable Conversion Value in effect immediately before
that subdivision shall be proportionately decreased. Conversely, if the Company
shall at any time or from time to time combine the outstanding shares of Common
Stock into a smaller number of shares without a corresponding combination of the
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<PAGE>
Series C Convertible Preferred Stock, the Applicable Conversion Value in effect
immediately before the combination shall be proportionately increased. Any
adjustment under this Section 6.4(e) shall become effective at the close of
business on the date the subdivision or combination becomes effective.
(f) Common Stock Dividends and Distributions. If the Company at any
----------------------------------------
time or from time to time makes, or fixes a record date for the determination of
holders of Common Stock entitled to receive any distribution payable in shares
of Common Stock, the Applicable Conversion Value shall be decreased as of the
time of such issuance or, if such a record date is fixed, as of the close of
business on such record date by multiplying the Applicable Conversion Value by a
fraction (A) the numerator of which is the total number of shares of Common
stock issued and outstanding immediately prior to the time of such issuance or
the close of business on such record date (as the case may be) and (B) the
denominator of which is the total number of shares of Common Stock issued and
outstanding immediately prior to the time of such issuance or the close of
business on such record date (as the case may be) plus the number of shares of
Common Stock issuable in payment of such dividend or distribution.
(g) Other Dividends. In the event the Company shall make or issue, or
---------------
shall fix a record date for the determination of holders of Common Stock
entitled to receive a dividend or other distribution with respect to the Common
Stock payable in (i) securities of the Company other than shares of Common Stock
or (ii) cash or assets, then, subject to Section 2.2, the Applicable Conversion
Value shall be adjusted by multiplying the then effective Applicable Conversion
Value by a fraction, the denominator of which shall be the Current Market Price
per share of the Common Stock immediately prior to such issuance or the close of
business on such record date (as the case may be) and the numerator of which is
the excess of (x) the Current Market Price per share of the Common Stock as of
such date over (y) the amount allocable to each share of Common Stock
outstanding as of such date of the sum of (A) the Fair Market Value (as
determined as of such date in good faith by the Board) of such securities or
assets so distributable, plus (B) any such cash so distributable; provided
however, that if such adjustment would result in an Applicable Conversion Value
that is greater than the Applicable Conversion Value in effect prior to such
adjustment, then such adjustment shall not be made and, in lieu thereof,
provision shall be made so that the holders of Series C Convertible Preferred
Stock shall receive upon conversion thereof in addition to the number of shares
of Common Stock receivable thereupon, the number of securities or such other
assets of the Company which they would have received had their Series C
Convertible Preferred Stock been converted into Common Stock on the date of such
event and had they thereafter, during the period from the date of such event to
and including the Conversion Date (as defined in Section 6.9), retained such
securities or such other assets receivable by them as aforesaid during such
period, giving application to all adjustments called for during such period
under this Section 6 with respect to the rights of the holders of the Series C
Convertible Preferred Stock.
(h) IPO.
---
(1) The provisions of this Section 6.4(h) shall apply if the
Company consummates an underwritten public offering of its Common Stock
(including the exercise
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<PAGE>
of any over-allotment options, an "IPO") within 24 months after the Series
C Issue Date. The following definitions are applicable only to this Section
6.4(h):
(i) the term "Effective Time" means the time of the closing of the
IPO; and
(ii) the term "Offering Price" means the price to the public per share
of Common Stock in the IPO.
(2) If the Company completes an IPO within 24 months after the
Series C Issue Date, then, immediately prior to the Effective Time, the
Applicable Conversion Value shall be adjusted to an amount equal to the
lesser of (A) the Applicable Conversion Value in effect immediately prior
to the Effective Time (and prior to such adjustment), and (B) an amount
equal to fifty percent (50%) of the Offering Price.
(3) For the sake of certainty, it is intended that the
adjustments provided for in this Section 6.4(h) shall in all events be
effective prior to the effectiveness of the conversion of the Series C
Preferred Shares pursuant to Section 6.12. From and after the effective
time of any adjustment made pursuant to this Section 6.4(h), the Applicable
Conversion Value shall continue to be subject to further adjustment as
provided in this Section 6.
(i) Exceptions. The provisions of this Section 6.4 (other than
----------
Section 6.4(b)(2)) shall not apply to (A) the issuance of shares of Common Stock
issued upon conversion of the Series A Convertible Preferred Stock outstanding
as of the Series C Issue Date or upon conversion of the Series C Convertible
Preferred Stock, (B) the issuance of Common Stock and/or options, warrants or
other Common Stock purchase rights, and the issuance of Common Stock pursuant to
such options, warrants or other rights (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like) before, on or after the
Series C Issue Date to employees, officers or directors of, or consultants or
advisors to the Company or any Subsidiary that is approved by the Compensation
Committee of the Board of Directors of the Company pursuant to the Company's
1996 Stock Option Plan (or pursuant to any other incentive compensation plan
approved by the Compensation Committee); provided that such issuances shall not
exceed, or be convertible into or exercisable for more than, in the aggregate,
500,000 shares of Common Stock (as adjusted for any stock dividends,
combinations, splits, recapitalizations and the like) and (C) the issuance of
shares of Common Stock pursuant to the exercise of any Warrants (as defined in
the Note Purchase Agreement) or any other options, warrants or rights
outstanding as of the Series C Issue Date and disclosed on a schedule to the
Series C Purchase Agreement.
6.5. Certain Provisions Applicable to Adjustments Generally.
------------------------------------------------------
(a) If, as a result of any adjustment made pursuant to Section 6.4 or
otherwise, the holders of Series C Convertible Preferred Stock, would, upon
conversion, become the holders of more than one class or series of capital stock
of the Company, then (A) the Applicable Conversion Value (and the number, amount
or kind of securities issuable upon conversion of a share of Series C
Convertible Preferred Stock) shall be subject to adjustment in respect of each
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<PAGE>
such class and series of capital stock in a manner and on terms as nearly as
equivalent as practicable to all the provisions set forth in Section 6.4, which
manner and terms shall be promptly determined by the Board of Directors, in good
faith, and (B) the Board of Directors shall determine, in good faith, the
equitable allocation of the Applicable Conversion Value between or among the
classes of capital stock. Promptly after the Board of Directors makes any such
determination, the Company shall deliver to each holder of Series C Convertible
Preferred Stock a written notice which shall describe in reasonable detail the
manner and terms so determined.
(b) Adjustments of the Applicable Conversion Value (and the number,
amount or kind of securities issuable upon conversion of a share of each such
series) shall be cumulative and shall be made successively on each and every
occasion that any event requiring any such adjustment shall occur.
(c) If, after the event giving rise to such adjustment but prior to
the effective time for such adjustment, any holder converts any Series C
Convertible Preferred Stock and such holder would have received any additional
shares of Common Stock, cash or other securities, property or consideration if
such conversion had been made immediately after such effective time, the Company
shall deliver to such holder, promptly after such effective time, all such
additional shares of Common Stock, cash or other securities, property or
consideration.
6.6. Capital Reorganization or Reclassification. If the Common Stock
------------------------------------------
issuable upon the conversion of the Series C Convertible Preferred Stock shall
be changed into the same or different number of shares of any class or classes
of stock, whether by capital reorganization, reclassification or otherwise
(other than a subdivision or combination of shares or stock dividend provided
for elsewhere in this Section 6, or the sale of all or substantially all of the
Company's properties and assets to any other person), then and in each such
event provision shall be made so that the holder of each share of Series C
Convertible Preferred Stock shall have the right thereafter to convert such
share into the kind and amount of shares of stock and other securities and
property receivable upon such reorganization, reclassification or other change
by holders of the number of shares of Common Stock into which such shares of
Series C Convertible Preferred Stock might have been converted immediately prior
to such reorganization, reclassification or change, all subject to further
adjustment as provided herein.
6.7. Capital Reorganization, Merger or Sale of Asset.
-----------------------------------------------
(a) If at any time or from time to time there shall be a capital
reorganization of the Common Stock (other than a subdivision, combination,
reclassification or exchange of shares provided for elsewhere in this Section 6)
or a merger or consolidation of the Company with or into another Company, or the
sale of all or substantially all of the Company's properties and assets to any
other person, then, as a part of such reorganization, merger, or consolidation
or sale, provision shall be made so that the holders of the Series C Convertible
Preferred Stock shall thereafter be entitled to receive upon conversion of the
Series C Convertible Preferred Stock, the number of shares of stock or other
securities or property of the Company, or of the successor Company resulting
from such merger, consolidation or sale, to which such holder would have been
entitled if such holder had converted its shares of Series C Convertible
Preferred Stock immediately prior to such capital reorganization, merger,
consolidation, or sale. In any such case,
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<PAGE>
appropriate adjustment shall be made in the application of the provisions of
this Section 6 with respect to the rights of the holders of the Series C
Convertible Preferred Stock after the reorganization, merger, consolidation or
sale to the end that the provisions of this Section 6 (including adjustment of
the Applicable Conversion Value then in effect and the number of shares issuable
upon conversion of the Series C Convertible Preferred Stock) shall be applicable
after that event in as nearly equivalent a manner as may be practicable.
(b) Each holder of Series C Convertible Preferred Stock upon the
occurrence of a capital reorganization, merger or consolidation of the Company,
or the sale of all or substantially all its assets and properties, as such
events are more fully set forth in the first paragraph of this Section 6.7,
shall have the option of electing treatment of his shares of Series C
Convertible Preferred Stock under either this Section 6.7 or Section 3 hereof,
notice of which election shall be submitted in writing to the Company at its
principal offices no later than five (5) business days before the effective date
of such event (provided that the Company has given notice of the record date for
such event to such holder as required under Section 10). If a holder of Series
C Convertible Preferred Stock elects treatment of any of its shares under
Section 3 as permitted in this Section 6.7, then the Company shall purchase such
shares for the amount per share which would be payable to such holder if such
event were treated as a liquidation, dissolution or winding up of the Company
effective as of the date of such event entitling the holders of the Series C
Convertible Preferred Stock to receive, in cash and promptly after the date of
the closing, consummation or occurrence of such event, the respective amounts
specified in Section 3.1 that they would receive if the Company were being
liquidated and dissolved on such date and the Company were sold for its Fair
Market Value (as determined by an investment bank of national standing selected
by the Company and approved by the Majority Series C Holders) on such date and
all proceeds of such sale were distributed to the Company's stockholders as
contemplated by Section 3.
6.8. Accountant's Certificate as to Adjustment Notice by Company. In each
-----------------------------------------------------------
case of an adjustment or readjustment of the Applicable Conversion Rate, the
Company at its expense will furnish each holder of Series C Convertible
Preferred Stock with a certificate, executed by the president and chief
financial officer (or in the absence of a person designated as the chief
financial officer, by the treasurer) showing such adjustment or readjustment,
and stating in detail the facts upon which such adjustment or readjustment is
based. However, if the holder or holders of at least fifty percent (50%) of the
then outstanding shares of Series C Convertible Preferred Stock so request, such
certificate shall be prepared by independent public accountants of recognized
national standing (which may be the Company's principal outside auditors).
6.9. Exercise of Conversion Privilege. To exercise its conversion
--------------------------------
privilege, a holder of Series C Convertible Preferred Stock shall surrender the
certificate or certificates representing the shares being converted to the
Company at its principal office, and shall give written notice to the Company at
that office that such holder elects to convert such shares. Such notice shall
also state the name or names (with address or addresses) in which the
certificate or certificates for shares of Common Stock issuable upon such
conversion shall be issued. The certificate or certificates for shares of
Series C Convertible Preferred Stock surrendered for conversion shall be
accompanied by proper assignment thereof to the Company or in blank. The date
when such written notice is received by the Company, together with the
certificate or certificates representing the shares of
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<PAGE>
Series C Convertible Preferred Stock being converted, shall be the "Conversion
Date." As promptly as practicable after the Conversion Date, the Company shall
issue and shall deliver to the holder of the shares of Series C Convertible
Preferred Stock being converted, or on its written order, such certificate or
certificates as it may request for the number of whole shares of Common Stock
issuable upon the conversion of such shares of Series C Convertible Preferred
Stock in accordance with the provisions of this Section 6, cash in the amount of
all declared and unpaid dividends on such shares of Series C Convertible
Preferred Stock up to and including the Conversion Date, cash, as provided in
Section 6.10, in respect of any fraction of a share of Common Stock that
otherwise would be issuable upon such conversion, and all other cash, other
securities and other property, if any, to which such holder is entitled by
virtue of the conversion of such Series C Convertible Preferred Stock. Such
conversion shall be deemed to have been effected immediately prior to the close
of business on the Conversion Date, and at such time the rights of the holder as
holder of the converted shares of Series C Convertible Preferred Stock shall
cease and the person or persons in whose name or names any certificate or
certificates for shares of Common Stock shall be issuable upon such conversion
shall be deemed to have become the holder or holders of record of the shares of
Common Stock represented thereby; provided, that, such holder, at its option,
may state in its notice of conversion that the conversion is not to be effective
until a specified later date or the occurrence or satisfaction of any specified
contingency or condition, in which event the share(s) of Series C Convertible
Preferred Stock covered by such notice shall not be deemed to have been
converted until immediately prior to the closing of such sale or such other date
(as the case may be). If any holder of Series C Convertible Preferred Stock is
advised by its legal counsel that its intended conversion of any or all of its
Series C Convertible Preferred Stock would or might be subject to the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended, or any other law,
rule or regulation which requires any filing with or review or approval by any
governmental authority or agency, the Company shall promptly comply with any
requirements of such law, rule or regulation applicable to it, and the Company
and such holder shall each cooperate with the other in its efforts to comply
with the requirements of such law, rule or regulation applicable to it on a
timely basis. In such event, each of the Company and such holder shall pay one
half of any filing fees required in connection therewith.
6.10. Cash in Lieu of Fractional Shares. No fractional shares of Common
---------------------------------
Stock or scrip representing fractional shares shall be issued upon the
conversion of shares of Series C Convertible Preferred Stock. Instead of any
fractional shares of Common Stock which would otherwise be issuable upon
conversion of Series C Convertible Preferred Stock, the Company shall pay to the
holder of the shares of Series C Convertible Preferred Stock which were
converted a cash adjustment in respect of such fractional shares in an amount
equal to the same fraction of the Current Market Price (as defined in Section
6.4(d)) per share of the Common Stock at the close of business on the Conversion
Date. The determination as to whether or not any fractional shares are issuable
shall be based upon the total number of shares of Series C Convertible Preferred
Stock being converted at any one time by any holder thereof and not upon each
share of Series C Convertible Preferred Stock being converted.
6.11. Partial Conversion. In the event some but not all of the shares of
------------------
Series C Convertible Preferred Stock represented by a certificate or
certificates surrendered by a holder are converted, the Company shall execute
and deliver to or on the order of the holder, at the expense
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of the Company, a new certificate representing the number of shares of Series C
Convertible Preferred Stock which were not converted.
6.12. Automatic Conversion Upon Initial Public Offering.
-------------------------------------------------
(a) Immediately upon the closing of an underwritten public offering
on a firm commitment basis pursuant to an effective registration statement under
the Securities Act of 1933, as amended, covering the offer and sale of Common
Stock in which (A) the aggregate proceeds to the Company in such underwritten
public offering equals or exceeds $20,000,000, and (B) the per share price of
the Common Stock offered for sale in such offering is at least two (2) times the
Series A Issue Price (as adjusted for stock splits, dividends, recapitalizations
and the like) (such offering a "Qualified Public Offering"), all outstanding
shares of Series C Convertible Preferred Stock shall be converted automatically
into the number of shares of Common Stock into which such Series C Convertible
Preferred Stock is convertible pursuant to this Section 6 as of the closing of
such underwritten public offering without any further action by the holders of
such shares and whether or not the certificates representing such shares are
surrendered to the Company or its transfer agent for the Common Stock; provided,
that all adjustments to the Applicable Conversion Value required pursuant to
Section 6 by reason of any event, transaction or action occurring on or before
the date of such conversion shall be made, whether or not the effectiveness of
such adjustment is stated by the provision requiring such adjustment to be after
the date of such conversion and even if the calculation, nature or size of the
adjustment is dependent on facts or events occurring, or not ascertainable
until, after such date, including all adjustments required by Section 6.4(h).
(b) Upon the occurrence of the conversion specified in Section
6.12(a), the holders of such Series C Convertible Preferred Stock shall, a
reasonable time after notice from the Company, surrender the certificates
representing such shares at the office of the Company or of its transfer agent
for the Common Stock. Thereupon, there shall be issued and delivered to such
holder a certificate or certificates for the number of shares of Common Stock
into which the shares of the Series C Convertible Preferred Stock surrendered
were convertible on the date on which such conversion occurred. The Company
shall not be obligated to issue such certificates unless certificates evidencing
such shares of the Series C Convertible Preferred Stock being converted are
either delivered to the Company or any such transfer agent, or the holder
notifies the Company or any such transfer agent that such certificates have been
lost, stolen or destroyed and executes an agreement satisfactory to the Company
to indemnify the Company from any loss incurred by it in connection therewith.
6.13. Reservation of Common Stock. The Company shall at all times reserve
---------------------------
and keep available out of its authorized but unissued shares of Common Stock,
solely for the purpose of effecting the conversion of the shares of the Series C
Convertible Preferred Stock, such number of its shares of Common Stock as shall
from time to time be sufficient to effect the conversion of all outstanding
shares of the Series C Convertible Preferred Stock, and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series C
Convertible Preferred Stock, the Company shall take such corporate action as may
be necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose.
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7. Reacquired Shares of Series C Convertible Preferred Stock. All shares
---------------------------------------------------------
of Series C Convertible Preferred Stock acquired by the Company by reason of
redemption, purchase, conversion or otherwise shall be retired and canceled
promptly after the acquisition thereof. All such shares shall upon their
cancellation become authorized, unissued shares of undesignated preferred stock
available for issuance by the Company.
8. Restrictions and Limitations. Without the consent of holders of a
----------------------------
least two-thirds of the outstanding shares of Series C Convertible Preferred
Stock, the Company shall not (A) amend or modify the terms of the Notes, the
Note Purchase Agreement or the Series A Convertible Preferred Stock, or (B)
amend, alter or repeal any provision of these Articles or the Company's Bylaws
so as to effect any adverse change in the rights, privileges, powers or
preferences of the holders of the Series C Convertible Preferred Stock. Except
as expressly provided herein or as required by law, so long as any shares of the
Series C Convertible Preferred Stock remain outstanding, the Company shall not,
and shall not permit any Subsidiary to, without the approval by vote or by
written consent of the Majority Series C Holders, do any of the following:
(i) authorize or issue, or obligate itself to authorize or issue,
any new shares (or securities convertible into shares) of Series A
Convertible Preferred Stock, Series C Convertible Preferred Stock or of any
other class or series of capital stock of the Company having liquidation,
redemption or dividend rights which are senior to or pari passu with the
Series C Convertible Preferred Stock or that is redeemable (mandatorily, at
the option of the holders, upon the occurrence of any date or event or
otherwise) at any time while any shares of Series C Convertible Preferred
Stock are outstanding;
(ii) merge or consolidate with any other person, or sell, assign,
lease or otherwise dispose of or voluntarily part with the control of
(whether in one transaction or in a series of transactions) all, or
substantially all, of its assets (whether now owned or hereinafter
acquired), or dissolve, liquidate or wind-up its business or affairs or
otherwise terminate or permit the termination of its legal existence,
except that any wholly-owned Subsidiary may merge into or consolidate with
or transfer assets to the Company or any wholly-owned Subsidiary;
(iii) offer or confer any right, benefit, privilege or opportunity to
or upon, or waive, release or forbear from enforcing any obligation or
liability (whether arising by contract, these Articles or otherwise) of,
any holder, or the holders generally, of any series of Preferred Stock, in
such holder's or holders' capacities as such, unless the same right,
benefit, privilege, opportunity, waiver, release or forbearance is offered
or granted to or conferred upon all holders of Preferred Stock on an
equitable basis;
(iv) (A) amend, modify or supplement the terms, provisions or
conditions of any agreement or instrument pursuant to which any Person
acquired any shares of the Company's capital stock, or any options,
warrants or other rights to acquire shares of the Company's capital stock
(except that the Company may amend, modify or supplement employee or
director options with the approval of the Compensation Committee), or (B)
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waive, release, compromise or settle any remedy or claim existing or
arising by virtue of the terms, provisions or conditions of any such
agreement or instrument;
(v) redeem, purchase or otherwise acquire for value (or pay into or
set aside for a sinking fund for such purpose) any share or shares of the
Company's Common Stock, Series A Convertible Preferred Stock, Series B
Redeemable Preferred Stock, Series C Convertible Preferred Stock or any
other capital stock of the Company, or apply any of the Company's assets to
the redemption, retirement, purchase or acquisition, directly or
indirectly, through subsidiaries or otherwise, of any of the Company's
Common Stock, Series A Convertible Preferred Stock, Series B Redeemable
Preferred Stock, Series C Convertible Preferred Stock or any other equity
securities of the Company, except that the Company may (A) redeem the
Series A Convertible Preferred Stock if required by the Majority Series A
Holders in accordance with, and subject to, the provisions of Section 5 of
Part A, (B) redeem the Series C Convertible Preferred Stock if required by
the Exercising Series C Holders in accordance with, and subject to, the
provisions of Section 5 of this Part C, (C) repurchase the Warrants and
Warrant Shares if required by the Majority Warrant Holders in accordance
with, and subject to, the provisions of Section 4 of the Stockholders
Agreement and, as applicable, Section 5 of Part A and Section 5 of this
Part C, and (D) make repurchases from employees, or consultants or
directors of the Company upon termination of employment or services
pursuant to the terms of option agreements or restrictive stock agreements
that (1) are approved by the Compensation Committee of the Board of
Directors of the Company and entered into with such employees, consultants
or directors and (2) do not exceed $250,000, in the aggregate, in any 12
month period; provided that no such repurchase shall be effected while a
default exists with respect to the Company's obligations under Section 5 of
this Part C;
(vi) amend or repeal any provision of, add any provision to, or
waive any provision (including any of these protective provisions) of these
Articles or the Company's By-laws, or any resolution of the Board of
Directors or any other instrument establishing and designating the Series A
Convertible Preferred Stock, the Series B Redeemable Preferred Stock, the
Series C Convertible Preferred Stock or any other capital stock of the
Company now or hereafter existing and determining the relative rights,
preferences, privileges or powers thereto;
(vii) make any material change in the nature of the business
conducted by the Company as of May 1, 1999;
(viii) enter into any agreement with any Person which, in the absence
of a default thereunder, would prevent the Company from paying dividends or
making redemption payments on the Series C Convertible Preferred Stock in
accordance with these Articles or from fully performing on a timely basis
any of its obligations with respect to the Series C Convertible Preferred
Stock, or would condition or otherwise limit or restrict the ability of any
Subsidiary to (1) pay dividends or make any other distributions permitted
by applicable law to the Company or any other Subsidiary; (2) pay any Debt
owed to the Company or any other Subsidiary; (3) make loans or advances to
the Company or any other Subsidiary; (4) transfer any of its property or
assets to the Company or any other
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<PAGE>
Subsidiary; or (5) otherwise create or suffer to become effective any
consensual arrangement which would have any effect referred to in this
clause (viii);
(ix) sell, transfer, convey, mortgage, pledge or otherwise dispose of
or encumber any of their respective properties (including any property
consisting of an equity interest or other investment or interest in any
Subsidiary), except for (A) sales of property in the ordinary course of
business, consistent with past practices, in arm's length transactions with
non-affiliates, (B) encumbrances of assets on customary terms and
consistent with past practices to secure indebtedness permitted by clause
(x) of this Section 8, and (C) the sale of property not permitted by
subclause (A) or (B) of this clause (x) if such sale is to a non-Affiliate
of the Company, is at a price not less than Fair Market Value and the
aggregate sale price for such sale and all other sales (whether or not
related) during any single fiscal year made in reliance on this subclause
(C) does not exceed $1,000,000 provided that at least 50% of the net
proceeds from any such dispositions in excess of $250,000 during any single
fiscal year are applied to reduce outstanding Debt;
(x) create, incur, assume or suffer to exist, or permit any
Subsidiary to create, incur, assume or suffer to exist, any liability with
respect to Indebtedness except for (1) up to $12,500,000 in the aggregate
(exclusive of interest, fees, expenses, costs, protective advances and
other amounts which may be added to principal under any applicable loan
agreement) in Senior Debt, (2) current liabilities, other than for
Indebtedness for Money Borrowed, which are incurred in the ordinary course
of business, (3) purchase money security interests securing the purchase of
equipment to be used in connection with the business of the Company and its
Subsidiaries, and (4) the Notes.
(xi) declare or pay any dividend on, or declare or make any
distribution to holders of any capital stock or other equity interests of
the Company or any Subsidiary; or
(xi) enter into any contract or agreement with or for the benefit of,
make any loan or advance to or investment in, obtain any loan, advance or
other extension of credit from, sell, assign or otherwise transfer any
assets to, purchase or otherwise acquire any assets from, guarantee, assume
or otherwise become liable for any Debt or other liabilities or obligations
of or engage in any other transaction with or for the benefit of any
Restricted Person, except (A) payment or provision of salaries and other
employee compensation to officers or directors of the Company or such
Subsidiary commensurate with compensation levels and deferred compensation
amounts in effect on the date of and disclosed pursuant to the Series C
Purchase Agreement or approved by the Compensation Committee or pursuant to
any employment agreement disclosed pursuant to the Series C Purchase
Agreement or approved by the Compensation Committee and (B) sales by the
Company of its goods and services to customers in the ordinary course of
business at the Company's standard rates and contracts or agreements
related to such sales.
To the extent that the Company proposes to take any action or
consummate any transaction of any kind specified in any clause in this
Section 8 in order to redeem, or in connection with the redemption of all
outstanding shares of the Series C Convertible Preferred Stock required or
permitted by Section 5, the consent or approval of the
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<PAGE>
Majority Series C Holders shall not be required to the extent that the
Company provides assurances, reasonably satisfactory to the Majority Series
C Holders, that such action or transaction will not be taken or consummated
unless such redemption is first or simultaneously effected in accordance
with all applicable provisions of Section 5 (including the requirements of
Section 5.4 with respect to the indefeasible deposit of the Redemption
Price) and all applicable requirements of law and that the Company will not
incur any liability or obligation (other than the payment of expenses
incurred in connection therewith) in the event that such action or
transaction is abandoned or any condition to the taking or consummation
thereof (including the redemption of the Series C Convertible Preferred
Stock in accordance with the terms of Section 5 and as required by this
sentence) is not satisfied.
The following terms have the meanings indicated wherever such terms
are used in this Part C:
"capital stock" when used with respect to any corporation means
(unless the context otherwise indicates) any and all shares of capital
stock (however designated) of such corporation, including each class and
series of common stock and preferred stock of such corporation, any class
or series, any and all stock appreciation rights and any and all
equivalents of any of the foregoing, and including any security or interest
convertible into or warrant, option or other right (absolute or contingent)
to subscribe for, purchase or otherwise acquire any of the foregoing, in
each case whether or not evidenced by any certificate, instrument or other
document and whether voting or nonvoting.
"Indebtedness" has the meaning given to such term in the Note Purchase
Agreement.
"Senior Debt" has the meaning given to such term in the Note Purchase
Agreement.
"Indebtedness for Money Borrowed" as the meaning given to such term in
the Note Purchase Agreement.
"Notes" means the Company's 12.5% Senior Subordinated Notes due
November 30, 2003 in an aggregate principal amount of $10,000,000.
"Note Purchase Agreement" means the Senior Subordinate Note and
Securities Purchase Agreement dated as of November 24, 1997 by and between
the Company and Capital Resource Lenders III, L.P., as from time to time
amended and in effect between the parties thereto.
"Restricted Person" means (i) any Beneficial Owner of 5% or more of
any class or series of equity interests in the Company, (ii) any Affiliate
of the Company other than a wholly owned Subsidiary, (iii) any director or
officer of the Company or of any Subsidiary, (iv) any Beneficial Owner of
5% or more of any class or series of equity interests in any
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<PAGE>
Subsidiary and any director, officer or Affiliate of any such owner, and
(iv) any Related Party of any Person covered by clause (i), (ii), (iii) or
(iv) of this sentence.
"Related Party" means, with respect to any Person, (i) any Person
(other than the Company or a Subsidiary) of which such Person is a
director, officer, partner, manager or other member of management, or is,
directly or indirectly, the beneficial owner of ten percent (10%) or more
of any class or series of equity interests, and (ii) any trust or estate in
which such Person has a substantial beneficial interest or as to which such
Person serves as trustee or in a similar capacity. If such Person is a
natural person, such Person's "Related Parties" shall also include such
Person's parents, children, siblings and spouse, the parents and siblings
of such Person's spouse and the spouses of such Person's children and any
Person (other than the Company or a Subsidiary), trust or estate with which
any such relative of such Person has any relationship specified in clause
(i) or (ii) of the first sentence of this definition.
9. No Dilution or Impairment. The Company will not, by amendment of its
-------------------------
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms of the Series C Convertible Preferred Stock set forth herein, but will
at all times in good faith assist in the carrying out of all such terms and in
the taking of all such action as may be necessary or appropriate in order to
protect the rights of the holders of the Series C Convertible Preferred Stock
against dilution or other impairment. Without limiting the generality of the
foregoing, the Company will not increase the par value of any shares of stock
receivable on the conversion of the Series C Convertible Preferred Stock above
the amount payable therefor on such conversion, (b) will take all such action as
may be necessary or appropriate in order that the Company may validly and
legally issue fully paid and nonassessable shares of stock on the conversion of
all Series C Convertible Preferred Stock from time to time outstanding, (c) will
not transfer all or substantially all of its properties and assets to any other
Person, or consolidate with or merge into any other Person or permit any such
Person to consolidate with or merge into the Company (if the Company is not the
surviving person), unless such other Person shall expressly assume in writing
and will be bound by all the terms of the Series C Convertible Preferred Stock
set forth herein.
10. Notices of Record Date. In the event of
----------------------
(a) any taking by the Company of a record of the holders of any class
of securities for the purpose of determining the holders thereof who are
entitled to receive any dividend or other distribution, or any right to
subscribe for, purchase or otherwise acquire any shares of stock of any class or
any other securities or property, or to receive any other right,
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company, any merger or
consolidation of the Company, or any transfer of all or substantially all of the
assets of the Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or winding
up of the Company,
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<PAGE>
then and in each such event the Company shall mail or cause to be mailed to each
holder of Series C Convertible Preferred Stock a notice specifying (i) the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right and a description of such dividend, distribution or right,
(ii) the date on which any such reorganization, reclassification,
recapitalization, transfer, consolidation, merger, dissolution, liquidation or
winding up is expected to become effective and (iii) the time, if any, that is
to be fixed, as to when the holders of record of Common Stock (or other
securities) shall be entitled to exchange their shares of Common Stock (or other
securities) for securities or other property deliverable upon such
reorganization, reclassification, recapitalization, transfer, consolidation,
merger, dissolution, liquidation or winding up. Such notice shall be mailed at
least thirty (30) days prior to the date specified in such notice on which such
action is to be taken. In addition to the foregoing, each holder of Series C
Convertible Preferred Stock shall be given, at the same times as holders of
Common Stock, all notices of corporate action or proposed corporate action given
to holders of Common Stock.
11. Sections References; Definitions. Except as specifically stated
--------------------------------
otherwise, all references in this Part C to Sections are references to Sections
in this Part C. All references to "Part A" or "Part C" are references to Part A
and Part C of this Article Fourth of these Articles. Unless specifically
provided otherwise, the definitions specified in this Part C for certain terms
are only for such terms as used in this Part C.
12. Amendment. The provisions of this Part C may be amended from time to
---------
time by the Board of Directors with the affirmative vote at a meeting duly
called and held or written consent of the holders of at least two thirds of the
Series C Convertible Preferred Stock outstanding; provided, however, any such
-------- -------
amendment which, by its terms, would have an adverse effect upon the shares of
Series C Convertible Preferred Stock of any holder that does not affect all
shares of Series C Convertible Preferred Stock on an equal per share basis shall
also require the prior approval of such holder. Unless otherwise required by
mandatory provisions of applicable law or by these Articles, no vote or consent
of the holders of any other class or series of the Company's stock shall be
necessary.
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EXHIBIT 10.13
Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as *. A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.
LETTER OF UNDERSTANDING
This Letter of Understanding is by and between Law Office Information
Systems, Inc., an Arkansas Corporation (LOIS) and Pacific Data Conversion
Corporation, an Oregon Corporation (PDCC).
WHEREAS, LOIS is in the electronic publishing business and PDCC is in the
electronic conversion business;
WHEREAS, LOIS is in need of converting approximately 1.4 billion characters
of data over the next 6-month period and PDCC is capable and ready to perform
said conversion;
IT IS THEREFORE AGREED AS FOLLOWS:
That this Letter of Understanding will set forth the general Agreement by
and between LOIS and PDCC as to the terms and conditions that shall hereinafter
be set forth at a later date in an Agreement between the two companies.
1. LOIS shall immediately ship Raw Materials amounting to approximately
1.4 billion characters to PDCC comprising of the State of Ohio.
2. LOIS shall send a check in the amount of * to PDCC
representing a deposit of approximately 20% of the anticipated cost
of the project.
3. PDCC shall accept said shipment in Oregon and send the same to its
conversion facility in China. Both LOIS and PDCC shall share equally
the cost of the shipment of the Raw Materials to China.
4. PDCC shall convert Raw Materials into Electronic Materials and
return the same to LOIS on CD-ROM approximately every week.
5. PDCC warrants and represents that the Quality Standards of the
Electronic Materials shall be accurate to within 99.995% of the raw
Materials as defined by Measured Quality Standards.
6. LOIS shall have up to 15 days to check the Quality Standards of the
Electronic Materials. If LOIS notifies PDCC within those 15 days
that Quality Standards are not been met, PDCC shall have 15 days to
correct the Electronic Materials. If LOIS does not notify PDCC
within 15 days that Quality Standards have not been met, then and in
that event it shall be deemed that the Electronic Materials have met
Quality Standards. If PDCC fails to meet the Quality Standards on
more than 4 occasions, LOIS shall have the right to cancel the
Agreement and receive a refund on any monies remaining from its
* deposit.
* Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
7. PDCC shall send an invoice to LOIS along with every shipment of the
Electronic Materials in which the amount of the invoice shall equal
* of Electronic Materials converted. Within 15 days if Quality
Standards have been met, LOIS shall pay 80% of the invoice amount
and the remaining 20% shall be taken from the deposit monies already
paid by LOIS.
8. It is contemplated between the parties that PDCC will deliver
approximately 75 million characters in the first month after
receiving the Raw Materials in China. In the second month,
approximately 350 million characters will be converted and 400
million in the third month. Thereafter PDCC warrants that it shall
convert and sent a minimum of 360 million characters each month with
the goal of 400 million characters per month. If and in the event
that PDCC fails to send at least 360 million characters in month
four of this Agreement, PDCC shall have 15 additional days to meet
this minimum requirement. If PDCC fails to deliver the minimum
requirement after the 15-day period, then and in that event a
penalty shall be deducted from the invoice for that particular month
in the amount of * that should have been converted if PDCC had met
its goal. If LOIS needs other Raw Material conversions after the
State of Ohio is finished, PDCC shall be given a one-month grace
period prior to the enforcement of these late delivery penalties.
9. The following are definitions of previously mentioned terms:
. "Raw Materials" - Raw Materials shall be understood to mean that
materials used for conversion into an electronic format. Raw
Materials shall generally consist of legal materials or legally
related materials. Raw Materials can be in the form of print which
are usually contained within a compiled format and bound together,
in the form of both soft and hard bound books, pamphlets, folders,
and the like.
. "Electronic Materials" - Electronic Materials shall be understood to
mean Raw Materials that have been keyed (or otherwise converted);
formatted in accordance with specified requirements; and supplied
with all appropriate Coding Information and Emphasis Tags as
specified by LOIS.
. "Quality Standards" - Quality Standards shall mean Electronic
Materials that are accurately converted to Ninety-Nine and Nine
Hundred Ninety Five Percent (99.995%) of the Raw Materials.
. "Measured Quality Standards" - Measured Quality Standards is the
method used to determine Quality Standards. Upon the receipt of
Electronic Materials sent by PDCC to LOIS, LOIS shall select a 100
page continuous block of information (or as many 100 page blocks as
LOIS desires) and compare the Raw Materials to the Electronic
Materials. Accuracy of the conversion is checked by counting the
total number of characters within said 100 page block(s) and the
number of occurrences where the Raw Materials do not match the
Electronic Materials. The total characters contained within a given
100 page block of Electronic Materials minus the total characters of
Electronic Materials converted incorrectly within such block(s)
divided by the total characters contained within such 100 page
block(s) (and expressed as a percentage
* Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
2
<PAGE>
by multiplying by 100) shall be the formula used to determine the
Quality Standard. The results of the quality check shall be
immediately sent to PDCC if the materials do not meet Quality
Standards. PDCC shall then check its copy of the Electronic
Materials to ascertain the veracity of said quality check. It is
understood by both PDCC and LOIS, that the accuracy level of any 100
page block so chosen by LOIS, shall be deemed to be that of the
entire amount of Electronic Materials for that project.
It is understood between the parties that when Measured Quality
Standards are being determined, any character which is emphasized or
effected by an emphasis tag (SGML character), is in fact emphasized
or affected in a manner not consistent with the Raw Materials, then
and in that event, all characters contained within the emphasized or
affected characters shall be deemed not to be accurately converted.
It is also understood that when a character or characters are
emphasized or affected in the Raw Materials but not so affected or
emphasized in the Electronic Materials, then and in that event, all
characters that should have been emphasized or affected in the
Electronic Materials shall be deemed not to be accurately converted.
Signed to and agreed by the parties this 29th day of December, 1998.
LOIS, INC. PDCC
/s/ Kyle D. Parker /s/ Iris L. Hanney
- ---------------------------------- ---------------------------------------
Kyle D. Parker Iris L. Hanney
C.E.O. V.P. Sales & Marketing
3
<PAGE>
Exhibit 10.14
Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as *. A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.
AGREEMENT
THIS AGREEMENT entered into on this 1st day of July, 1998, by and between Law
Office Information Systems, Inc., hereinafter referred to as LOIS, and Infocon
International Limited, of Bangalore, India, hereinafter referred to as INFOCON,
do hereby agree and covenant as follows:
WHEREAS, both LOIS and INFOCON desire to enter into an agreement between
themselves, the subject matter of which is outlined in Purchase Order #00000208,
attached hereto, whereby INFOCON shall produce various Electronic Materials for
LOIS;
WHEREAS, LOIS is willing to pay INFOCON for the production of certain Electronic
Materials, both in the conversion of Raw Materials and the formatting of
Electronic Materials, if said materials meet or exceed certain requirements;
NOW THEREFORE, for and in the consideration of the mutual promises and other
good and valuable consideration, the adequacy of which is herein acknowledged,
LOIS and INFOCON do hereby agree as follows:
I.
DEFINITIONS
The following terms as set forth herein shall have the following meaning as the
same are understood within the English language:
"Raw Materials" -- Raw Materials shall be understood to mean that materials used
for conversion into an electronic format. Raw Materials shall generally consist
of legal materials or legally related materials. Raw Materials can be in the
form of print which are usually contained within a compiled format and bound
together, in the form of both soft and hard bound books, pamphlets, folders, and
the like. The legal materials can also be in an electronic form in a variety of
formats. In such cases, the legal materials shall be handled as if they were
printed materials.
"Electronic Materials" -- Electronic Materials shall be understood to mean Raw
Materials that have been keyed (or otherwise converted); formatted in accordance
with specified requirements; and supplied with all appropriate Coding
Information and Emphasis Tags as specified.
"Coding Information" -- Coding Information, commonly called "fielding" or
"tagged data" is used to identify and separate certain sections of Electronic
Materials.
"Quality Standards" -- Quality Standards shall mean Electronic Materials that
are accurately converted to Ninety Nine and Nine Hundred Ninety Five Percent
(99.995%) of the Raw materials.
"Measured Quality Standards" -- Measured Quality Standards is the method used to
determine Quality Standards. Upon the receipt of Electronic Materials sent by
INFOCON to LOIS, LOIS shall select a 100 page continuous block of information,
(or as many 100 page blocks as LOIS desires) and compare the Raw Materials to
the Electronic Materials. Accuracy of the conversion is checked by counting the
total number of characters within said 100 page block(s) and the number of
occurrences where the Raw Materials do not
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<PAGE>
match the Electronic Materials. The total characters contained within a given
100 page block of Electronic Materials shall then be divided by the total
characters of Electronic Materials converted incorrectly to determine the
Quality Standard. The results of the quality check shall be immediately sent to
INFOCON if the materials do not meet Quality Standards. INFOCON shall then check
its copy of the Electronic Materials to ascertain the veracity of said quality
check. It is understood by both INFOCON and LOIS, that the accuracy level of any
100 page block so chosen by LOIS, shall be deemed to be that of the entire
amount of Electronic Materials for that project. It shall be understood that in
the event that LOIS fails to make a quality check within 30 days of having
received the Electronic Materials, it shall be considered that said Electronic
Materials have met Quality Standards.
It is understood between the parties that when Measured Quality Standards are
being determined, any character which is emphasized or effected by an emphasis
tag, (SGML character) is in fact emphasized or affected in a manner not
consistent with the Raw Materials, then and in that event, all characters
contained within the emphasized or affected characters shall be deemed not be
accurately converted. It is also understood, that when a character or
characters are emphasized or affected in the Raw Materials but not so affected
or emphasized in the Electronic Materials, then and in that event, all
characters that should have been emphasized or affected in the Electronic
Materials shall be deemed not to be accurately converted.
II.
PURCHASE ORDER AND PAYMENT PROCEDURES
LOIS shall send Raw Materials to INFOCON. Upon receipt of the Raw Materials,
INFOCON shall provide LOIS with an inventory within 7 days of the Raw Materials
received. Upon receipt of the inventory, LOIS shall then issue a Purchase Order
along with an Irrevocable Standby Letter of Credit as to the Raw Materials that
it desires INFOCON to convert into Electronic Materials. LOIS may not require
INFOCON to convert more than 1 billion characters of Raw Materials per month,
and INFOCON may not require LOIS to accept more than 1 billion characters of
Electronic Materials per month. However, it is understood that the 1 billion
characters may be composed of a single Purchase Order, or multiple Purchase
Orders, at the sole discretion of LOIS.
The value of the Irrevocable Standby Letter of Credit shall equal the total
value of converting all Raw Materials listed on the Purchase Order into
Electronic Materials at a rate of * per one thousand characters converted into
Quality Standards. From the date of issue of the Irrevocable Standby Letter of
Credit, INFOCON shall then begin to convert the Raw Materials into Electronic
Materials at Quality Standards.
Upon completion of converting all Raw Materials listed on a given Purchase
Order, INFOCON shall promptly send said Electronic Materials to LOIS so that
LOIS can determine Quality Standards. Once the Quality Standards and the timing
of the delivery of the Electronic Materials are determined, LOIS shall inform
its Bank, and shall pay for the materials as set forth below.
. If the Electronic Materials are: (1) delivered to LOIS at LOIS headquarters
before or on the 60th day after the posting of the Irrevocable Standby
Letter of Credit and; (2) said Electronic Materials are in compliance with
Quality Standards, LOIS shall pay to INFOCON in a manner set forth below an
amount equal to * per 1000 (one thousand) characters converted from Raw
Materials into Electronic Materials.
. If the Electronic Materials are: (1) delivered to LOIS at LOIS headquarters
between the 61st and 75th day after the posting of the Irrevocable
Standby Letter of Credit and; (2) said Electronic Materials
* Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
-2-
<PAGE>
are in compliance with Quality Standards, LOIS shall pay to INFOCON in a
manner set forth below an amount equal to * per 1000 (One Thousand)
Characters converted from Raw Materials into Electronic Materials.
. If the Electronic Materials are (1) delivered to LOIS at LOIS headquarters
between the 76th and 90th day after the posting of the Irrevocable
Standby Letter of Credit and; (2) said Electronic Materials are in
compliance with Quality Standards, LOIS shall pay to INFOCON in a manner
set forth below an amount equal to * per 1000 (One Thousand) Characters
converted from Raw Materials into Electronic Materials.
. If the Electronic Materials are: (1) delivered to LOIS at LOIS headquarters
on the 91st day or later after the posting of the Irrevocable Standby
Letter of Credit and; (2) said Electronic Materials are in compliance with
Quality Standards, LOIS shall pay to INFOCON in a manner set forth below an
amount equal to * per 1000 (One Thousand) Characters converted from Raw
Materials into Electronic Materials. In addition, however, LOIS shall
charge to INFOCON a late delivery penalty and deduct from INFOCON an amount
of * per day first beginning on the 91st day and continuing each day until
the Electronic Materials are received by LOIS at LOIS headquarters and said
Electronic Materials meet Quality Standards. In the unlikely event that the
late penalty exceeds the overall value of the Electronic Materials
delivered, then LOIS shall deduct the remaining balance of the late
delivery penalty on future deliveries of Electronic Materials.
It is understood by and between the parties that after INFOCON has delivered the
Electronic Materials to LOIS and during the time to which LOIS is determining
Quality Standards by the utilization of Measured Quality Standards, that said
time period for measuring quality standards shall not count as against INFOCON.
For example: LOIS receives the Electronic Materials from INFOCON on day 60. For
a period of 10 days LOIS ascertains Quality Standards and notified INFOCON on
day 10 that Quality Standards have not been met. INFOCON re-delivers the
Electronic Materials 15 days later. LOIS then ascertains that Quality Standards
have been met after 10 more days. Under this example the understanding of the
parties would be that INFOCON delivered the Electronic Materials that met
Quality Standards on day 75 and therefore would be paid * per 1000 (One
Thousand) Characters converted from Raw Materials into Electronic Materials in
the manner set forth below.
For every delivery of Quality Standard Electronic Materials, LOIS shall make 12
equal payments in an amount set forth above with the first payment beginning six
(6) months after delivery. Under no circumstances shall LOIS pay more than * per
month for 12 consecutive months on any single Quality Standard Electronic
Materials delivery, although there may be times when subsequent Quality Standard
Electronic Material payments are running concurrent with previous Quality
Standard Electronic Material payments.
It is understood between the parties that if and in the event that the timing of
the delivery of the Electronic Materials exceeds 61 days, then LOIS may modify
its Irrevocable Standby Letter of Credit from the total value of * per 1000
characters to * per 1000 characters. If and in the event that the timing of the
delivery of the Electronic Materials exceeds 76 days, then LOIS may modify its
Irrevocable Standby Letter of Credit from the total value of * per 1000
characters to * per 1000 characters.
* Certain information on this page has been omitted and filed separately with
the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
-3-
<PAGE>
III.
DATA CONVERSION SUMMARY
Data Conversion shall consist of, but not limited to, the following:
. Conversion of materials in print form into electronic form, regardless of
means.
. Formatting and emphasis tagging of materials shall be done as specified in
the instruction sheet provided with each project.
. Coding Information placed on appropriate fields as specified in the
instructions sheets supplied for that project.
. Reference areas shall be created and marked with Coding Information as
specified in the instruction sheet supplied for that project.
. Removal of Copyrighted materials, with the exception of "appeal from"
areas. The "appeal from" areas shall be keyed (or otherwise converted) as
it appears in print.
. Foot notes shall be moved to the end of the appropriate section, as
specified in the instruction sheet provided with each project.
NOTE: The Basic Editing Guide used in the past shall be updated and supplied to
INFOCON. The instruction sheets provided with each project should
supercede the Basic Editing Guide. It shall be understood that not all
issues can be addressed in the instruction sheet for that project, or the
Basic Editing Guide. When there are issues in question or inconsistencies
contact LOIS for clarification. Any discussion concerning an issue shall
be followed by a statement in writing from INFOCON to LOIS, setting forth
INFOCON's understanding of how to deal with the issue or inconsistency.
Failure to contact LOIS regarding an issue in question shall leave the
interpretation of said issue solely up to LOIS. Said interpretation shall
apply when evaluating Quality Standards.
IV.
OTHER WARRANTIES
AND RESTRICTIONS
INFOCON is an independent contractor and assumes full responsibility for the
payment of all compensation, social security, unemployment and other taxes and
charges for all persons engaged by it in the performance of the work herein.
INFOCON is not and shall not represent itself as authorized to enter into any
contract or other obligation on behalf of LOIS. INFOCON shall avoid any
conflict of interest while performing the work for LOIS, or incurring any other
obligation which is inconsistent with INFOCON's obligation to LOIS herein.
Specifically, INFOCON understands and agrees that during the term of this
Agreement that it shall not convert any Raw Materials into Electronic Materials,
where the materials are of a legal nature and can be used in the United States
of America, except for those materials authorized by LOIS to be converted. Said
authorization must be in writing and signed by the President or C.E.O. of LOIS.
INFOCON shall not be liable for, and is excused from, any failure to perform ,
or delays in delivery or performance, due to causes beyond its reasonable
control, including, but not limited to, acts of nature, acts of God, civil
disturbances, or natural disasters provided, however, that if such cause exists
for more than 90
-4-
<PAGE>
days, LOIS may terminate this Agreement and retain the work performed to that
date in return for a prorate payment to INFOCON for the work performed.
The amounts to be paid herein are exclusive of all taxes. LOIS shall be
responsible for, and shall hold INFOCON harmless with respect to: all sales,
use, personal property and similar taxes, if any, imposed upon or in respect of
the transactions and services under this Agreement as required by the United
States of America, other than for taxes on INFOCON's income, if any.
Acquisition and delivery of Raw Materials to INFOCON shall be the responsibility
of LOIS. INFOCON understands that it has absolutely no right, title, interest,
or usage rights to, in, or with the Raw Materials or Electronic Materials so
produced under this Agreement. INFOCON furthermore understands that the Raw
Materials or Electronic Materials so produced under this Agreement are the sole
and separate property of LOIS. That at any time, LOIS may request the return of
all Raw Materials, and if so requested INFOCON shall do so, forthwith, at its'
own expense. That at any time, LOIS may request that INFOCON destroy any media,
whether in print or electronic form, that it has in its' possession in regards
to any item, whether tangible or intangible, that it has obtained as a result of
any past agreement with LOIS.
INFOCON agrees that during the term of this Agreement, or so long as LOIS is
either delivering Raw Materials to INFOCON to convert into Electronic Materials,
that it will not, nor will it allow any of its' heirs, successors, assigns, or
subsidiaries, to create any electronic medium of legal materials that involve
information of the United States from the Courts of the United States, or the
official legislative laws and proposed laws, or administrative regulations, or
other such legal materials that are commonly found on LOIS products as of the
date of the signing of this Agreement, other than those created for LOIS.
INFOCON also agrees that it will not, nor will it allow any of its' heirs,
successors, assigns, or subsidiaries, help, assist, license, grant, or give any
other third party knowledge of, techniques used, or software used to create
electronic medium of legal materials.
INFOCON further acknowledges that LOIS has supplied INFOCON with valuable trade
secrets, techniques, software and training. INFOCON agrees that in the event
that this Agreement is terminated for any reason or that LOIS desires to stop
all conversion of Electronic Materials, that it will not, nor will it allow any
of its heirs, successors, assigns, or subsidiaries, for a period of two (2)
years, create any electronic medium of legal materials that involve information
of the United States from the Courts of the United States, or the official
legislative laws and proposed laws, or administrative regulations, or other such
legal materials that are commonly found on LOIS products as of the date of
termination or reduction. It is understood, however, that if LOIS desires to
take advantage of this non-compete clause, then LOIS must give INFOCON ninety
(90) days notice that it is either reducing the conversion of materials or
terminating this Agreement.
No failure to exercise, or delay in exercising, on the part of either INFOCON or
LOIS, any right, power or privilege herein shall operate as a waiver thereof, or
will any single or partial exercise of any right, power or privilege herein
preclude the further exercise of the same right or the exercise of any other
right herein.
Except as otherwise specified, all notices or other communications given under
this Agreement shall be in writing and delivered in person, by mail, electronic
mail, or by facsimile to the recipient's address set forth as follows:
In the case of post duly stamped, registered express post or airmail on the
7th day after the date on which the notice is accepted for posting by the
relevant postal authority on which the postal authority in the place to which
such notice or other communication is sent is open for business; or
-5-
<PAGE>
In the case of delivery by person, electronic mail, or facsimile transmission,
when delivered to the recipient at such address or phone number provided that it
is received in complete and legible form.
Signed to and sealed this 13th day of July, 1998.
LAW OFFICE INFORMATION SYSTEMS, INC. (LOIS)
By: /s/ Kyle D. Parker
------------------------------
Title: President & CEO
----------------------------
President
INFOCON INTERNATIONAL LIMITED (INFOCON)
FOR INFOCON INTERNATIONAL
By: /s/(illegible)
------------------------------
Title: Director
----------------------------
Managing Director, Bangalore
-6-
<PAGE>
Exhibit 10.15
Confidential treatment has been requested for portions of this exhibit. The
copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as *. A complete version of this exhibit has
been filed separately with the Securities and Exchange Commission.
Master Services Agreement
-------------------------
THIS AGREEMENT is made and entered into as of the 10th day of June, 1998, by and
between Law Office Information Systems, Inc., herein after referred to as
"LOIS", with its principal place of business located at 105 North 28th Street,
Van Buren, Arkansas 72956, and Digital Publishing International Ltd.,
hereinafter referred to as "DPI", with offices located at 26 Broadway, Suite
400, New York, New York 10004 and Innodata Corporation located at Three
University Plaza, Hackensack, New Jersey 07601 and hereinafter referred to as
"Innodata." Innodata and DPI shall be collectively referred to as "Contractor."
WHEREAS, LOIS desires to acquire the specialized data conversion services
offered by the Contractor; and;
WHEREAS, the Contractor desires to provide such services to LOIS;
NOW, THEREFORE, in consideration of the premises and mutual promises set forth,
LOIS, Innodata and DPI do mutually agree as follows:
1. STATEMENTS OF WORK: The Contractor shall provide to LOIS such data
-------------------
conversion services as are described in the statements of work from time to
time appended hereto (each a "Statement of Work" and collectively, the
"Statements of Work"). The Statement of Work pertaining to the initial
* project is Statement of Work S-1. The statements of Work are incorporated
in this Agreement as though fully set forth herein.
Statements of Work shall be numbered consecutively S-1, S-2, S-3, etc. The
inclusion of any such Statement of Work in this Agreement shall be
evidenced by the signatures of both parties and shall thereafter be
governed by the terms and provisions of this Agreement.
2. PRICING AND PAYMENT: LOIS shall pay the Contractor for services provided
--------------------
under any Statement of Work pursuant to the pricing information and payment
terms contained in such Statement of Work. All prices will be kept
strictly confidential by the parties to this agreement.
Invoices shall be sent to LOIS via facsimile and email by DPI invoices.
The invoice submitted by DPI shall be the total charge of the Contractor
for shipment. If Contractor has met the quality standards specified by
this Agreement, LOIS shall promptly pay the same as set forth in this
Agreement. Late payments will be subject to an interest charge of 1.25%
per month. Payment shall be made to the address set forth in such invoice.
3. TAXES: Each party shall be liable for its own taxes applicable to this
------
Agreement.
* Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
<PAGE>
4. ACCEPTANCE: All submitted invoices shall be deemed accepted unless written
-----------
notification to the contrary is received by Contractor within fifteen (15)
days after receipt of invoice. Said notification must set forth the nature
of the dispute as well as refer to the specific work that is in dispute.
If an invoice is disputed, LOIS shall pay the Contractor the undisputed
portion of the invoice when due.
5. NOTICES: All notices which are required or may be given pursuant to this
--------
Agreement shall be delivered as follows, and may be sent by certified mail
or by a recognized courier service such as Federal Express, UPS, AirBorne
Express, or DHL, to the addresses set forth below:
If to LOIS:
Law Office Information Systems, Inc.
105 North 28th Street
Van Buren, Arkansas 72956
Attention: Dub Dillon, Chief Operating Officer
If to the Contractor:
Digital Publishing International Ltd.
26 Broadway, Suite 400
New York, New York 10004
Attention: Noah Foxman, President
and
Innodata CORPORATION
Three University Plaza
Hackensack, New Jersey 07601
Attention: Amy R. Agress, Contracts Administrator
6. MODIFICATIONS: No alteration or modification of this Agreement (including,
--------------
without limitation, any supplemental or additional Statement of Work) will
be binding or effective unless in writing and signed by a duly authorized
representative of DPI, Innodata and LOIS. All modifications must be sent
to the parties pursuant to the provisions set forth in Section 5, titled
"Notices". In the event that any such alteration or modification causes an
increase or decrease in the amount of work or in the cost of performance,
or in the time required for performance, and equitable adjustment shall be
made in the contract price and/or delivery schedule. Such increase or
decrease shall be made only upon the written acceptance of all parties to
this Agreement.
7. TERM: This Agreement shall remain in full force and effect for a period of
-----
eighteen (18) months from the date production commences on Statement of
Work S-1.
2
<PAGE>
8. TERMINATION: This agreement shall be deemed to be terminated automatically
------------
in the event that LOIS or DPI or Innodata becomes insolvent or bankrupt or
enters into any agreement with its creditors for relief of debt or takes
advantage of any law for the benefit of debtors or goes into liquidation or
receivership whether compulsory or voluntary.
The Contractor may terminate this Agreement if LOIS defaults in any payment
under this Agreement and LOIS does not cure said default within ten (10)
days after the Contractor's written notice to LOIS. In the event of any
such termination, Innodata shall be entitled to reimbursement for (i)
unrecouped start-up costs on the project to have been performed, if such
start up has actually occurred; and (ii) reasonable profit on the work
performed prior to such termination at a rate approximating the rate used
in establishing the original services pricing, if the materials are in fact
delivered to LOIS and have passed quality standards.
LOIS may terminate this Agreement for cause if the Contractor fails to
deliver the monthly quantity of Electronic Data required under any
Statement of Work once by more than 30%, 2 consecutive months by more than
15% or 4 months in a 12 month period, or fails to meet the applicable
quality standards on more than 3 consecutive occasions or 4 occasions in a
12 month period. Any such termination for cause must be declared, if at
all, within 30 days of the occurrence thereof.
Either the Contractor or LOIS may terminate this Agreement for any reason
by providing one hundred twenty (120) days written notice to the other
parties to this Agreement.
9. CONFIDENTIALITY: Innodata and DPI each agree to regard and preserve as
----------------
confidential all information related to the business and activities of LOIS
that may be obtained by Innodata or DPI, as the case may be, as a result of
performing services under this Agreement. LOIS and DPI each agree to
regard and preserve as confidential all information related to the business
and activities of Innodata that may be obtained by LOIS or DPI, as the case
may be, as a result of this Agreement and the performance of the services
contemplated hereby, including, without limitation all information
regarding pricing of services. Each party agrees to hold such information
in trust and confidence for such other party or parties and not to disclose
such information to any person, firm, or enterprise, or use any such
information to its own benefit, or to the benefit of any other party,
unless authorized by in writing by the party in interest. Information
shall not be considered confidential to the extent that such information is
(i) already known free of any restriction at the time it is obtained; (ii)
subsequently learned form an independent third party free of any
restriction; or (iii) available publicly.
10. REPRESENTATIONS AND WARRANTIES:
-------------------------------
a. LOIS represents and warrants to Innodata and DPI that the materials
provided by LOIS to Innodata for conversion services, or any use or
manufacture thereof, do not violate any law or infringe any trademark,
copyright or any other right of any
3
<PAGE>
third party. If and in the event that some of the materials are
subject to the claim of copyright or any other right of a third party,
and LOIS does not have a license to convert said copyrighted
materials, LOIS shall so notify the Contractor as to which parts of
the materials are subject to said claim of copyright and shall inform
Contractor to remove said copyright or unlicensed materials.
b. Innodata represents and warrants to LOIS and DPI that the processes
used by Innodata in the provision of the services to LOIS do not
violate any law or infringe on any patent right of any third party.
c. DPI shall provide to LOIS continued project oversight during the term
of this Agreement and shall at all times work closely with Innodata
and LOIS to ensure that work is performed to the specifications
contained in this Agreement and the related Statements of Work. In the
event of certain persistent and uncured deficiencies in production
quality or turnaround time, DPI will undertake responsibility, at no
cost to LOIS, for finding a substitute production facility which meets
all tests provided by LOIS relating to performance of the work and is
otherwise acceptable to LOIS. In such event, LOIS and DPI will enter
into an agreement with such facility substantially similar to this
Agreement in substitution hereof, if such facility is acceptable to
LOIS.
d. EXCEPT AS EXPLICITLY STATED IN THIS AGREEMENT, THE CONTRACTOR AND LOIS
MAKES NO WARRANTIES AND EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES,
EXPRESSED OR IMPLIED, INCLUDING BUT NOT LIMITED TO THE IMPLIED
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
LOIS, DPI AND INNODATA AGREE THAT THIS AGREEMENT IS PREDOMINANTLY AN
AGREEMENT FOR THE PROVISION OF SERVICES. THIS AGREEMENT IS ACCORDINGLY
NOT A CONTRACT FOR THE SALE OF GOODS FOR PURPOSES OF THE UNIFORM
COMMERCIAL CODE AND THEREFORE THE PROVISIONS OF THE UNIFORM COMMERCIAL
CODE SHALL NOT APPLY TO THIS AGREEMENT.
11. INDEMNIFICATION: The parties shall indemnify, defend and hold harmless one
----------------
another from and against any and all suits, proceedings at law or in
equity, claims, liabilities, costs, payments and expenses (including
reasonable attorney fees) asserted against or incurred by such indemnitee,
arising out of or in connection with any claim by any party regarding the
breach of any warranty contained herein.
12. LIMITATION OF LIABILITIES: THE CONTRACTOR'S LIABILITY TO LOIS FOR ACTUAL
--------------------------
DAMAGES FROM ANY CAUSE WHATSOEVER WILL BE LIMITED TO AN AMOUNT EQUAL TO
THREE MONTHS' MONTHLY CHARGES.
4
<PAGE>
SUCH CHARGES WILL BE THOSE IN EFFECT WHEN THE CAUSE OF ACTION AROSE.
THIS LIMITATION WILL APPLY REGARDLESS OF THE FORM OF ACTION, WHETHER IN
CONTRACT OR IN TORT, INCLUDING NEGLIGENCE. IN NO EVENT WILL THE CONTRACTOR
BE LIABLE FOR ANY LOST PROFITS, INCIDENTAL DAMAGES OR OTHER ECONOMIC
CONSEQUENTIAL DAMAGES, EVEN IF THE CONTRACTOR HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES. IN ADDITION, THE CONTRACTOR WILL NOT BE
LIABLE FOR ANY DAMAGES CLAIMED BY LOIS BASED ON ANY THIRD PARTY CLAIMS.
HOWEVER, IF AND IN THE EVENT THAT A CAUSE OF ACTION IS MADE FOR A COPYRIGHT
VIOLATION BY ANOTHER THIRD PARTY, AND LOIS HAS IN FACT PREVIOUSLY NOTIFIED
CONTRACTOR TO SPECIFICALLY REMOVE SAID COPYRIGHT INFORMATION AND IT IS
PROVED THAT CONTRACTOR FAILED TO DO SO, THEN IN THAT EVENT, CONTRACTOR
SHALL BE LIABLE FOR ANY AND ALL DAMAGES ASSOCIATED WITH SAID COPYRIGHT
VIOLATION TO THIRD PARTY AND TO LOIS.
13. FORCE MAJEURE: Neither party shall be liable for any default or delay in
--------------
the performance of its objections under this Agreement if and to the extent
such default or delay is caused, directly or indirectly, by reason of fire,
flood, earthquake, elements of nature or acts of God, riots, civil
disorders, rebellions or revolutions in any country, strikes, lockouts or
labor difficulties, any failure in electrical or air conditioning
equipment, disruptions or telecommunication systems, unavailability of
parts, or any other similar cause beyond the reasonable control of such
party. However, if and in the event that any country in which work is
performed under this Agreement subsequently prohibits the terms of
performance by the parties herein by an act of any legislative body or an
executive order by the president of that country, either the Contractor or
LOIS may terminate this Agreement.
14. GOVERNING LAW: This Agreement shall be governed by and construed under the
--------------
laws of the State of New York, without regard to New York conflicts law.
If any provision of this Agreement is held invalid, illegal or
unenforceable, the remaining provisions shall continue unimpaired.
15. DISPUTE RESOLUTION: Any controversy or claim arising out of or relating to
-------------------
this Agreement, or to the breach thereof, shall be settled by arbitration
in accordance with the Rules of the American Arbitration Association, and
judgment upon the award rendered by the Arbitrator(s) may be entered in any
court having jurisdiction thereof. Such arbitration shall take place in
New York.
16. WAIVER: No waiver by any party of any default shall be deemed as a waiver
-------
of prior or subsequent default of the same or other provisions of this
Agreement.
5
<PAGE>
17. ENTIRE AGREEMENT: This Agreement, together with all Statements of Work,
-----------------
constitutes the entire agreement among the parties when executed by duly
authorized signatories of Innodata, LOIS and DPI and supersedes all
proposals or other prior agreements, oral or written, and all other
negotiations and communications among the parties relating to the subject
matter described in this Agreement. Headings are for reference only and
shall not affect the meanings of any terms of this Agreement. In the event
of a conflict between this Agreement and any Statement of Work appended
hereto, the terms of the Statement of Work shall govern and control.
Digital Publishing International Ltd. Law Office Information Systems, Inc.
By: /s/Noah Foxman By: /s/Kyle D. Parker
------------------------------- -------------------------------
Its: President Its: President & CEO
Innodata Corporation
By: /s/(illegible)
-------------------------------
Its: President and CEO
6
<PAGE>
Statement of Work S-1
---------------------
This Statement of Work is pursuant to and forms a part of the Master Services
Agreement dated June 10, 1998, by and among Law Office Information Systems, Inc.
("LOIS"), with offices at 105 North 28th Street, Van Buren, Arkansas 72956,
Digital Publishing International Ltd. ("DPI"), with offices at 26 Broadway,
Suite 400, New York, New York 10004 and Innodata Corporation ("Innodata", and
together with DPI, collectively, the "Contractor"), with offices at Three
University Plaza, Hackensack, New Jersey 07601. All capitalized terms used
herein shall have the meaning provided therein.
1. Nature of Project and Services to be Performed:
1.1 Innodata will provide data capture and tagging of source material
consisting of reported case law, statutes, regulations and related
materials provided by LOIS, which shall be (i) substantially similar
in quality, appearance and density to the source materials provided to
DPI by LOIS on April 3, 1998 and April 10, 1998 and (ii) which can be
despined and otherwise taken apart:
1.2 It is understood and agreed that the processes contemplated to be
employed (including, without limitation, optical character
recognition) to convert the source material (and therefore the prices
provided) are dependent on the quality appearance and density of the
source material and the ability to despine it. Therefore, in the event
LOIS delivers to Innodata any source material that does not
substantially conform to such requirements ("Non-Conforming Data"),
Innodata shall immediately notify LOIS of the non-conformity, and LOIS
at its option, shall determine whether or not to have Innodata proceed
with the work after Innodata informs LOIS what adjustments will occur
as to the price and delivery of the work. If LOIS elects to proceed
with the work, Innodata shall proceed with such work under the
adjusted price and delivery schedule.
2. Billing and Payment Terms:
2.1 THE CONTRACTOR will bill LOIS with each weekly shipment of electronic
data. LOIS shall make payment to the Contractor at the address
indicated below within twenty (20) days of receipt of Innodata's
invoice:
Digital Publishing International Ltd.
c/o Oscar Folger, Esq.
521 5th Ave.
New York, New York 10175
(212) 697-6464
2.2 This twenty (20) day time period includes a fifteen (15) day period
measured from receipt of electronic data during which time LOIS may
review the accuracy of
<PAGE>
electronic data received from Innodata. Disputes regarding quality
standards of the work must be raised during this time or it will be
deemed as accepted.
3. Shelf Source Material Inventory:
3.1 Source material will be shipped in as far in advance as reasonably
possible to insure that Innodata has "on the shelf" at all times
source material inventory ("Shelf Source Material Inventory")
equivalent in volume to 1.5 times the Monthly Target (as herein
defined) (the "Target Shelf Source Material Inventory"). At the
beginning of each week, Innodata will report to LOIS its anticipated
Shelf Source Material Inventory as of the end of such week, and LOIS
will re-stock by shipping additional source material for delivery by
the end of such week such that the actual Shelf Source Material
Inventory will equal or exceed the Target Shelf source Material
Inventory by such date.
4. Tagging:
4.1 Based on LOIS's proprietary tagging system previously supplied by LOIS
to DPI on April 3, 1998.
5. Accuracy Rate:
5.1 Electronic data shall meet or exceed a Quality Standard accuracy
measure of 99.995%. This is equal to an average of one error every
20,000 characters or tags. If Innodata fails to meet this accuracy
measure, it will re-do the work and return he same to LOIS within
fifteen (15) days of receipt of notification as to the problem.
"Measured Quality Standards" is the method used to determine Quality
Standards and is defined as follows: Upon the receipt of Electronic
Materials sent by Contractor to LOIS, LOIS shall select a 100 page
continuous block of information, (or as many 100 page blocks as LOIS
desires) and compare the Raw Materials to the converted Electronic
Materials. Accuracy of the conversion is checked by counting the total
number of characters within said 100-page block(s) and the number of
occurrences where the Raw Materials do not match the Electronic
Materials. The total characters contained within a given 100-page
block of Electronic Materials minus the total characters of Electronic
Materials converted incorrectly within such block(s) (and expressed as
a percentage by multiplying by 100) shall be the formula used to
determine the Quality Standard. The results of the quality check shall
be immediately sent to Contractor pursuant to the notification
provisions of Paragraph 5 of the Master Services Agreement if the
materials do not meet Quality Standards. Contractor shall then check
its copy of the Electronic Materials to ascertain the veracity of said
quality check. It is understood by both Contractor and LOIS that the
accuracy level of any 100 page block so chosen by LOIS shall be deemed
to be that of the entire amount of Electronic Materials for that
shipment. It shall be understood that in the event that
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LOIS fails to make a quality check within 15 days of having received a
shipment of Electronic Materials, it shall be considered that said
Electronic Materials have met Quality Standards.
5.2 It is understood between the parties that when Measured Quality
Standards are being determined, any character which is emphasized or
effected by an emphasis tag, (SGML character) is in fact emphasized or
affected in a manner not consistent with the Raw Materials, then and
in that event, all characters contained within the emphasized or
affected characters shall be deemed not to be accurately converted. It
is also understood, that when a character or characters are emphasized
or affected in the Raw Materials but not so affected or emphasized in
the Electronic Materials, then and in that event, all characters that
should have been emphasized or affected in the Electronic Materials
shall be deemed not to be accurately converted.
The above calculation of accuracy of data emphasized or effected by an
emphasis tag (SGML character) is based on LOIS providing Contractor
with documentation including detailed and complete specifications
covering all variations of occurrences of all elements known to LOIS.
Anything not strictly included in this documentation (including but
not limited to "understood" or "implied" usage of elements or tags)
will not be considered an error for purpose of this section and for
purposes of quality defaults under Section 8 of the Master Services
Agreement. In addition, quality calculations based on incorrect
tagging shall not be deemed to effect the accuracy rate for purposes
of quality defaults under Section 8 of the Master Services Agreement
of the first 3 months of the project because of the possible need for
time to work out issues and documentation that require iterative
improvement. For production purposes all new tags and elements will
be included in future work as soon as possible after notice to
Contractor by LOIS. Data that is in the midst of production or
completed data will not be changed retroactively to include these tags
and elements. Contractor agrees at all times to be proactive in
bringing to LOIS' attention any questions regarding emphasis tagging
that are not covered by LOIS in its documentation.
6. Volume and Related Commitment:
6.1 Project. The project shall consist of a minimum of * of Electronic
Data to be completed over an 10-month period as further provided
herein. There will be a ramp-up period for the first four (4) weeks of
the project, during which the Monthly Target (as herein defined) will
not be processed or delivered.
6.2 Electronic Data. Provided that LOIS shall meet its obligations
regarding Shelf Source Material Inventory, and provided, further, that
Non-Conforming Source Material shall not exceed 5% of total Source
Material, Innodata shall (i) complete the Project no later than 18
months from commencement date and (ii) deliver
* Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
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* of Electronic Data to LOIS per month beginning in Month 2 of the
project (the "Monthly Target"), subject to subparagraph 6.3 herein
below regarding Monthly Delivery Surplus.
6.3 Monthly Delivery Surplus. Innodata shall have the ability to deliver
in excess of the Monthly Target. At the end of any month where the
actual monthly delivery shall have exceeded the Monthly Target,
Innodata shall calculate the difference between such actual monthly
delivery and the Monthly Target (the "Monthly Delivery Surplus").
Monthly Delivery Surplus shall be tracked and carried forward,
available to be netted against subsequent Monthly Targets. However,
LOIS shall only be responsible for the payment for fifty percent of
the billings for any materials received in excess of * with the
remaining fifty percent of the billings due at such time as the data
is used as against subsequent Monthly Targets.
6.4 Continuance. After 18 months under the Agreement the Monthly Target,
if any, shall be determined by LOIS. LOIS anticipates that said
Monthly Target should be *. LOIS shall inform the Contractor of the
desired amount sixty (60) days prior to the completion of *. In the
event LOIS desires to provide such work to Contractor, Contractor and
LOIS will agree upon a price and other terms to be applicable to such
work.
7. Penalties and Pricing
7.1 The price for the work shall be * per one thousand characters
converted. LOIS shall pay all costs associated with shipping.
7.2 It is understood by the Contractor that time is of the essence to LOIS
in regards to the delivery of the electronic materials. It is also
understood that the monthly goal is *, that from time to time the
actual amount delivered per month will be more or less than the
monthly goal. As such, there shall be no penalty associated with
Contractor delivering less that *. However, Contractor does warrant
that it shall deliver * and further warrants that in the event that
the data delivered to LOIS does not meet Quality Standards, that is
shall correct the errors to meet Quality Standards and return the data
to LOIS as expeditiously as possible.
7.3 For each day the LOIS fails to maintain the Target Shelf Source
Material Inventory, it shall pay a penalty equal to *.
* Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
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7.4 For each day that Shelf Source Material Inventory falls below *, it
shall pay a penalty equal to *.
8. Ramp-Up:
8.1 Schedule A hereto depicts anticipated ramp-up to Monthly Target during
the first month. This schedule is provided for convenience only. The
Contractor makes no guarantees regarding ramp-up to Monthly Target
other than that full ramp-up will be achieved by Month 2 of the
project.
9. Delivery of Electronic Data, etc.
9.1 Initially, data will be returned to Lois on CD-ROMs. (.txt files).
LOIS will accept deliverability of electronic data as completed.
Future plans may include the downloading of data using LOIS's FTP
server. Source materials will not be returned to LOIS.
Digital Publishing International, Law Office Information Systems, Inc.
By: /s/ Mark Foxman By: /s/ Kyle D. Parker
------------------------------- -------------------------------
Its: President Its: President & CEO
Innodata Corporation
By: /s/ (illegible)
-------------------------------
Its: President and CEO
* Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
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Schedule A
Ramp Up Schedule for *:
Week 1: *
Week 2: *
Week 3: *
Week 4: *
Total: *
Week 5 Onwards: *
* Certain information on this page has been omitted and filed separately
with the Securities and Exchange Commission. Confidential treatment has been
requested with respect to the omitted portions.
6
