SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
Current Report Pursuant
to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report: February 24, 2000
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MARKETING SERVICES GROUP, INC.
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(Exact name of Registrant as specified in charter)
Nevada 0-16730 88-0085608
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(State or other (Commission (I.R.S. Employer
jurisdiction of File No.) Identification No.)
incorporation)
333 Seventh Avenue
New York, New York 10001
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(Address of Principal Executive Offices)
917/339/7100
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(Registrant's telephone number, including area code)
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Item 5. Other
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On February 24, 2000 we commenced the closing of a private placement of
securities with RGC International Investors, LDC and Marshall Capital
Management, Inc., an affiliate of Credit Suisse First Boston, in which we sold
an aggregate of 30,000 shares of Series E Convertible Preferred Stock, par value
$.01, and warrants to acquire 1,471,074 shares of common stock for an aggregate
purchase price of $30,000,000. The preferred stock and warrants were issued
pursuant to Section 4(2) of the Securities Act of 1933, as amended, and Rule 506
promulgated thereunder.
The Preferred Stock is convertible at any time at $24.473 per share, subject to
reset on August 18, 2000 if the market price of our Common Stock is lower and
subject to certain anti-dilution adjustments. The warrants are exercisable for a
period of two years at an exercise price of $28.551, subject to certain
anti-dilution adjustments. The closing price of our common stock on the date of
issuance was $23.625.
The Company's press release announcing the sale of the preferred stock and
warrants as well as the Securities Purchase Agreement, dated February 18, 2000,
by and among the Company, RGC International Investors, LDC and Marshall Capital
Management, Inc., the Certificate of Designation for the Series E Preferred
Stock, the Registration Rights Agreement and the Warrants are filed as exhibits
to this Current Report on Form 8-K. This summary description of the transaction
is qualified in its entirety by reference to the documents filed as exhibits
hereto.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits
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(a) Exhibits:
3.1 Amended and Restated Articles of Incorporation (a)
3.2 Certificate of Amendment to the Amended and Restated Articles
of Incorporation of the Company (a)
3.3 Certificate of Amendment to the Articles of Incorporation for
change of name to All-Comm Media Corporation (b)
3.4 Certificate of Amendment of Articles of Incorporation for
increase in number of authorized shares to 36,300,000 total(c)
3.5 Certificate of Amendment of Articles of Incorporation for change
of name to Marketing Services Group, Inc. (d)
3.6 Certificate of Amendment of Articles of Incorporation for
increase in number of authorized shares to 75,150,000 total(e)
3.7 The Amended Certificate of Designation, Preferences and
Relative, Participating and Optional and Other Special Rights
of Preferred Stock and Qualifications, Limitations and
Restrictions Thereof for the Series D Convertible Preferred
Stock (f)
3.8 Certificate of Designation, Preferences, and Rights of Series E
Convertible Preferred Stock of Marketing Services Group, Inc.(g)
4.1 Warrant Agreement between Marketing Services Group, Inc. and
Marshall Capital Management, Inc.
4.2 Warrant Agreement between Marketing Service Group, Inc. and RCG
International Investors, LDC
4.3 Registration Rights Agreement, dated as of February 18, 2000,
by and among the Company, RGC International Investors, LDC and
Marshall Capital Management, Inc.
10.1 Securities Purchase Agreement dated as of February 18, 2000,
by and among the Company, RGC International Investors, LDC and
Marshall Capital Management, Inc.
20.1 Press Release dated February 25, 2000
(a) Incorporated by reference from the Company's Registration Statement on Form
S-4, Registration Statement No. 33-45192
(b) Incorporated by reference to the Company's Report on Form 10-K for the
fiscal year ended June 30, 1995
(c) Incorporated by reference to the Company's Report on Form 10-K dated June
30, 1996
(d) Incorporated by reference to the Company's Report on Form 10-KSB for the
fiscal year ended June 30, 1997
(e) Incorporated by reference to the Company's Report on Form 10-KSB for the
fiscal year ended June 30, 1998
(f) Incorporated by reference to the Company's Report on Form 8-K dated January
13, 1996
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MARKETING SERVICES GROUP, INC.
Date: February 28, 2000 By: /s/ Cindy H. Hill
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Title: Chief Accounting Officer
Exhibit 3.8
CERTIFICATE OF
DESIGNATIONS, PREFERENCES, AND RIGHTS
of
SERIES E CONVERTIBLE PREFERRED STOCK
of
MARKETING SERVICES GROUP, INC.
(Pursuant to Section 78.1955 of the
Nevada General Corporation Law)
MARKETING SERVICES GROUP, INC., a corporation organized and existing
under the Nevada General Corporation Law (the "Corporation"), hereby certifies
that the following resolutions were adopted by the Board of Directors of the
Corporation on February 18, 2000 pursuant to authority of the Board of Directors
as required by Section 78.1955 of the Nevada General Corporation Law:
RESOLVED, that pursuant to the authority granted to and vested in
the Board of Directors of this Corporation (the "Board of Directors" or the
"Board") in accordance with the provisions of its Articles of Incorporation, the
Board of Directors hereby authorizes a series of the Corporation's previously
authorized Preferred Stock, par value $.01 per share (the "Preferred Stock"),
and hereby states the designation and number of shares, and fixes the relative
rights, preferences, privileges, powers and restrictions thereof as follows:
Series E Convertible Preferred Stock:
I. DESIGNATION AND AMOUNT
The designation of this series, which consists of 30,000 shares of
Preferred Stock, is Series E Convertible Preferred Stock (the "Series E
Preferred Stock") and the stated value shall be One Thousand Dollars ($1,000)
per share (the "Stated Value").
II. RANK
The Series E Preferred Stock shall rank (i) prior to the
Corporation's common stock, par value $.01 per share (the "Common Stock"); (ii)
prior to any class or series of capital stock of the Corporation hereafter
created (unless, with the consent of the holders of Series E Preferred Stock
obtained in accordance with Article IX hereof, such class or series of capital
stock specifically, by its terms, ranks senior to or pari passu with the Series
E Preferred Stock) (collectively, with the Common Stock, "Junior Securities");
(iii) pari passu with any class or series of capital stock of the Corporation
hereafter created (with the consent of the holders of Series E Preferred Stock
obtained in accordance with Article IX hereof) specifically ranking, by its
terms, on parity with the Series E Preferred Stock ("Pari Passu Securities");
and (iv) junior to any class or series of capital stock of the Corporation
hereafter created (with the consent of the holders of Series E Preferred Stock
obtained in accordance with Article IX hereof) specifically ranking, by its
terms, senior to the Series E Preferred Stock ("Senior Securities"), in each
case as to distribution of assets upon liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary.
III. DIVIDENDS
The Series E Preferred Stock shall not bear any dividends. In no
event, so long as any Series E Preferred Stock shall remain outstanding, shall
any dividend whatsoever be declared or paid upon, nor shall any distribution be
made upon, any Junior Securities, nor shall any shares of Junior Securities be
purchased or redeemed by the Corporation nor shall any moneys be paid to or made
available for a sinking fund for the purchase or redemption of any Junior
Securities (other than a distribution of Junior Securities), without, in each
such case, the written consent of the holders of at least two-thirds (2/3) of
the outstanding shares of Series E Preferred Stock, voting together as a class.
IV. LIQUIDATION PREFERENCE
<PAGE>
A. Liquidation Event. If the Corporation shall commence a voluntary
case under the Federal bankruptcy laws or any other applicable Federal or State
bankruptcy, insolvency or similar law, or consent to the entry of an order for
relief in an involuntary case under any law or to the appointment of a receiver,
liquidator, assignee, custodian, trustee, sequestrator (or other similar
official) of the Corporation or of any substantial part of its property, or make
an assignment for the benefit of its creditors, or admit in writing its
inability to pay its debts generally as they become due, or if a decree or order
for relief in respect of the Corporation shall be entered by a court having
jurisdiction in the premises in an involuntary case under the Federal bankruptcy
laws or any other applicable Federal or state bankruptcy, insolvency or similar
law resulting in the appointment of a receiver, liquidator, assignee, custodian,
trustee, sequestrator (or other similar official) of the Corporation or of any
substantial part of its property, or ordering the winding up or liquidation of
its affairs, and any such decree or order shall be unstayed and in effect for a
period of thirty (30) consecutive days and, on account of any such event, the
Corporation shall liquidate, dissolve or wind up, or if the Corporation shall
otherwise liquidate, dissolve or wind up (each such event being considered a
"Liquidation Event"), no distribution shall be made to the holders of any shares
of capital stock of the Corporation (other than Senior Securities) upon
liquidation, dissolution or winding up unless prior thereto, the holders of
shares of Series E Preferred Stock, subject to Article VI, shall have received
the Liquidation Preference (as defined in Article IV.C) with respect to each
share. If upon the occurrence of a Liquidation Event, the assets and funds
available for distribution among the holders of the Series E Preferred Stock and
holders of Pari Passu Securities (including any dividends or distribution paid
on any Pari Passu Securities after the date of filing of this Certificate of
Designation) shall be insufficient to permit the payment to such holders of the
preferential amounts payable thereon, then the entire assets and funds of the
Corporation legally available for distribution to the Series E Preferred Stock
and the Pari Passu Securities shall be distributed ratably among such shares in
proportion to the ratio that the Liquidation Preference payable on each such
share bears to the aggregate liquidation preference payable on all such shares.
Any prior dividends or distribution made after the date of filing of this
Certificate of Designation shall offset, dollar for dollar, the amount payable
to the class or series to which such distribution was made.
B. Certain Acts Deemed Liquidation Event. At the option of any
holder of Series E Preferred Stock, the sale, conveyance or disposition of all
or substantially all of the assets of the Corporation, the effectuation by the
Corporation of a transaction or series of related transactions in which more
than 50% of the voting power of the Corporation is disposed of, or the
consolidation, merger or other business combination of the Corporation with or
into any other Person (as defined below) or Persons when the Corporation is not
the survivor shall either: (i) be deemed to be a liquidation, dissolution or
winding up of the Corporation pursuant to which the Corporation shall be
required to distribute upon consummation of and as a condition to such
transaction an amount equal to 120% of the Liquidation Preference with respect
to each outstanding share of Series E Preferred Stock or (ii) be treated
pursuant to Article VI.C(b) hereof. "Person" shall mean any individual,
corporation, limited liability company, partnership, association, trust or other
entity or organization.
<PAGE>
C. Liquidation Preference. For purposes hereof, the "Liquidation
Preference" with respect to a share of the Series E Preferred Stock shall mean
an amount equal to the sum of (i) the Stated Value thereof plus (ii) an amount
(the "Premium Amount") equal to five percent (5%) per annum of such Stated Value
for the period beginning on the date of issuance of the Series E Preferred Stock
(the "Issue Date") and ending on the date of final distribution to the holder
thereof (prorated for any portion of such period); provided that, in the event
that the Closing Bid Price (as defined in Article VI.B) of the Common Stock at
any time falls below $12.236 (subject to adjustment for stock splits, stock
dividends and similar amounts) (the "Floor Price"), the Premium Amount shall be
increased to ten percent (10%) per annum for each day that the Closing Bid Price
is less than the Floor Price, plus (iii) all Conversion Default Payments (as
defined in Article VI.E below), Delivery Default Payments (as defined in Article
VI.D below) and any other amounts owed to such holder pursuant to Section 2(c)
of the Registration Rights Agreement. The liquidation preference with respect to
any Pari Passu Securities shall be as set forth in the Certificate of
Designation filed in respect thereof.
V. REDEMPTION
A. Mandatory Redemption. If any of the following events (each,
a "Mandatory Redemption Event") shall occur:
(i) The Corporation (a) fails to issue shares of Common Stock
to the holders of Series E Preferred Stock upon exercise by the holders of their
conversion rights in accordance with the terms of this Certificate of
Designation (for a period of at least sixty (60) days if such failure is solely
as a result of the circumstances governed by the second paragraph of Article
VI.E below and the Corporation is using its best efforts to authorize a
sufficient number of shares of Common Stock as soon as practicable), (b) fails
to transfer or to cause its transfer agent to transfer (electronically or in
certificated form) any certificate for shares of Common Stock issued to the
holders upon conversion of the Series E Preferred Stock as and when required by
this Certificate of Designation or the Registration Rights Agreement, dated as
of February 18, 2000, by and among the Corporation and the other signatories
thereto (the "Registration Rights Agreement"), (c) fails to remove any
restrictive legend (or to withdraw any stop transfer instructions in respect
thereof) on any certificate or any shares of Common Stock issued to the holders
of Series E Preferred Stock upon conversion of the Series E Preferred Stock as
and when required by this Certificate of Designation, the Securities Purchase
Agreement dated as of February 18, 2000, by and between the Corporation and the
other signatories thereto (the "Purchase Agreement") or the Registration Rights
Agreement, or (d) fails to fulfill its obligations pursuant to Sections 4(c),
4(e), 4(h), 4(i), 4(j) or 5 of the Purchase Agreement (or makes any
announcement, statement or threat that it does not intend to honor the
obligations described in this paragraph) and any such failure shall continue
uncured (or any announcement, statement or threat not to honor its obligations
shall not be rescinded in writing) for ten (10) days after the Corporation shall
have been notified thereof in writing by any holder of Series E Preferred Stock;
<PAGE>
(ii) The Corporation fails to obtain effectiveness with the
Securities and Exchange Commission (the "SEC"), prior to June 18, 2000, of the
Registration Statement (as defined in the Registration Rights Agreement, the
"Registration Statement") required to be filed pursuant to Section 2(a) of the
Registration Rights Agreement, or fails to obtain the effectiveness of any
additional Registration Statement (required to be filed pursuant to Section 3(b)
of the Registration Rights Agreement) within sixty (60) days after the
Registration Trigger Date (as defined in the Registration Rights Agreement), or
any such Registration Statement, after its initial effectiveness and during the
Registration Period (as defined in the Registration Rights Agreement), lapses in
effect or sales of all of the Registrable Securities (as defined in the
Registration Rights Agreement, the "Registrable Securities") otherwise cannot be
made thereunder (whether by reason of the Corporation's failure to amend or
supplement the prospectus included therein in accordance with the Registration
Rights Agreement, the Corporation=s failure to file and obtain effectiveness
with the SEC of an additional Registration Statement required to be filed
pursuant to Section 3(b) of the Registration Rights Agreement or otherwise) for
more than forty-five (45) consecutive calendar days or more than sixty (60)
calendar days in any twelve (12) month period after such Registration Statement
becomes effective;
(iii) The Corporation or any subsidiary of the Corporation
shall make an assignment for the benefit of creditors, or apply for or consent
to the appointment of a receiver or trustee for it or for all or substantially
all of its property or business; or such a receiver or trustee shall otherwise
be appointed;
(iv) Bankruptcy, insolvency, reorganization or liquidation
proceedings or other proceedings for relief under any bankruptcy law or any law
for the relief of debtors shall be instituted by or against the Corporation or
any subsidiary of the Corporation;
(v) The Corporation shall fail to maintain the listing of the
Common Stock on the Nasdaq National Market ("Nasdaq"), the Nasdaq SmallCap
Market ("Nasdaq SmallCap"), the New York Stock Exchange ("NYSE") or the American
Stock Exchange ("AMEX"),
<PAGE>
then, upon the occurrence and during the continuation of any Mandatory
Redemption Event specified in subparagraphs (i), (ii) or (v), each holder of
Series E Preferred Stock shall have the right, only with respect to such
holder=s shares of Series E Preferred Stock, exercisable by delivery of written
notice (the "Mandatory Redemption Notice") to the Corporation of such Mandatory
Redemption Event, or upon the occurrence of any Mandatory Redemption Event
specified in subparagraphs (iii) or (iv), the then outstanding shares of Series
E Preferred Stock shall become immediately redeemable and the Corporation shall
purchase each holder=s outstanding shares of Series E Preferred Stock for an
amount per share equal to the greater of (1) 120% multiplied by the sum of (a)
the Stated Value of the shares to be redeemed plus (b) an amount equal to the
Premium Amount multiplied by such Stated Value for the period beginning on the
Issue Date and ending on the date of payment of the Mandatory Redemption Amount
(the "Mandatory Redemption Date") plus (c) all Conversion Default Payments (as
defined in Article VI.E below), Delivery Default Payments (as defined in Article
VI.D below) and any other amounts owed to such holder pursuant to Section 2(c)
of the Registration Rights Agreement, and (2) the "parity value" of the shares
to be redeemed, where parity value means the product of (a) the number of shares
of Common Stock issuable upon conversion of such shares of Series E Preferred
Stock in accordance with Article VI, without regard to any limitations on
conversion, below multiplied by (b) the highest Closing Price (as defined below)
for the Common Stock during the period beginning on the date of first occurrence
of the Mandatory Redemption Event and ending one day prior to the Mandatory
Redemption Date (the greater of such amounts being referred to as the "Mandatory
Redemption Amount"). "Closing Price," as of any date, means the last sale price
of the Common Stock on the Nasdaq as reported by Bloomberg Financial Markets or
an equivalent reliable reporting service mutually acceptable to and hereafter
designated by the holders of at least two-thirds (2/3) of the shares of Series E
Preferred Stock and the Corporation ("Bloomberg") or, if Nasdaq is not the
principal trading market for such security, the last sale price of such security
on the principal securities exchange or trading market where such security is
listed or traded as reported by Bloomberg, or if the foregoing do not apply, the
last sale price of such security in the over-the-counter market on the
electronic bulletin board for such security as reported by Bloomberg, or, if no
last sale price of such security is available in the over-the-counter market on
the electronic bulletin board for such security or in any of the foregoing
manners, the average of the bid prices of any market makers for such security
that are listed in the "pink sheets" by the National Quotation Bureau, Inc. If
the Closing Price cannot be calculated for such security on such date in the
manner provided above, the Closing Price shall be the fair market value as
mutually determined by the Corporation and the holders of at least two-thirds
(2/3) of the shares of Series E Preferred Stock for which the calculation of the
Closing Price is required.
B. Trading Market Redemption. If the Series E Preferred Stock ceases
to be convertible by any holder as a result of the limitations described in
Article VI.A(b) below (a "Trading Market Redemption Event"), and the Corporation
has not, prior to, or within thirty (30) days of, the date that such Trading
Market Redemption Event arises, (i) obtained the Stockholder Approval (as
defined in Article VI.A(c)) or (ii) eliminated any prohibitions under applicable
law or the rules or regulations of any stock exchange, interdealer quotation
system or other self-regulatory organization with jurisdiction over the
Corporation or any of its securities on the Corporation=s ability to issue
shares of Common Stock in excess of the Maximum Share Amount (as defined in
Article VI.A(c)), then the Corporation shall be obligated to redeem immediately
all of the then outstanding Series E Preferred Stock, in accordance with this
Article V.B. An irrevocable redemption notice (the "Trading Market Redemption
Notice") shall be delivered promptly to the holders of Series E Preferred Stock
at their registered address appearing on the records of the Corporation and
shall state (i) that the Maximum Share Amount (as defined in Article VI.A) has
been issued upon conversion of the Series E Preferred Stock, (ii) that the
Corporation is obligated to redeem all of the outstanding Series E Preferred
Stock and (iii) the Mandatory Redemption Date, which shall be a date within five
(5) business days of the earlier of (a) the date of the Trading Market
Redemption Notice or (b) the date on which the holders of the Series E Preferred
Stock notify the Corporation of the occurrence of a Trading Market Redemption
Event. On the Mandatory Redemption Date, the Corporation shall make payment of
the Mandatory Redemption Amount (as defined in Article V.A above) in cash.
C. Failure to Pay Redemption Amounts. In the case of a Mandatory
Redemption Event, if the Corporation fails to pay the Mandatory Redemption
Amount, within five (5) business days of written notice that such amount is due
and payable, then (assuming there are sufficient authorized shares) in addition
to all other available remedies, each holder of Series E Preferred Stock shall
have the right at any time, so long as the Mandatory Redemption Event continues,
to require the Corporation, upon written notice, to immediately issue (in
accordance with and subject to the terms of Article VI below), in lieu of the
Mandatory Redemption Amount, the number of shares of Common Stock of the
Corporation equal to such applicable redemption amount divided by any Conversion
Price (as defined below), as chosen in the sole discretion of the holder of
Series E Preferred Stock, in effect from the date of the Mandatory Redemption
Event until the date such holder elects to exercise its rights pursuant to this
Article V.E.
<PAGE>
VI. CONVERSION AT THE OPTION OF THE HOLDER
A. Optional Conversion
(a) Conversion Amount. Each holder of shares of Series E
Preferred Stock may, at its option at any time and from time to time, upon
surrender of the certificates therefor, convert any or all of its shares of
Series E Preferred Stock into Common Stock as set forth below (an "Optional
Conversion"). Each share of Series E Preferred Stock shall be convertible into
such number of fully paid and nonassessable shares of Common Stock as such
Common Stock exists on the Issue Date, or any other shares of capital stock or
other securities of the Corporation into which such Common Stock is thereafter
changed or reclassified, as is determined by dividing (1) the sum of (a) the
Stated Value thereof plus (b) the Premium Amount multiplied by such Stated
Value, by (2) the then effective Conversion Price (as defined below); provided,
however, that in no event (other than pursuant to the Automatic Conversion (as
defined in Article VII)) shall a holder of shares of Series E Preferred Stock be
entitled to convert any such shares in excess of that number of shares upon
conversion of which the sum of (x) the number of shares of Common Stock
beneficially owned by the holder (other than shares of Common Stock which may be
deemed beneficially owned through the ownership of the unconverted portion of
the shares of Series E Preferred Stock or the unexercised or unconverted portion
of any other securities of the Corporation (including, without limitation, the
warrants issued by the Corporation pursuant to the Securities Purchase Agreement
(the "Warrants")) subject to a limitation on conversion or exercise analogous to
the limitations contained herein) and (y) the number of shares of Common Stock
issuable upon the conversion of the shares of Series E Preferred Stock with
respect to which the determination of this proviso is being made, would result
in beneficial ownership by a holder of more than 4.9% of the outstanding shares
of Common Stock. For purposes of the proviso to the immediately preceding
sentence, beneficial ownership shall be determined in accordance with Section
13(d) of the Securities Exchange Act of 1934, as amended, and Regulation 13D-G
thereunder, except as otherwise provided in clause (x) of such proviso.
<PAGE>
(b) Trading Market Limitation. Unless the Corporation either
(i) is permitted by the applicable rules and regulations of the principal
securities market on which the Common Stock is listed or traded or (ii) has
obtained approval of the issuance of the Common Stock upon conversion of or
otherwise pursuant to the Series E Preferred Stock in accordance with applicable
law and the rules and regulations of any stock exchange, interdealer quotation
system or other self-regulatory organization with jurisdiction over the
Corporation or any of its securities (the "Stockholder Approval"), in no event
shall the total number of shares of Common Stock issued upon conversion of or
otherwise pursuant to the Series E Preferred Stock (including any shares of
capital stock or rights to acquire shares of capital stock issued by the
Corporation which are aggregated or integrated with the Common Stock issued or
issuable upon conversion of or otherwise pursuant to the Series E Preferred
Stock for purposes of any such rule or regulation) exceed the maximum number of
shares of Common Stock that the Corporation can so issue pursuant to any rule of
the principal United States securities market on which the Common Stock trades
(including Rule 4460 of the Nasdaq or any successor rule)(the "Maximum Share
Amount") which, as of the Issue Date, shall be 5,423,195 (19.99% of the total
shares of Common Stock outstanding on the Issue Date), subject to equitable
adjustments from time to time for stock splits, stock dividends, combinations,
capital reorganizations and similar events relating to the Common Stock
occurring after the Issue Date. With respect to each holder of Series E
Preferred Stock, the Maximum Share Amount shall refer to such holder=s pro rata
share thereof determined in accordance with Article X below. In the event that
the sum of (x) the aggregate number of shares of Common Stock actually issued
upon conversion of or otherwise pursuant to the outstanding Series E Preferred
Stock plus (y) the aggregate number of shares of Common Stock that remain
issuable upon conversion of or otherwise pursuant to the Series E Preferred
Stock at the then effective Conversion Price, represents at least one hundred
percent (100%) of the Maximum Share Amount (the "Triggering Event"), the
Corporation will use its best efforts to seek and obtain Stockholder Approval
(or obtain such other relief as will allow conversions hereunder in excess of
the Maximum Share Amount) as soon as practicable following the Triggering Event.
<PAGE>
B. Conversion Price. The "Conversion Price" shall be $24.47;
provided, however, that if the average of the Closing Bid Prices of the Common
Stock for the ten (10) Trading Day (as defined below) period ending on August
18, 2000 (the "Adjusted Conversion Price") is less than the then effective
Conversion Price, the Conversion Price shall equal the Adjusted Conversion
Price; provided, further, however, that (x) if the Registration Statement (as
defined in the Registration Rights Agreement) required to be filed pursuant to
Section 2(a) of the Registration Rights Agreement has not been declared
effective by the SEC prior to the tenth (10th) Trading Day immediately preceding
August 18, 2000 or (y) such Registration Statement after its initial
effectiveness lapses in effect or sales of all of the Registrable Securities (as
defined in the Registration Rights Agreement) otherwise cannot be made
thereunder at any time during the period in which the Adjusted Conversion Price
is calculated, whether by reason of the Corporation=s failure or inability to
amend or supplement the prospectus (the "Prospectus") included therein in
accordance with the Registration Rights Agreement or otherwise, after such
Registration Statement becomes effective (including, without limitation, during
an Allowed Delay (as defined in Section 3(f) of the Registration Statement) or
during an Underwriters= Lock-Up Period (as defined in Section 4(f) of the
Registration Rights Agreement), then the Adjusted Conversion Price shall equal
the lowest average of the Closing Bid Prices of the Common Stock during any ten
(10) consecutive Trading Day period beginning on the tenth (10th) Trading Day
immediately preceding August 18, 2000 and ending on the tenth (10th) Trading Day
following (i) in the case of an event described in clause (x) of this proviso,
the date on which the Registration Statement is declared effective, or (ii) in
the case of an event described in clause (y) of this proviso, the date on which
the Holder is first notified that sales of all of the Registrable Securities may
again be made under the Prospectus; provided, further, however, that in no event
shall the Adjusted Conversion Price be less than the Floor Price (as defined in
Article IV.C). The then effective Conversion Price shall be adjusted, if lower,
to the Reset Price (as defined below) in the event that either (i) there is a
public announcement that the proposed transaction between the Corporation and
Grizzard Advertising Incorporated has been abandoned, terminated or will
otherwise not be consummated (a "Grizzard Announcement") or (ii) (A) the number
of shares of Common Stock issuable upon exercise of that certain warrant to
purchase Common Stock of the Corporation at an exercise price of $.01 per share
which was issued to General Electric Capital Corporation ("GECC") on December
24, 1997, as amended on May 17, 1999 and August 30, 1999 (as amended, the "GECC
Warrant") is not adjusted to be zero (0) upon delivery to GECC of the Company=s
audited consolidated statement of income for the year ended June 30, 2001 on or
before October 31, 2001 pursuant to the terms of the GECC Warrant and (B) the
GECC Warrant is not replaced with a warrant to purchase 300,000 shares of Common
Stock at an exercise price equal to one-third of the offering price of the
Common Stock offered in a Qualified Secondary Offering (as defined in the GECC
Warrant) or a Qualified Private Placement (as defined in the GECC Warrant) which
is consummated on or before April 30, 2000, as such date may be extended by GECC
and the Corporation. The AReset Price@ shall equal the average of the Closing
Bid Prices of the Common Stock for the ten (10) consecutive Trading Day period
beginning on (x) the Trading Day immediately following a Grizzard Announcement,
in the case of an event described in clause (i) above, or (y) the first Trading
Day of the Exercise Period (as defined in the GECC Warrant) in the case of the
failure to occur of the events described in clauses (ii)(A) and (ii)(B) above.
"Closing Bid Price" means, for any security as of any date, the closing bid
price on Nasdaq as reported by Bloomberg or, if Nasdaq is not the principal
trading market for such security, the closing bid price of such security on the
principal securities exchange or trading market where such security is listed or
traded as reported by Bloomberg, or if the foregoing do not apply, the closing
bid price of such security in the over-the-counter market on the electronic
bulletin board for such security as reported by Bloomberg, or, if no closing bid
price of such security is available in the over-the-counter market on the
electronic bulletin board for such security or in any of the foregoing manners,
the average of the bid prices of any market makers for such security that are
listed in the "pink sheets" by the National Quotation Bureau, Inc. If the
Closing Bid Price cannot be calculated for such security on such date in the
manner provided above, the Closing Bid Price shall be the fair market value as
mutually determined by the Corporation and the holders of at least two-thirds
(2/3) of the then outstanding shares of Series E Preferred Stock being converted
for which the calculation of the Closing Bid Price is required in order to
determine the Conversion Price of such Series E Preferred Stock. "Trading Day"
shall mean any day on which the Common Stock is traded for any period on Nasdaq,
or on the principal securities exchange or other securities market on which the
Common Stock is then being traded.
C. Adjustments to Conversion Price. The Conversion Price shall be
subject to the following provisions:
<PAGE>
(a) Adjustment to Conversion Price Due to Stock Split, Stock
Dividend, Etc. If at any time when Series E Preferred Stock is issued and
outstanding, the number of outstanding shares of Common Stock is increased or
decreased by a stock split, stock dividend, combination, reclassification,
rights offering below the Trading Price (as defined below) to all holders of
Common Stock or other similar event, then the Conversion Price shall be
calculated giving appropriate effect to the stock split, stock dividend,
combination, reclassification or other similar event. In such event, the
Corporation shall notify the Transfer Agent of such change on or before the
effective date thereof. "Trading Price," which shall be measured as of the
record date in respect of the rights offering, means (i) the average of the last
reported sale prices for the shares of Common Stock on Nasdaq as reported by
Bloomberg, as applicable, for the five (5) Trading Days immediately preceding
such date, or (ii) if Nasdaq is not the principal trading market for the shares
of Common Stock, the average of the last reported sale prices on the principal
trading market for the Common Stock during the same period as reported by
Bloomberg, or (iii) if market value cannot be calculated as of such date on any
of the foregoing bases, the Trading Price shall be the fair market value as
reasonably determined in good faith by (a) the Board of Directors of the
Corporation or, (b) at the option of the holders of at least two-thirds (2/3) of
the outstanding Series E Preferred Stock by an independent investment bank of
nationally recognized standing in the valuation of businesses similar to the
business of the Corporation.
(b) Adjustment Due to Merger, Consolidation, Etc. If, at any
time when Series E Preferred Stock is issued and outstanding and prior to the
conversion of all Series E Preferred Stock, there shall be any merger,
consolidation, exchange of shares, recapitalization, reorganization, or other
similar event, as a result of which shares of Common Stock of the Corporation
shall be changed into the same or a different number of shares of another class
or classes of stock or securities of the Corporation or another entity, or in
case of any sale or conveyance of all or substantially all of the assets of the
Corporation other than in connection with a plan of complete liquidation of the
Corporation (each, a "Change of Control Transaction"), then the holders of
Series E Preferred Stock shall thereafter have the right to receive upon
conversion of the Series E Preferred Stock, upon the basis and upon the terms
and conditions specified herein and in lieu of the shares of Common Stock
immediately theretofore issuable upon conversion, such stock, securities or
assets which the holders of Series E Preferred Stock would have been entitled to
receive in such transaction had the Series E Preferred Stock been converted in
full immediately prior to such transaction (without regard to any limitations on
conversion contained herein), and in any such case appropriate provisions shall
be made with respect to the rights and interests of the holders of Series E
Preferred Stock to the end that the provisions hereof (including, without
limitation, provisions for adjustment of the Conversion Price and of the number
of shares of Common Stock issuable upon conversion of the Series E Preferred
Stock) shall thereafter be applicable, as nearly as may be practicable in
relation to any securities or assets thereafter deliverable upon the conversion
of Series E Preferred Stock. The Corporation shall not effect any transaction
described in this subsection (b) unless (a) it first gives, to the extent
practical, thirty (30) days' prior written notice (but in any event at least
fifteen (15) business days prior written notice) of the record date of the
special meeting of stockholders to approve, or if there is no such record date,
the consummation of, such Change of Control Transaction (during which time the
holders of Series E Preferred Stock shall be entitled to convert the Series E
Preferred Stock) and (b) the resulting successor or acquiring entity (if not the
Corporation) and, if an entity different from the successor or acquiring entity,
the entity whose capital stock or assets the holders of the Common Stock are
entitled to receive as a result of such Change of Control Transaction, assumes
by written instrument the obligations of this Certificate of Designation
(including this subsection (b)). The above provisions shall similarly apply to
successive consolidations, mergers, sales, transfers or share exchanges.
<PAGE>
(c) Adjustment Due to Distribution. Subject to Article III, if
the Corporation shall declare or make any distribution of its assets (or rights
to acquire its assets) to holders of Common Stock as a dividend, stock
repurchase, by way of return of capital or otherwise (including any dividend or
distribution to the Corporation's shareholders in cash or shares (or rights to
acquire shares) of capital stock of a subsidiary (i.e., a spin-off)) (a
"Distribution"), then the holders of Series E Preferred Stock shall be entitled,
upon any conversion of shares of Series E Preferred Stock after the date of
record for determining shareholders entitled to such Distribution, to receive
the amount of such assets which would have been payable to the holder with
respect to the shares of Common Stock issuable upon such conversion had such
holder been the holder of such shares of Common Stock on the record date for the
determination of shareholders entitled to such Distribution.
(d) Purchase Rights. Subject to Article III, if at any time
when any Series E Preferred Stock is issued and outstanding, the Corporation
issues any convertible securities or rights to purchase stock, warrants,
securities or other property (the "Purchase Rights") pro rata to the record
holders of any class of Common Stock, then the holders of Series E Preferred
Stock will be entitled to acquire, upon the terms applicable to such Purchase
Rights, the aggregate Purchase Rights which such holder could have acquired if
such holder had held the number of shares of Common Stock acquirable upon
complete conversion of the Series E Preferred Stock (without regard to any
limitations on conversion contained herein) immediately before the date on which
a record is taken for the grant, issuance or sale of such Purchase Rights, or,
if no such record is taken, the date as of which the record holders of Common
Stock are to be determined for the grant, issue or sale of such Purchase Rights.
(e) Antidilution Provisions. The Conversion Price shall be
subject to adjustment from time to time as provided below:
(i) Adjustment of Conversion Price.
If and whenever on or after the Issue Date, the Corporation is deemed to have
issued or sold, any shares of Common Stock for no consideration or for a
consideration per share (before deduction of reasonable expenses or commissions
or underwriting discounts or allowances in connection therewith) less than the
Conversion Price in effect on the date of such deemed issuance or sale (a
"Dilutive Issuance"), then immediately upon the Dilutive Issuance, the
Conversion Price will be reduced to the amount of the consideration per share
received by the Corporation in such Dilutive Issuance.
(ii) Effect on Conversion Price of Certain Events. For
purposes of determining the adjusted Conversion Price, the following will be
applicable:
<PAGE>
(A) Issuance of Rights or Options. If the Corporation in
any manner issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock or other
securities convertible into or exchangeable for Common Stock ("Convertible
Securities") (such warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as "Options") and the price
per share for which Common Stock is issuable upon the exercise of such Options
is less than the Conversion Price, then the Conversion Price shall be equal to
such price per share. For purposes of the preceding sentence, the "price per
share for which Common Stock is issuable upon the exercise of such Options" is
determined by dividing (i) the total amount, if any, received or receivable by
the Corporation as consideration for the issuance or granting of all such
Options, plus the minimum aggregate amount of additional consideration, if any,
payable to the Corporation upon the exercise of all such Options, plus, in the
case of Convertible Securities issuable upon the exercise of such Options, the
minimum aggregate amount of additional consideration payable upon the conversion
or exchange thereof at the time such Convertible Securities first become
convertible or exchangeable, by (ii) the maximum total number of shares of
Common Stock issuable upon the exercise of all such Options (assuming full
conversion of Convertible Securities, if applicable). No further adjustment to
the Conversion Price will be made upon the actual issuance of such Common Stock
upon the exercise of such Options or upon the conversion or exchange of
Convertible Securities issuable upon exercise of such Options.
(B) Issuance of Convertible Securities. If the Corporation
in any manner issues or sells any Convertible Securities, whether or not
immediately convertible (other than where the same are issuable upon the
exercise of Options) and the price per share for which Common Stock is issuable
upon such conversion or exchange is less than the Conversion Price, then the
Conversion Price shall be equal to such price per share. For the purposes of the
preceding sentence, the "price per share for which Common Stock is issuable upon
such conversion or exchange" is determined by dividing (i) the total amount, if
any, received or receivable by the Corporation as consideration for the issuance
or sale of all such Convertible Securities, plus the minimum aggregate amount of
additional consideration, if any, payable to the Corporation upon the conversion
or exchange thereof at the time such Convertible Securities first become
convertible or exchangeable, by (ii) the maximum total number of shares of
Common Stock issuable upon the conversion or exchange of all such Convertible
Securities. No further adjustment to the Conversion Price will be made upon the
actual issuance of such Common Stock upon conversion or exchange of such
Convertible Securities.
(C) Change in Option Price or Conversion Rate. If there is
a change at any time in (i) the amount of additional consideration payable to
the Corporation upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Corporation upon the conversion or
exchange of any Convertible Securities; or (iii) the rate at which any
Convertible Securities are convertible into or exchangeable for Common Stock
(other than under or by reason of provisions designed to protect against
dilution), the Conversion Price in effect at the time of such change will be
readjusted to the Conversion Price which would have been in effect at such time
had such Options or Convertible Securities still outstanding provided for such
changed additional consideration or changed conversion rate, as the case may be,
at the time initially granted, issued or sold.
(D) Treatment of Expired Options and Unexercised
Convertible Securities. If, in any case, the total number of shares of Common
Stock issuable upon exercise of any Option or upon conversion or exchange of any
Convertible Securities is not, in fact, issued and the rights to exercise such
Option or to convert or exchange such Convertible Securities shall have expired
or terminated, the Conversion Price then in effect will be readjusted to the
Conversion Price which would have been in effect at the time of such expiration
or termination had such Option or Convertible Securities, to the extent
outstanding immediately prior to such expiration or termination (other than in
respect of the actual number of shares of Common Stock issued upon exercise or
conversion thereof), never been issued.
<PAGE>
(E) Calculation of Consideration Received. If any Common
Stock, Options or Convertible Securities are issued, granted or sold for cash,
the consideration received therefor will be the amount received by the
Corporation therefor, before deduction of reasonable commissions, underwriting
discounts or allowances or other reasonable expenses paid or incurred by the
Corporation in connection with such issuance, grant or sale. In case any Common
Stock, Options or Convertible Securities are issued or sold for a consideration
part or all of which shall be other than cash, the amount of the consideration
other than cash received by the Corporation will be the fair value of such
consideration, except where such consideration consists of securities, in which
case the amount of consideration received by the Corporation will be the Market
Price thereof as of the date of receipt. In case any Common Stock, Options or
Convertible Securities are issued in connection with any acquisition, merger or
consolidation in which the Corporation is the surviving corporation, the amount
of consideration therefor will be deemed to be the fair value of such portion of
the net assets and business of the non-surviving corporation as is attributable
to such Common Stock, Options or Convertible Securities, as the case may be. The
fair value of any consideration other than cash or securities will be determined
in good faith by the Board of Directors of the Corporation.
<PAGE>
(F) Exceptions to Adjustment of Conversion Price. No
adjustment to the Conversion Price will be made (i) upon the exercise of any
warrants, options or convertible securities granted, issued and outstanding on
the Issue Date; (ii) upon the grant or exercise of any stock or options which
may hereafter be granted or exercised under any employee benefit plan of the
Corporation now existing or to be implemented in the future, so long as the
issuance of such stock or options is approved by a majority of the independent
members of the Board of Directors of the Corporation or a majority of the
members of a committee of independent directors established for such purpose;
(iii) issuances of securities in connection with a strategic investment or
acquisition (the primary purpose of which is not to raise equity capital), so
long as, in connection with an acquisition or strategic investment that has an
aggregate acquisition price in excess of ten million dollars ($10,000,000), the
Corporation has received an opinion from a nationally recognized investment
banking firm reasonably acceptable to the holders of Series E Preferred Stock in
connection with such strategic investment or acquisition that such transaction
is fair to the Corporation from a financial point of view; (iv) issuances of the
Bank Warrants (as defined in the Purchase Agreement); or (v) issuances of
securities (including Common Stock or securities convertible or exercisable into
shares of Common Stock) (AGECC Redemption Securities@) the proceeds of which are
used for the purpose of purchasing or redeeming the 1,766,245 shares of Common
Stock of the Corporation held by General Electric Capital Corporation, which
issuance is not primarily for the purpose of raising equity capital (a AGECC
Transaction@); provided, that such GECC Redemption Securities are not issued at
a discount in excess of ten percent (10%) of the Market Price on the date of
issuance of such securities (taking into account the value of any warrants or
options to acquire Common Stock issued in connection therewith) and; provided,
further, that if such GECC Redemption Securities consist solely of warrants,
options or similar rights (AGECC Warrants@) in which the purchaser pays no
consideration to the Corporation for such GECC Warrants in connection with a
GECC Transaction, then (A) the number of GECC Warrants issued in such
transaction may not exceed the consideration paid by such purchasers in the GECC
Transaction divided by the Market Price of the Common Stock in effect
immediately preceding such transaction multiplied by twenty-five percent (25%),
(B) the exercise price of the GECC Warrants must be greater than the Market
Price of the Common Stock in effect immediately preceding such GECC Transaction
and (C) the term of such GECC Warrants must be less than or equal to four (4)
years following the date of such GECC Transaction.
(iii) Certain Definitions.
(A) As used in this Article VI.C, "Common Stock"
includes
the Common Stock, par value $.01 per share, and any additional class of stock of
the Corporation having no preference as to dividends or distributions on
liquidation, provided that the shares issuable pursuant to the Series E
Preferred Stock shall include only shares of Common Stock, par value $.01 per
share, in respect of which the Series E Preferred Stock is convertible, or
shares resulting from any subdivision or combination of such Common Stock, or in
the case of any reorganization, reclassification, consolidation, merger, or sale
of the character referred to above hereof, the stock or other securities or
property provided for in such paragraph.
(B) "Market Price," as of any date, (i) means the average
of the last reported sale prices for the shares of Common Stock on Nasdaq
("Nasdaq") for the five (5) Trading Days immediately preceding such date as
reported by Bloomberg Financial Markets or an equivalent reliable reporting
service mutually acceptable to and hereafter designated by the holder and the
Corporation ("Bloomberg"), or (ii) if Nasdaq is not the principal trading market
for the shares of Common Stock, the average of the last reported sale prices on
the principal trading market for the Common Stock during the same period as
reported by Bloomberg, or (iii) if market value cannot be calculated as of such
date on any of the foregoing bases, the Market Price shall be the fair market
value as reasonably determined in good faith by (a) the Board of Directors of
the Corporation or, at the option of the holders of at least two-thirds (2/3) of
the then outstanding Series E Preferred Stock, by (b) an independent investment
bank of nationally recognized standing in the valuation of businesses similar to
the business of the Corporation. The manner of determining the Market Price of
the Common Stock set forth in the foregoing definition shall apply with respect
to any other security in respect of which a determination as to market value
must be made hereunder.
<PAGE>
D Mechanics of Conversion. In order to convert Series E Preferred
Stock into full shares of Common Stock, a holder of Series E Preferred Stock
shall: (i) submit a copy of the fully executed notice of conversion in the form
attached hereto as Exhibit A ("Notice of Conversion") to the Corporation by
facsimile dispatched prior to Midnight, New York City time (the "Conversion
Notice Deadline") on the date specified therein as the Conversion Date (as
defined in Article VI.D(d)) (or by other means resulting in, or reasonably
expected to result in, notice to the Corporation on the Conversion Date) to the
office of the Corporation or its designated Transfer Agent for the Series E
Preferred Stock, which notice shall specify the number of shares of Series E
Preferred Stock to be converted, the Conversion Price and a calculation of the
number of shares of Common Stock issuable upon such conversion (together with a
copy of the first page of each certificate to be converted); and (ii) surrender
the original certificates representing the Series E Preferred Stock being
converted (the "Preferred Stock Certificates"), duly endorsed, along with a copy
of the Notice of Conversion to the office of the Corporation or the Transfer
Agent for the Series E Preferred Stock as soon as practicable thereafter. The
Corporation shall not be obligated to issue certificates evidencing the shares
of Common Stock issuable upon such conversion, unless either the Preferred Stock
Certificates are delivered to the Corporation or its Transfer Agent as provided
above, or the holder notifies the Corporation or its Transfer Agent that such
certificates have been lost, stolen or destroyed (subject to the requirements of
subparagraph (a) below). In the case of a dispute as to the calculation of the
Conversion Price, the Corporation shall promptly issue such number of shares of
Common Stock that are not disputed in accordance with subparagraph (b) below.
The Corporation shall submit the disputed calculations to its outside accountant
via facsimile within two (2) business days of receipt of the Notice of
Conversion. The accountant shall audit the calculations and notify the
Corporation and the holder of the results no later than 48 hours from the time
it receives the disputed calculations. The accountant=s calculation shall be
deemed conclusive absent manifest error.
(a) Lost or Stolen Certificates. Upon receipt by the
Corporation of evidence of the loss, theft, destruction or mutilation of any
Preferred Stock Certificates representing shares of Series E Preferred Stock,
and (in the case of loss, theft or destruction) of indemnity reasonably
satisfactory to the Corporation, and upon surrender and cancellation of the
Preferred Stock Certificate(s), if mutilated, the Corporation shall execute and
deliver new Preferred Stock Certificate(s) of like tenor and date.
(b) Delivery of Common Stock Upon Conversion. Upon the
surrender of certificates as described above together with a Notice of
Conversion, the Corporation shall issue and, within two (2) business days after
such surrender (or, in the case of lost, stolen or destroyed certificates, after
provision of agreement and indemnification pursuant to subparagraph (a) above)
(the "Delivery Period"), deliver (or cause its Transfer Agent to so issue and
deliver) in accordance with the terms hereof and the Purchase Agreement
(including, without limitation, in accordance with the requirements of Section
2(g) of the Purchase Agreement) to or upon the order of the holder (i) that
number of shares of Common Stock for the portion of the shares of Series E
Preferred Stock converted as shall be determined in accordance herewith and (ii)
a certificate representing the balance of the shares of Series E Preferred Stock
not converted, if any. In addition to any other remedies available to the
holder, including actual damages and/or equitable relief, the Corporation shall
pay to a holder $2,000 per day in cash for each day beyond a two (2) day grace
period following the Delivery Period that the Corporation fails to deliver
Common Stock (a "Delivery Default") issuable upon surrender of shares of Series
E Preferred Stock with a Notice of Conversion until such time as the Corporation
has delivered all such Common Stock (the "Delivery Default Payments"). Such
Delivery Default Payments shall be paid to such holder by the fifth day of the
month following the month in which it has accrued or, at the option of the
holder (by written notice to the Corporation by the first day of the month
following the month in which it has accrued), shall be convertible into Common
Stock in accordance with the terms of this Article VI.
<PAGE>
In lieu of delivering physical certificates representing the Common
Stock issuable upon conversion, provided the Corporation's Transfer Agent is
participating in the Depository Trust Company ("DTC") Fast Automated Securities
Transfer ("FAST") program, upon request of the holder and its compliance with
the provisions contained in Article VI.A and in this Article VI.D, the
Corporation shall use its best efforts to cause its Transfer Agent to
electronically transmit the Common Stock issuable upon conversion to the holder
by crediting the account of holder's Prime Broker with DTC through its Deposit
Withdrawal Agent Commission ("DWAC") system. The time periods for delivery and
penalties described in the immediately preceding paragraph shall apply to the
electronic transmittals described herein.
(c) No Fractional Shares. If any conversion of Series E
Preferred Stock would result in a fractional share of Common Stock or the right
to acquire a fractional share of Common Stock, such fractional share shall be
disregarded and the number of shares of Common Stock issuable upon Conversion of
the Series E Preferred Stock shall be the next higher number of shares.
(d) Conversion Date. The "Conversion Date" shall be the date
specified in the Notice of Conversion, provided that the Notice of Conversion is
submitted by facsimile (or by other means resulting in, or reasonably expected
to result in, notice) to the Corporation or its Transfer Agent before Midnight,
New York City time, on the date so specified, otherwise the Conversion Date
shall be the first business day after the date so specified on which the Notice
of Conversion is actually received by the Corporation or its Transfer Agent. The
person or persons entitled to receive the shares of Common Stock issuable upon
conversion shall be treated for all purposes as the record holder or holders of
such securities as of the Conversion Date and all rights with respect to the
shares of Series E Preferred Stock surrendered shall forthwith terminate except
the right to receive the shares of Common Stock or other securities or property
issuable on such conversion and except that the holders preferential rights as a
holder of Series E Preferred Stock shall survive to the extent the Corporation
fails to deliver such securities.
E Reservation of Shares. A number of shares of the authorized but
unissued Common Stock sufficient to provide for the conversion of the Series E
Preferred Stock outstanding (based on the Conversion Price then in effect) shall
at all times be reserved by the Corporation, free from preemptive rights, for
such conversion or exercise. As of the date of issuance of the Series E
Preferred Stock, 4,291,158 authorized and unissued shares of Common Stock have
been duly reserved for issuance upon conversion of the Series E Preferred Stock
(the "Reserved Amount"). The Reserved Amount shall be increased from time to
time in accordance with the Corporation's obligations pursuant to Section 4(h)
of the Purchase Agreement. In addition, if the Corporation shall issue any
securities or make any change in its capital structure which would change the
number of shares of Common Stock into which each share of the Series E Preferred
Stock shall be convertible, the Corporation shall at the same time also make
proper provision so that thereafter there shall be a sufficient number of shares
of Common Stock authorized and reserved, free from preemptive rights, for
conversion of the outstanding Series E Preferred Stock.
<PAGE>
If at any time a holder of shares of Series E Preferred Stock
submits a Notice of Conversion, and the Corporation does not have sufficient
authorized but unissued shares of Common Stock available to effect such
conversion in accordance with the provisions of this Article VI (a "Conversion
Default"), subject to Article X, the Corporation shall issue to the holder all
of the shares of Common Stock which are available to effect such conversion. The
number of shares of Series E Preferred Stock included in the Notice of
Conversion which exceeds the amount which is then convertible into available
shares of Common Stock (the "Excess Amount") shall, notwithstanding anything to
the contrary contained herein, not be convertible into Common Stock in
accordance with the terms hereof until (and at the holder=s option at any time
after) the date additional shares of Common Stock are authorized by the
Corporation to permit such conversion, at which time the Conversion Price in
respect thereof shall be the lesser of (i) the Conversion Price on the
Conversion Default Date (as defined below) and (ii) the Conversion Price on the
Conversion Date elected by the holder in respect thereof. The Corporation shall
use its best efforts to effect an increase in the authorized number of shares of
Common Stock as soon as possible following the earlier of (i) such time that a
holder of Series E Preferred Stock notifies the Corporation or that the
Corporation otherwise becomes aware that there are or likely will be
insufficient authorized and unissued shares to allow full conversion thereof and
(ii) a Conversion Default. In addition, the Corporation shall pay to the holder
payments ("Conversion Default Payments") for a Conversion Default in the amount
of (a) .24, multiplied by (b) the sum of (x) the Stated Value plus (y) the
Premium Amount multiplied by such Stated Value per share of Series E Preferred
Stock held by such holder through the Authorization Date (as defined below),
multiplied by (c) (N/365), where N = the number of days from the day the holder
submits a Notice of Conversion giving rise to a Conversion Default (the
"Conversion Default Date") to the date (the "Authorization Date") that the
Corporation authorizes a sufficient number of shares of Common Stock to effect
conversion of the full number of shares of Series E Preferred Stock. The
Corporation shall send notice to the holder of the authorization of additional
shares of Common Stock, the Authorization Date and the amount of holder's
accrued Conversion Default Payments. The accrued Conversion Default Payment for
each calendar month shall be paid in cash or shall be convertible into Common
Stock at the applicable Conversion Price, at the holder's option, as follows:
(a) In the event the holder elects to take such payment in
cash, cash payment shall be made to holder by the fifth day of the month
following the month in which it has accrued; and
(b) In the event the holder elects to take such payment in
Common Stock, the holder may convert such payment amount into Common Stock at
the Conversion Price (as in effect at the time of Conversion) at any time after
the fifth day of the month following the month in which it has accrued in
accordance with the terms of this Article VI (so long as there is then a
sufficient number of authorized shares of Common Stock).
The holder's election shall be made in writing to the Corporation at
any time prior to 9:00 p.m, New York City Time, on the third (3rd) day of the
month following the month in which Conversion Default payments have accrued. If
no election is made, the holder shall be deemed to have elected to receive cash.
Nothing herein shall limit the holder's right to pursue actual damages (to the
extent in excess of the Conversion Default Payments) for the Corporation's
failure to maintain a sufficient number of authorized shares of Common Stock,
and each holder shall have the right to pursue all remedies available at law or
in equity (including a decree of specific performance and/or injunctive relief).
<PAGE>
F Notice of Conversion Price Adjustments. Upon the occurrence of
each adjustment or readjustment of the Conversion Price pursuant to this Article
VI, the Corporation, at its expense, shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series E Preferred Stock a certificate setting forth such adjustment
or readjustment and showing in detail the facts upon which such adjustment or
readjustment is based. The Corporation shall, upon the written request at any
time of any holder of Series E Preferred Stock, furnish or cause to be furnished
to such holder a like certificate setting forth (i) such adjustment or
readjustment, (ii) the Conversion Price at the time in effect and (iii) the
number of shares of Common Stock and the amount, if any, of other securities or
property which at the time would be received upon conversion of a share of
Series E Preferred Stock.
G Status as Stockholders. Upon submission of a Notice of Conversion
by a holder of Series E Preferred Stock, (i) the shares covered thereby (other
than the shares, if any, which cannot be issued because their issuance would
exceed such holder's allocated portion of the Reserved Amount or Maximum Share
Amount) shall be deemed converted into shares of Common Stock and (ii) the
holder's rights as a holder of such converted shares of Series E Preferred Stock
shall cease and terminate, excepting only the right to receive certificates for
such shares of Common Stock and to any remedies provided herein or otherwise
available at law or in equity to such holder because of a failure by the
Corporation to comply with the terms of this Certificate of Designation.
Notwithstanding the foregoing, if a holder has not received certificates for all
shares of Common Stock prior to the tenth (10th) business day after the
expiration of the Delivery Period with respect to a conversion of shares of
Series E Preferred Stock for any reason, then (unless the holder otherwise
elects to retain its status as a holder of Common Stock by so notifying the
Corporation) the holder shall regain the rights of a holder of such shares of
Series E Preferred Stock with respect to such unconverted shares of Series E
Preferred Stock and the Corporation shall, as soon as practicable, return such
unconverted shares of Series E Preferred Stock to the holder or, if such shares
of Series E Preferred Stock have not been surrendered, adjust its records to
reflect that such shares of Series E Preferred Stock have not been converted. In
all cases, the holder shall retain all of its rights and remedies (including,
without limitation, (i) the right to receive Delivery Default Payments pursuant
to Article VI.E to the extent required thereby for such Delivery Default and any
subsequent Delivery Default and (ii) the right to have the Conversion Price with
respect to subsequent conversions determined in accordance with Article VI.E.)
for the Corporation's failure to convert the Series E Preferred Stock.
VII REDEMPTION OR CONVERSION AT MATURITY
<PAGE>
So long as (i) all of the shares of Common Stock issuable upon
conversion of all outstanding shares of Series E Preferred Stock are then (x)
authorized and reserved for issuance, (y) registered for re-sale under the 1933
Act by the holders of the Series E Preferred Stock (or may otherwise be resold
publicly without restriction) and (z) eligible to be traded on Nasdaq, the NYSE,
the AMEX or Nasdaq SmallCap and (ii) there is not then a continuing Mandatory
Redemption Event or Trading Market Redemption Event, each share of Series E
Preferred Stock issued and outstanding on February 18, 2004 (the "Maturity
Date"), shall be either (i) redeemed in cash by the Corporation for the
Liquidation Preference or (ii) at the option of the Corporation, automatically
converted into shares of Common Stock on such date at a conversion price equal
to the average of the Closing Bid Prices for the ten (10) Trading Days ending
one (1) Trading Day prior to the Maturity Date in accordance with, and subject
to, the provisions of Article VI hereof (the "Automatic Conversion"). At the
option of each holder of Series E Preferred Stock, the Maturity Date shall be
delayed by one (1) Trading Day for each Trading Day occurring prior thereto and
prior to the full conversion of the Series E Preferred Stock that (i) any
Registration Statement required to be filed and to be effective pursuant to the
Registration Rights Agreement is not effective or sales of all of the
Registrable Securities otherwise cannot be made thereunder during the
Registration Period (as defined in the Registration Rights Agreement) (whether
by reason of the Corporation's failure to properly supplement or amend the
prospectus included therein in accordance with the terms of the Registration
Rights Agreement or otherwise, including during any Allowed Delays (as defined
in Section 3(f) of the Registration Rights Agreement) and during any
Underwriters= Lock-Up Period (as defined in Section 4(f) of the Registration
Rights Agreement)), (ii) any Mandatory Redemption Event or Trading Market
Redemption Event exists, without regard to whether any cure periods shall have
run or (iii) that the Corporation is in breach of any of its obligations
pursuant to Section 4(h) of the Purchase Agreement.
VIII VOTING RIGHTS
The holders of the Series E Preferred Stock have no voting power
whatsoever, except as otherwise provided by the Nevada General Corporation Law
("NGCL"), in this Article VIII, and in Article IX below.
Notwithstanding the above, the Corporation shall provide each holder
of Series E Preferred Stock with prior notification of any meeting of the
shareholders (and copies of proxy materials and other information sent to
shareholders). In the event of any taking by the Corporation of a record of its
shareholders for the purpose of determining shareholders who are entitled to
receive payment of any dividend or other distribution, any right to subscribe
for, purchase or otherwise acquire (including by way of merger, consolidation or
recapitalization) any share of any class or any other securities or property, or
to receive any other right, or for the purpose of determining shareholders who
are entitled to vote in connection with any proposed sale, lease or conveyance
of all or substantially all of the assets of the Corporation, or any proposed
liquidation, dissolution or winding up of the Corporation, the Corporation shall
mail a notice to each holder, at least ten (10) days prior to the record date
specified therein (or thirty (30) days prior to the consummation of the
transaction or event, whichever is earlier), of the date on which any such
record is to be taken for the purpose of such dividend, distribution, right or
other event, and a brief statement regarding the amount and character of such
dividend, distribution, right or other event to the extent known at such time.
<PAGE>
To the extent that under the NGCL the vote of the holders of the
Series E Preferred Stock, voting separately as a class or series as applicable,
is required to authorize a given action of the Corporation, the affirmative vote
or consent of the holders of at least two-thirds (2/3) of the then outstanding
shares of the Series E Preferred Stock represented at a duly held meeting at
which a quorum is present or by written consent of at least two-thirds (2/3) of
the then outstanding shares of Series E Preferred Stock (except as otherwise may
be required under the NGCL shall constitute the approval of such action by the
class. To the extent that under the NGCL holders of the Series E Preferred Stock
are entitled to vote on a matter with holders of Common Stock, voting together
as one class, each share of Series E Preferred Stock shall be entitled to a
number of votes equal to the number of shares of Common Stock into which it is
then convertible using the record date for the taking of such vote of
shareholders as the date as of which the Conversion Price is calculated. Holders
of the Series E Preferred Stock shall be entitled to notice of all shareholder
meetings or written consents (and copies of proxy materials and other
information sent to shareholders) with respect to which they would be entitled
to vote, which notice would be provided pursuant to the Corporation=s bylaws and
the NGCL.
<PAGE>
IX PROTECTIVE PROVISIONS
So long as (i) any shares of Series E Preferred Stock are
outstanding (with respect to (a), (d), (f) and (g) below) or (ii) at least 3,000
shares of Series E Preferred Stock are outstanding (with respect to (b), (c) and
(e) below), the Corporation shall not, without first obtaining the approval (by
vote or written consent), as provided by the NGCL of the holders of at least
two-thirds (2/3) of the then outstanding shares of Series E Preferred Stock:
(a) alter, amend or repeal (whether by merger, consolidation
or otherwise) the rights, preferences or privileges of the Series E Preferred
Stock or any capital stock of the Corporation so as to affect adversely the
Series E Preferred Stock;
(b) create any new class or series of capital stock having a
preference over the Series E Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as previously defined
in Article II hereof, "Senior Securities");
(c) create any new class or series of capital stock ranking
pari passu with the Series E Preferred Stock as to distribution of assets upon
liquidation, dissolution or winding up of the Corporation (as previously defined
in Article II hereof, "Pari Passu Securities");
(d) increase the authorized number of shares of Series E
Preferred Stock;
(e) issue any Senior Securities or Pari Passu Securities;
(f) increase the par value of the Common Stock, or
(g) do any act or thing not authorized or contemplated by this
Certificate of Designation which would result in taxation of the holders of
shares of the Series E Preferred Stock under Section 305 of the Internal Revenue
Code of 1986, as amended (or any comparable provision of the Internal Revenue
Code as hereafter from time to time amended).
In the event holders of at least two-thirds (2/3) of the then
outstanding shares of Series E Preferred Stock agree to allow the Corporation to
alter or change the rights, preferences or privileges of the shares of Series E
Preferred Stock, pursuant to subsection (a) above, so as to affect the Series E
Preferred Stock, then the Corporation will deliver notice of such approved
change to the holders of the Series E Preferred Stock that did not agree to such
alteration or change (the "Dissenting Holders") and Dissenting Holders shall
have the right for a period of thirty (30) days to convert pursuant to the terms
of this Certificate of Designation as they exist prior to such alteration or
change or continue to hold their shares of Series E Preferred Stock.
<PAGE>
X PRO RATA ALLOCATIONS
The Maximum Share Amount and the Reserved Amount (including any
increases thereto) shall be allocated by the Corporation pro rata among the
holders of Series E Preferred Stock based on the number of shares of Series E
Preferred Stock issued to each holder. Each increase to the Maximum Share Amount
and the Reserved Amount shall be allocated pro rata among the holders of Series
E Preferred Stock based on the number of shares of Series E Preferred Stock held
by each holder at the time of the increase in the Maximum Share Amount or
Reserved Amount. In the event a holder shall sell or otherwise transfer any of
such holder=s shares of Series E Preferred Stock, each transferee shall be
allocated a pro rata portion of such transferor=s Maximum Share Amount and
Reserved Amount. Any portion of the Maximum Share Amount or Reserved Amount
which remains allocated to any person or entity which does not hold any Series E
Preferred Stock shall be allocated to the remaining holders of shares of Series
E Preferred Stock, pro rata based on the number of shares of Series E Preferred
Stock then held by such holders.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, this Certificate of Designation is executed on
behalf of the Corporation this 22nd day of February, 2000.
MARKETING SERVICES GROUP, INC.
By:____________________________________
J. Jeremy Barbera
Chairman of the Board and Chief
Executive Officer
<PAGE>
PHL_A 1340300 v 7
EXHIBIT A
NOTICE OF CONVERSION
(To be Executed by the Registered Holder
in order to Convert the Series E Preferred Stock)
The undersigned hereby irrevocably elects to convert ______ shares of
Series E Preferred Stock, represented by stock certificate No(s). __________
(the "Preferred Stock Certificates") into shares of common stock ("Common
Stock") of MARKETING SERVICES GROUP, INC., a Nevada corporation (the
"Corporation") according to the conditions of the Certificate of Designation of
Series E Preferred Stock, as of the date written below. If securities are to be
issued in the name of a person other than the undersigned, the undersigned will
pay all transfer taxes payable with respect thereto and is delivering herewith
such certificates. No fee will be charged to the Holder for any conversion,
except for transfer taxes, if any. A copy of each Preferred Stock Certificate is
attached hereto (or evidence of loss, theft or destruction thereof).
The undersigned hereby irrevocably elects to convert $___________ in
Conversion Default Payments, $__________ in Delivery Default Payments and/or
$___________ in payments pursuant to Section 2(c) of the Registration Rights
Agreement at the Conversion Price set forth below.
The Corporation shall electronically transmit the Common Stock issuable
pursuant to this Notice of Conversion to the account of the undersigned or its
nominee with DTC through its Deposit Withdrawal Agent Commission system ("DWAC
Transfer").
Name of DTC Prime Broker:
Account Number:
G In lieu of receiving shares of Common Stock issuable pursuant to this
Notice of Conversion by way of a DWAC Transfer, the undersigned hereby
requests that the Corporation issue a certificate or certificates for the
number of shares of Common Stock set forth above (which numbers are based
on the Holder's calculation attached hereto) in the name(s) specified
immediately below or, if additional space is necessary, on an attachment
hereto:
Name:
Address:
The undersigned represents and warrants that all offers and sales by the
undersigned of the securities issuable to the undersigned upon conversion of the
Series E Preferred Stock shall be made pursuant to registration of the
securities under the Securities Act of 1933, as amended (the "Act"), or pursuant
to an exemption from registration under the Act.
<PAGE>
124256-1
Date of Conversion:__________________________
Conversion Price:
Number of Shares of
Common Stock to be Issued pursuant to:
(i) Conversion of Series E Preferred Stock:
------------------------------------------
(ii) Conversion of Conversion Default Payments, Delivery Default
Payments and/or payments pursuant to Section 2(c) of the Registration Rights
Agreement:
------------------------------------------
Signature:
Name:
Address:___________________________________
-----------------------------------
*The Corporation is not required to issue shares of Common Stock until the
original Series E Preferred Stock Certificate(s) (or evidence of loss, theft or
destruction thereof) to be converted are received by the Corporation or its
Transfer Agent. The Corporation shall issue and deliver shares of Common Stock
to an overnight courier not later than two (2) business days following receipt
of the original Preferred Stock Certificate(s) to be converted, and shall make
payments pursuant to the Certificate of Designation for the number of business
days such issuance and delivery is late.
Exhibit 4.1
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
EXCEPT AS OTHERWISE SET FORTH HEREIN OR IN A SECURITIES PURCHASE AGREEMENT
DATED AS OF FEBRUARY 18, 2000, NEITHER THIS WARRANT NOR ANY OF SUCH SHARES
MAY BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER SAID ACT OR, AN OPINION
OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE, CUSTOMARY FOR OPINIONS OF
COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED
UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.
Right to
Purchase
735,537
Shares of
Common Stock, par value
$.01
per share
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, Marshall Capital Management, Inc.
or its registered assigns, is entitled to purchase from MARKETING SERVICES
GROUP, INC., a Delaware corporation (the "Company"), at any time or from time to
time during the period specified in Paragraph 2 hereof, Seven Hundred
Thirty-Five Thousand, Five Hundred Thirty-Seven (735,537) fully paid and
nonassessable shares of the Company's Common Stock, par value $.01 per share
(the "Common Stock"), at an exercise price of $28.55 per share (the "Exercise
Price"). The term "Warrant Shares," as used herein, refers to the shares of
Common Stock purchasable hereunder. The Warrant Shares and the Exercise Price
are subject to adjustment as provided in Paragraph 4 hereof. The term Warrants
means this Warrant and the other warrants issued pursuant to that certain
Securities Purchase Agreement, dated February 18, 2000, by and among the Company
and the Buyers listed on the execution page thereof (the "Securities Purchase
Agreement").
This Warrant is subject to the following terms, provisions, and
conditions:
<PAGE>
12
PHL_A 1347059 v 3
1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "Exercise
Agreement"), to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof), and upon (i)
payment to the Company in cash, by certified or official bank check or by wire
transfer for the account of the Company of the Exercise Price for the Warrant
Shares specified in the Exercise Agreement or (ii) if the resale of the Warrant
Shares by the holder is not then registered pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), delivery to the Company of a written notice of an election to
effect a "Cashless Exercise" (as defined in Section 11(c) below) for the Warrant
Shares specified in the Exercise Agreement. The Warrant Shares so purchased
shall be deemed to be issued to the holder hereof or such holder's designee, as
the record owner of such shares, as of the close of business on the date on
which this Warrant shall have been surrendered, the completed Exercise Agreement
shall have been delivered, and payment shall have been made for such shares (or
an election to effect a Cashless Exercise has been made) as set forth above.
Certificates for the Warrant Shares so purchased, representing the aggregate
number of shares specified in the Exercise Agreement, shall be delivered to the
holder hereof within a reasonable time, not exceeding two (2) business days,
after this Warrant shall have been so exercised. The certificates so delivered
shall be in such denominations as may be requested by the holder hereof and
shall be registered in the name of such holder or such other name as shall be
designated by such holder. If this Warrant shall have been exercised only in
part, then, unless this Warrant has expired, the Company shall, at its expense,
at the time of delivery of such certificates, deliver to the holder a new
Warrant representing the number of shares with respect to which this Warrant
shall not then have been exercised.
Notwithstanding anything in this Warrant to the contrary, in no
event shall the Holder of this Warrant be entitled to exercise a number of
Warrants (or portions thereof) in excess of the number of Warrants (or portions
thereof) upon exercise of which the sum of (i) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of the
unexercised Warrants and the unexercised or unconverted portion of any other
securities of the Company (including shares of Series E Preferred Stock (as
defined in the Securities Purchase Agreement)) subject to a limitation on
conversion or exercise analogous to the limitation contained herein) and (ii)
the number of shares of Common Stock issuable upon exercise of the Warrants (or
portions thereof) with respect to which the determination described herein is
being made, would result in beneficial ownership by the Holder and its
affiliates of more than 4.9% of the outstanding shares of Common Stock. For
purposes of the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulation 13D-G thereunder, except as otherwise provided
in clause (i) hereof.
2. Period of Exercise.
(a) Exercise Period. This Warrant is exercisable at any time or from
time to time on or after the date on which this Warrant is issued and delivered
pursuant to the terms of the Securities Purchase Agreement (the "Issue Date")
and before 5:00 p.m., New York City time on the second (2nd) anniversary of the
Issue Date (the "Exercise Period").
<PAGE>
(b) Mandatory Exercise Right. The Company shall be entitled, on any
day following the eighteen (18) month anniversary of the Issue Date on which the
average Closing Bid Price of the Common Stock during the ten (10) consecutive
trading day period ending on the trading day immediately preceding such date
(the ACalculation Date@) is equal to or greater than 170% of the Exercise Price
(subject to adjustment in accordance with Section 4 hereof), to deliver a
written notice (the AMandatory Exercise Notice@) to the Holder requiring such
Holder to exercise this Warrant in accordance with Section 1 hereof on the date
which is twenty (20) trading days following the date of such Mandatory Exercise
Notice (the AExercise Date@); provided, however, that the Company shall have
such right if and only if (x) for a period of thirty (30) consecutive trading
days prior to such Calculation Date and (y) at all times during such ten (10)
consecutive trading day period of time and continuing through the Exercise Date,
the Warrant Shares issuable upon exercise of the Warrants are (i) authorized and
reserved for issuance, (ii) registered for resale under the Securities Act of
1933, as amended, by the holder of this Warrant (or may otherwise be resold
publicly without restriction) and sales of the Warrant Shares may be made
continuously thereunder during such time periods, and (iii) listed for trading
on each principal exchange or market on which the shares of Common Stock of the
Company were then traded; and provided, further, however, that on the Exercise
Date, the Closing Bid Price of the Common Stock is equal to or greater than one
hundred fifty percent (150%) of the Exercise Price (subject to adjustment in
accordance with Section 4 hereof).
Nothing in this Section 2(b) shall prohibit exercise of the Warrant otherwise
permitted pursuant to the terms of this Warrant during the pendency of any
Mandatory Exercise Notice.
3. Certain Agreements of the Company. The Company hereby covenants
and agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon issuance
in accordance with the terms of this Warrant, be validly issued, fully paid, and
nonassessable and free from all taxes, liens, and charges with respect to the
issue thereof.
(b) Reservation of Shares. During the Exercise Period, the Company
shall at all times have authorized, and reserved for the purpose of issuance
upon exercise of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant in accordance with the terms of Section
4(h) of the Securities Purchase Agreement.
(c) Listing. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon exercise of the Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant; and the Company shall
so list on each national securities exchange or automated quotation system, as
the case may be, and shall maintain such listing of, any other shares of capital
stock of the Company issuable upon the exercise of this Warrant if and so long
as any shares of the same class shall be listed on such national securities
exchange or automated quotation system.
<PAGE>
(d) Certain Actions Prohibited. The Company will not, by amendment
of its charter 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 to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of Common Stock receivable upon
the exercise of this Warrant above the Exercise Price then in effect, and (ii)
will take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.
(e) Successors and Assigns. This Warrant will be binding upon any
entity succeeding to the Company by merger, consolidation, or acquisition of all
or substantially all the Company's assets.
4. Antidilution Provisions. During the Exercise Period, the Exercise Price
and the number of Warrant Shares shall be subject to adjustment from time to
time as provided in this Paragraph 4.
In the event that any adjustment of the Exercise Price as required
herein results in a fraction of a cent, such Exercise Price shall be rounded up
to the nearest cent.
(a) Adjustment of Exercise Price and Number of Shares upon Issuance
of Common Stock. Except as otherwise provided in Paragraphs 4(c) and 4(e)
hereof, if and whenever on or after the Issue Date of this Warrant, the Company
issues or sells, or in accordance with Paragraph 4(b) hereof is deemed to have
issued or sold, any shares of Common Stock for no consideration or for a
consideration per share (before deduction of reasonable expenses or commissions
or underwriting discounts or allowances in connection therewith) less than the
Market Price (as hereinafter defined) on the Issue Date (a "Dilutive Issuance"),
then immediately upon the Dilutive Issuance, the Exercise Price will be reduced
to a price determined by multiplying the Exercise Price in effect immediately
prior to the Dilutive Issuance by a fraction, (i) the numerator of which is an
amount equal to the sum of (x) the number of shares of Common Stock actually
outstanding immediately prior to the Dilutive Issuance, plus (y) the quotient of
the aggregate consideration, calculated as set forth in Paragraph 4(b) hereof,
received by the Company upon such Dilutive Issuance divided by the Market Price
in effect immediately prior to the Dilutive Issuance, and (ii) the denominator
of which is the total number of shares of Common Stock Deemed Outstanding (as
defined below) immediately after the Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Paragraph 4(a) hereof, the
following will be applicable:
<PAGE>
(i) Issuance of Rights or Options. If the Company in any
manner issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock or other
securities convertible into or exchangeable for Common Stock ("Convertible
Securities") (such warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as "Options") and the price
per share for which Common Stock is issuable upon the exercise of such Options
is less than the Market Price on the date of issuance or grant of such Options,
then the maximum total number of shares of Common Stock issuable upon the
exercise of all such Options will, as of the date of the issuance or grant of
such Options, be deemed to be outstanding and to have been issued and sold by
the Company for such price per share. For purposes of the preceding sentence,
the "price per share for which Common Stock is issuable upon the exercise of
such Options" is determined by dividing (i) the total amount, if any, received
or receivable by the Company as consideration for the issuance or granting of
all such Options, plus the minimum aggregate amount of additional consideration,
if any, payable to the Company upon the exercise of all such Options, plus, in
the case of Convertible Securities issuable upon the exercise of such Options,
the minimum aggregate amount of additional consideration payable upon the
conversion or exchange thereof at the time such Convertible Securities first
become convertible or exchangeable, by (ii) the maximum total number of shares
of Common Stock issuable upon the exercise of all such Options (assuming full
conversion of Convertible Securities, if applicable). No further adjustment to
the Exercise Price will be made upon the actual issuance of such Common Stock
upon the exercise of such Options or upon the conversion or exchange of
Convertible Securities issuable upon exercise of such Options.
(ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities, whether or not immediately
convertible (other than where the same are issuable upon the exercise of
Options) and the price per share for which Common Stock is issuable upon such
conversion or exchange is less than the Market Price on the date of issuance,
then the maximum total number of shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities will, as of the date
of the issuance of such Convertible Securities, be deemed to be outstanding and
to have been issued and sold by the Company for such price per share. For the
purposes of the preceding sentence, the "price per share for which Common Stock
is issuable upon such conversion or exchange" is determined by dividing (i) the
total amount, if any, received or receivable by the Company as consideration for
the issuance or sale of all such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the conversion or exchange thereof at the time such Convertible Securities
first become convertible or exchangeable, by (ii) the maximum total number of
shares of Common Stock issuable upon the conversion or exchange of all such
Convertible Securities. No further adjustment to the Exercise Price will be made
upon the actual issuance of such Common Stock upon conversion or exchange of
such Convertible Securities.
(iii) Change in Option Price or Conversion Rate. If there is a
change at any time in (i) the amount of additional consideration payable to the
Company upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Company upon the conversion or exchange of
any Convertible Securities; or (iii) the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock (other than
under or by reason of provisions designed to protect against dilution), the
Exercise Price in effect at the time of such change will be readjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold.
<PAGE>
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. If, in any case, the total number of shares of Common Stock issuable
upon exercise of any Option or upon conversion or exchange of any Convertible
Securities is not, in fact, issued and the rights to exercise such Option or to
convert or exchange such Convertible Securities shall have expired or
terminated, the Exercise Price then in effect will be readjusted to the Exercise
Price which would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination (other than in respect of
the actual number of shares of Common Stock issued upon exercise or conversion
thereof), never been issued.
(v) Calculation of Consideration Received. If any Common
Stock, Options or Convertible Securities are issued, granted or sold for cash,
the consideration received therefor for purposes of this Warrant will be the
amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance, grant or sale.
In case any Common Stock, Options or Convertible Securities are issued or sold
for a consideration part or all of which shall be other than cash, the amount of
the consideration other than cash received by the Company will be the fair value
of such consideration, except where such consideration consists of securities,
in which case the amount of consideration received by the Company will be the
Market Price thereof as of the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued in connection with any acquisition,
merger or consolidation in which the Company is the surviving corporation, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving corporation as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined in good faith by the Board of Directors of the Company.
<PAGE>
(vi) Exceptions to Adjustment of Exercise Price. No adjustment
to the Exercise Price will be made (i) upon the exercise of any warrants,
options or convertible securities granted, issued and outstanding on the date of
issuance of this Warrant; (ii) upon the grant or exercise of any stock or
options which may hereafter be granted or exercised under any employee benefit
plan of the Company now existing or to be implemented in the future, so long as
the issuance of such stock or options is approved by a majority of the
independent members of the Board of Directors of the Company or a majority of
the members of a committee of independent directors established for such
purpose; (iii) upon the exercise of the Warrants; (iv) issuances of securities
in connection with a strategic investment or acquisition (the primary purpose of
which is not to raise equity capital), so long as, in connection with an
acquisition or strategic investment that has an aggregate acquisition price in
excess of ten million dollars ($10,000,000), the Company has received an opinion
from a nationally recognized investment banking firm reasonably acceptable to
the holder of this Warrant in connection with such strategic investment or
acquisition that such transaction is fair to the Company from a financial point
of view; (v) issuance of the Bank Warrants (as defined in the Securities
Purchase Agreement); or (vi) issuances of securities (including Common Stock or
securities convertible or exercisable into shares of Common Stock) (AGECC
Redemption Securities@) the proceeds of which are used for the purpose of
purchasing or redeeming the 1,766,245 shares of Common Stock of the Company held
by General Electric Capital Corporation, which issuance is not primarily for the
purpose of raising equity capital (a AGECC Transaction@); provided, that such
GECC Redemption Securities are not issued at a discount in excess of ten percent
(10%) of the Market Price on the date of issuance of such securities (taking
into account the value of any warrants or options to acquire Common Stock issued
in connection therewith) and; provided, further, that if such GECC Redemption
Securities consist solely of warrants, options or similar rights (AGECC
Warrants@) in which the purchaser pays no consideration for such GECC Warrants
in connection with a GECC Transaction, then (A) the number of GECC Warrants
issued in such transaction may not exceed the consideration paid by such
purchasers in the GECC Transaction divided by the market Price of the Common
Stock effect immediately preceding such transaction multiplied by twenty-five
percent (25%), (B) the exercise price of the GECC Warrants must be greater than
the Market Price of the Common Stock in effect immediately preceding such GECC
Transaction and (C) the term of such GECC Warrants must be less than or equal to
four (4) years following the date of such GECC Transaction.
(c) Subdivision or Combination of Common Stock. If the Company at
any time subdivides (by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a greater number of shares, then, after the date of
record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company at any
time combines (by reverse stock split, recapitalization, reorganization,
reclassification or otherwise) the shares of Common Stock acquirable hereunder
into a smaller number of shares, then, after the date of record for effecting
such combination, the Exercise Price in effect immediately prior to such
combination will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Paragraph 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
<PAGE>
(e) Consolidation, Merger or Sale. In case of any consolidation of
the Company with, or merger of the Company into any other corporation, or in
case of any sale or conveyance of all or substantially all of the assets of the
Company other than in connection with a plan of complete liquidation of the
Company, then as a condition of such consolidation, merger or sale or
conveyance, adequate provision will be made whereby the holder of this Warrant
will have the right to acquire and receive upon exercise of this Warrant in lieu
of the shares of Common Stock immediately theretofore acquirable upon the
exercise of this Warrant, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for the number of shares of
Common Stock immediately theretofore acquirable and receivable upon exercise of
this Warrant had such consolidation, merger or sale or conveyance not taken
place. In any such case, the Company will make appropriate provision to insure
that the provisions of this Paragraph 4 hereof will thereafter be applicable as
nearly as may be in relation to any shares of stock or securities thereafter
deliverable upon the exercise of this Warrant. The Company will not effect any
consolidation, merger or sale or conveyance unless prior to the consummation
thereof, the successor or acquiring entity (if other than the Company) and, if
an entity different from the successor or acquiring entity, the entity whose
capital stock or assets the holders of the Common Stock of the Company are
entitled to receive as a result of such consolidation, merger or sale or
conveyance assumes by written instrument the obligations under this Paragraph 4
and the obligations to deliver to the holder of this Warrant such shares of
stock, securities or assets as, in accordance with the foregoing provisions, the
holder may be entitled to acquire.
(f) Distribution of Assets. In case the Company shall declare or
make any distribution of its assets (including cash) to holders of Common Stock
as a partial liquidating dividend, by way of return of capital or otherwise,
then, after the date of record for determining stockholders entitled to such
distribution, but prior to the date of distribution, the holder of this Warrant
shall be entitled upon exercise of this Warrant for the purchase of any or all
of the shares of Common Stock subject hereto, to receive the amount of such
assets which would have been payable to the holder had such holder been the
holder of such shares of Common Stock on the record date for the determination
of stockholders entitled to such distribution.
(g) Notice of Adjustment. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the holder of this Warrant, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Company.
(h) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(i) No Fractional Shares. No fractional shares of Common Stock are
to be issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Market Price of a share of Common
Stock on the date of such exercise.
(j) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the Common
Stock payable in shares of stock of any class or make any other distribution
(including dividends or distributions payable in cash out of retained earnings)
to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization of the
Company, or reclassification of the Common Stock, or consolidation or merger of
the Company with or into, or sale of all or substantially all its assets to,
another corporation or entity; or
<PAGE>
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto. Failure to give any such notice or any defect therein shall not
affect the validity of the proceedings referred to in clauses (i), (ii), (iii)
and (iv) above.
(k) Certain Events. If any event occurs of the type contemplated by
the adjustment provisions of this Paragraph 4 but not expressly provided for by
such provisions, the Company will give notice of such event as provided in
Paragraph 4(g) hereof, and the Company's Board of Directors will make an
appropriate adjustment in the Exercise Price and the number of shares of Common
Stock acquirable upon exercise of this Warrant so that the rights of the Holder
shall be neither enhanced nor diminished by such event.
(l) Certain Definitions.
(i) "Common Stock", for purposes of this Paragraph 4, includes
the Common Stock, par value $.01 per share, and any additional class of stock of
the Company having no preference as to dividends or distributions on
liquidation, provided that the shares purchasable pursuant to this Warrant shall
include only shares of Common Stock, par value $.01 per share, in respect of
which this Warrant is exercisable, or shares resulting from any subdivision or
combination of such Common Stock, or in the case of any reorganization,
reclassification, consolidation, merger, or sale of the character referred to in
Paragraph 4(e) hereof, the stock or other securities or property provided for in
such Paragraph.
<PAGE>
(ii) "Market Price," as of any date, (i) means the average of
the last reported sale prices for the shares of Common Stock on the Nasdaq
National Market ("Nasdaq") for the five (5) trading days immediately preceding
such date as reported by Bloomberg Financial Markets or an equivalent reliable
reporting service mutually acceptable to and hereafter designated by the holder
of this Warrant and the Company ("Bloomberg"), or (ii) if Nasdaq is not the
principal trading market for the shares of Common Stock, the average of the last
reported sale prices on the principal trading market for the Common Stock during
the same period as reported by Bloomberg, or (iii) if market value cannot be
calculated as of such date on any of the foregoing bases, the Market Price shall
be the fair market value as reasonably determined in good faith by (a) the Board
of Directors of the Company or, at the option of a majority-in-interest of the
holders of the outstanding Warrants, by (b) an independent investment bank of
nationally recognized standing in the valuation of businesses similar to the
business of the Company. The manner of determining the Market Price of the
Common Stock set forth in the foregoing definition shall apply with respect to
any other security in respect of which a determination as to market value must
be made hereunder.
5. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.
6. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
7. Transfer, Exchange, and Replacement of Warrant.
(a) Restriction on Transfer. This Warrant and the rights granted to
the holder hereof are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the form attached
hereto, at the office or agency of the Company referred to in Paragraph 7(e)
below, provided, however, that any transfer or assignment shall be subject to
the conditions set forth in Paragraph 7(f) hereof and to the applicable
provisions of the Securities Purchase Agreement. Until due presentment for
registration of transfer on the books of the Company, the Company may treat the
registered holder hereof as the owner and holder hereof for all purposes, and
the Company shall not be affected by any notice to the contrary. Notwithstanding
anything to the contrary contained herein, the registration rights described in
Paragraph 8 are assignable only in accordance with the provisions of that
certain Registration Rights Agreement, dated as of February 18, 2000, by and
among the Company and the other signatories thereto (the "Registration Rights
Agreement").
(b) Warrant Exchangeable for Different Denominations. This Warrant
is exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in Paragraph 7(e) below, for new Warrants of
like tenor representing in the aggregate the right to purchase the number of
shares of Common Stock which may be purchased hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by the holder hereof at the time of such surrender.
<PAGE>
(c) Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
(d) Cancellation; Payment of Expenses. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided in
this Paragraph 7, this Warrant shall be promptly canceled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses (other than legal expenses, if any, incurred by the Holder or
transferees) and charges payable in connection with the preparation, execution,
and delivery of Warrants pursuant to this Paragraph 7.
(e) Register. The Company shall maintain, at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to the holder hereof), a register for this Warrant, in which the Company
shall record the name and address of the person in whose name this Warrant has
been issued, as well as the name and address of each transferee and each prior
owner of this Warrant.
(f) Exercise or Transfer Without Registration. If, at the time of
the surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act and under applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such exercise, transfer, or exchange, (i)
that the holder or transferee of this Warrant, as the case may be, furnish to
the Company a written opinion of counsel, which opinion and counsel are
acceptable to the Company, to the effect that such exercise, transfer, or
exchange may be made without registration under said Act and under applicable
state securities or blue sky laws, (ii) that the holder or transferee execute
and deliver to the Company an investment letter in form and substance acceptable
to the Company and (iii) that the transferee be an "accredited investor" as
defined in Rule 501(a) promulgated under the Securities Act; provided that no
such opinion, letter or status as an "accredited investor" shall be required in
connection with a transfer pursuant to Rule 144 under the Securities Act. The
first holder of this Warrant, by taking and holding the same, represents to the
Company that such holder is acquiring this Warrant for investment and not with a
view to the distribution thereof.
8. Registration Rights. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in Section 2 of the Registration
Rights Agreement.
<PAGE>
9. Notices. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the holder of this Warrant shall
be in writing, and shall be personally delivered, or shall be sent by certified
or registered mail or by recognized overnight mail courier, postage prepaid and
addressed, to such holder at the address shown for such holder on the books of
the Company, or at such other address as shall have been furnished to the
Company by notice from such holder. All notices, requests, and other
communications required or permitted to be given or delivered hereunder to the
Company shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to the office of the Company at 333 Seventh Avenue, 20th
Floor, New York, New York, 10001 Attention: Chairman of the Board and Chief
Executive Officer, or at such other address as shall have been furnished to the
holder of this Warrant by notice from the Company. Any such notice, request, or
other communication may be sent by facsimile, but shall in such case be
subsequently confirmed by a writing personally delivered or sent by certified or
registered mail or by recognized overnight mail courier as provided above. All
notices, requests, and other communications shall be deemed to have been given
either at the time of the receipt thereof by the person entitled to receive such
notice at the address of such person for purposes of this Paragraph 9, or, if
mailed by registered or certified mail or with a recognized overnight mail
courier upon deposit with the United States Post Office or such overnight mail
courier, if postage is prepaid and the mailing is properly addressed, as the
case may be.
10. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED IN THE STATE OF DELAWARE (WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS). BOTH PARTIES IRREVOCABLY CONSENT TO THE JURISDICTION OF THE
UNITED STATES FEDERAL COURTS AND THE STATE COURTS LOCATED IN DELAWARE WITH
RESPECT TO ANY SUIT OR PROCEEDING BASED ON OR ARISING UNDER THIS AGREEMENT, THE
AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY AND IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH SUIT
OR PROCEEDING MAY BE DETERMINED IN SUCH COURTS. BOTH PARTIES IRREVOCABLY WAIVE
THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR
PROCEEDING. BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY
MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF
PROCESS UPON THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL
AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW. BOTH PARTIES AGREE THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER.
11. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and the holder hereof.
(b) Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof.
<PAGE>
(c) Cashless Exercise. Notwithstanding anything to the contrary
contained in this Warrant, if the resale of the Warrant Shares by the holder is
not then registered pursuant to an effective registration statement under the
Securities Act as required pursuant to Section 8 hereof, this Warrant may be
exercised by presentation and surrender of this Warrant to the Company at its
principal executive offices with a written notice of the holder=s intention to
effect a cashless exercise, including a calculation of the number of shares of
Common Stock to be issued upon such exercise in accordance with the terms hereof
(a "Cashless Exercise"). In the event of a Cashless Exercise, in lieu of paying
the Exercise Price in cash, the holder shall surrender this Warrant for that
number of shares of Common Stock determined by multiplying the number of Warrant
Shares to which it would otherwise be entitled by a fraction, the numerator of
which shall be the difference between the then current Market Price per share of
the Common Stock and the Exercise Price, and the denominator of which shall be
the then current Market Price per share of Common Stock.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly
authorized officer.
MARKETING SERVICES GROUP, INC.
By: _____________________________
J. Jeremy Barbera
Chairman of the Board and Chief Executive
Officer
Dated as of February 24, 2000
<PAGE>
FORM OF EXERCISE AGREEMENT
Dated: ________ __, 2000
To: MARKETING SERVICES GROUP, INC.
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ________ shares of Common Stock covered by
such Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant in cash or by certified or official bank check in the
amount of, or, if the resale of such Common Stock by the undersigned is not
currently registered pursuant to an effective registration statement under the
Securities Act of 1933, as amended, by surrender of securities issued by the
Company (including a portion of the Warrant) having a market value (in the case
of a portion of this Warrant, determined in accordance with Section 11(c) of the
Warrant) equal to $_________. Please issue a certificate or certificates for
such shares of Common Stock in the name of and pay any cash for any fractional
share to:
Name: ___________________________________
Signature: ________________________________
Address: ________________________________
--------------------------------
Note: The above signature should correspond exactly
with the name on the face of the within Warrant.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
<PAGE>
124254-1
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
Name of Assignee Address No of Shares
, and hereby irrevocably constitutes and appoints ______________
________________________ as agent and attorney-in-fact to transfer said Warrant
on the books of the within-named corporation, with full power of substitution in
the premises.
Dated: ________ __, 2000
In the presence of:
- -------------------------
Name: ____________________________________
Signature:_________________________________
Title of Signing Officer or Agent (if any):
----------------------------------
Address:__________________________________
----------------------------------
Note: The above signature should correspond exactly
with the name on the face of the within Warrant.
Exhibit 4.2
THIS WARRANT AND THE SHARES ISSUABLE UPON THE EXERCISE OF THIS WARRANT
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED.
EXCEPT AS OTHERWISE SET FORTH HEREIN OR IN A SECURITIES PURCHASE AGREEMENT
DATED AS OF FEBRUARY 18, 2000, NEITHER THIS WARRANT NOR ANY OF SUCH SHARES
MAY BE SOLD, TRANSFERRED OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER SAID ACT OR, AN OPINION
OF COUNSEL, IN FORM, SUBSTANCE AND SCOPE, CUSTOMARY FOR OPINIONS OF
COUNSEL IN COMPARABLE TRANSACTIONS, THAT REGISTRATION IS NOT REQUIRED
UNDER SUCH ACT OR UNLESS SOLD PURSUANT TO RULE 144 UNDER SUCH ACT.
Right to
Purchase
735,537
Shares of
Common Stock, par value
$.01
per share
STOCK PURCHASE WARRANT
THIS CERTIFIES THAT, for value received, RGC International Investors, LDC
or its registered assigns, is entitled to purchase from MARKETING SERVICES
GROUP, INC., a Delaware corporation (the "Company"), at any time or from time to
time during the period specified in Paragraph 2 hereof, Seven Hundred
Thirty-Five Thousand, Five Hundred Thirty-Seven (735,537) fully paid and
nonassessable shares of the Company's Common Stock, par value $.01 per share
(the "Common Stock"), at an exercise price of $28.55 per share (the "Exercise
Price"). The term "Warrant Shares," as used herein, refers to the shares of
Common Stock purchasable hereunder. The Warrant Shares and the Exercise Price
are subject to adjustment as provided in Paragraph 4 hereof. The term Warrants
means this Warrant and the other warrants issued pursuant to that certain
Securities Purchase Agreement, dated February 18, 2000, by and among the Company
and the Buyers listed on the execution page thereof (the "Securities Purchase
Agreement").
This Warrant is subject to the following terms, provisions, and
conditions:
<PAGE>
22
PHL_A 1339290 v 6
1. Manner of Exercise; Issuance of Certificates; Payment for Shares.
Subject to the provisions hereof, this Warrant may be exercised by the holder
hereof, in whole or in part, by the surrender of this Warrant, together with a
completed exercise agreement in the form attached hereto (the "Exercise
Agreement"), to the Company during normal business hours on any business day at
the Company's principal executive offices (or such other office or agency of the
Company as it may designate by notice to the holder hereof), and upon (i)
payment to the Company in cash, by certified or official bank check or by wire
transfer for the account of the Company of the Exercise Price for the Warrant
Shares specified in the Exercise Agreement or (ii) if the resale of the Warrant
Shares by the holder is not then registered pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the
"Securities Act"), delivery to the Company of a written notice of an election to
effect a "Cashless Exercise" (as defined in Section 11(c) below) for the Warrant
Shares specified in the Exercise Agreement. The Warrant Shares so purchased
shall be deemed to be issued to the holder hereof or such holder's designee, as
the record owner of such shares, as of the close of business on the date on
which this Warrant shall have been surrendered, the completed Exercise Agreement
shall have been delivered, and payment shall have been made for such shares (or
an election to effect a Cashless Exercise has been made) as set forth above.
Certificates for the Warrant Shares so purchased, representing the aggregate
number of shares specified in the Exercise Agreement, shall be delivered to the
holder hereof within a reasonable time, not exceeding two (2) business days,
after this Warrant shall have been so exercised. The certificates so delivered
shall be in such denominations as may be requested by the holder hereof and
shall be registered in the name of such holder or such other name as shall be
designated by such holder. If this Warrant shall have been exercised only in
part, then, unless this Warrant has expired, the Company shall, at its expense,
at the time of delivery of such certificates, deliver to the holder a new
Warrant representing the number of shares with respect to which this Warrant
shall not then have been exercised.
Notwithstanding anything in this Warrant to the contrary, in no
event shall the Holder of this Warrant be entitled to exercise a number of
Warrants (or portions thereof) in excess of the number of Warrants (or portions
thereof) upon exercise of which the sum of (i) the number of shares of Common
Stock beneficially owned by the Holder and its affiliates (other than shares of
Common Stock which may be deemed beneficially owned through the ownership of the
unexercised Warrants and the unexercised or unconverted portion of any other
securities of the Company (including shares of Series E Preferred Stock (as
defined in the Securities Purchase Agreement)) subject to a limitation on
conversion or exercise analogous to the limitation contained herein) and (ii)
the number of shares of Common Stock issuable upon exercise of the Warrants (or
portions thereof) with respect to which the determination described herein is
being made, would result in beneficial ownership by the Holder and its
affiliates of more than 4.9% of the outstanding shares of Common Stock. For
purposes of the immediately preceding sentence, beneficial ownership shall be
determined in accordance with Section 13(d) of the Securities Exchange Act of
1934, as amended, and Regulation 13D-G thereunder, except as otherwise provided
in clause (i) hereof.
2. Period of Exercise.
(a) Exercise Period. This Warrant is exercisable at any time or from
time to time on or after the date on which this Warrant is issued and delivered
pursuant to the terms of the Securities Purchase Agreement (the "Issue Date")
and before 5:00 p.m., New York City time on the second (2nd) anniversary of the
Issue Date (the "Exercise Period").
<PAGE>
(b) Mandatory Exercise Right. The Company shall be entitled, on any
day following the eighteen (18) month anniversary of the Issue Date on which the
average Closing Bid Price of the Common Stock during the ten (10) consecutive
trading day period ending on the trading day immediately preceding such date
(the ACalculation Date@) is equal to or greater than 170% of the Exercise Price
(subject to adjustment in accordance with Section 4 hereof), to deliver a
written notice (the AMandatory Exercise Notice@) to the Holder requiring such
Holder to exercise this Warrant in accordance with Section 1 hereof on the date
which is twenty (20) trading days following the date of such Mandatory Exercise
Notice (the AExercise Date@); provided, however, that the Company shall have
such right if and only if (x) for a period of thirty (30) consecutive trading
days prior to such Calculation Date and (y) at all times during such ten (10)
consecutive trading day period of time and continuing through the Exercise Date,
the Warrant Shares issuable upon exercise of the Warrants are (i) authorized and
reserved for issuance, (ii) registered for resale under the Securities Act of
1933, as amended, by the holder of this Warrant (or may otherwise be resold
publicly without restriction) and sales of the Warrant Shares may be made
continuously thereunder during such time periods, and (iii) listed for trading
on each principal exchange or market on which the shares of Common Stock of the
Company were then traded; and provided, further, however, that on the Exercise
Date, the Closing Bid Price of the Common Stock is equal to or greater than one
hundred fifty percent (150%) of the Exercise Price (subject to adjustment in
accordance with Section 4 hereof).
Nothing in this Section 2(b) shall prohibit exercise of the Warrant otherwise
permitted pursuant to the terms of this Warrant during the pendency of any
Mandatory Exercise Notice.
3. Certain Agreements of the Company. The Company hereby covenants
and agrees as follows:
(a) Shares to be Fully Paid. All Warrant Shares will, upon issuance
in accordance with the terms of this Warrant, be validly issued, fully paid, and
nonassessable and free from all taxes, liens, and charges with respect to the
issue thereof.
(b) Reservation of Shares. During the Exercise Period, the Company
shall at all times have authorized, and reserved for the purpose of issuance
upon exercise of this Warrant, a sufficient number of shares of Common Stock to
provide for the exercise of this Warrant in accordance with the terms of Section
4(h) of the Securities Purchase Agreement.
(c) Listing. The Company shall promptly secure the listing of the
shares of Common Stock issuable upon exercise of the Warrant upon each national
securities exchange or automated quotation system, if any, upon which shares of
Common Stock are then listed (subject to official notice of issuance upon
exercise of this Warrant) and shall maintain, so long as any other shares of
Common Stock shall be so listed, such listing of all shares of Common Stock from
time to time issuable upon the exercise of this Warrant; and the Company shall
so list on each national securities exchange or automated quotation system, as
the case may be, and shall maintain such listing of, any other shares of capital
stock of the Company issuable upon the exercise of this Warrant if and so long
as any shares of the same class shall be listed on such national securities
exchange or automated quotation system.
<PAGE>
(d) Certain Actions Prohibited. The Company will not, by amendment
of its charter 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 to be
observed or performed by it hereunder, but will at all times in good faith
assist in the carrying out of all the provisions of this Warrant and in the
taking of all such action as may reasonably be requested by the holder of this
Warrant in order to protect the exercise privilege of the holder of this Warrant
against dilution or other impairment, consistent with the tenor and purpose of
this Warrant. Without limiting the generality of the foregoing, the Company (i)
will not increase the par value of any shares of Common Stock receivable upon
the exercise of this Warrant above the Exercise Price then in effect, and (ii)
will take all such actions as may be necessary or appropriate in order that the
Company may validly and legally issue fully paid and nonassessable shares of
Common Stock upon the exercise of this Warrant.
(e) Successors and Assigns. This Warrant will be binding upon any
entity succeeding to the Company by merger, consolidation, or acquisition of all
or substantially all the Company's assets.
4. Antidilution Provisions. During the Exercise Period, the Exercise Price
and the number of Warrant Shares shall be subject to adjustment from time to
time as provided in this Paragraph 4.
In the event that any adjustment of the Exercise Price as required
herein results in a fraction of a cent, such Exercise Price shall be rounded up
to the nearest cent.
(a) Adjustment of Exercise Price and Number of Shares upon Issuance
of Common Stock. Except as otherwise provided in Paragraphs 4(c) and 4(e)
hereof, if and whenever on or after the Issue Date of this Warrant, the Company
issues or sells, or in accordance with Paragraph 4(b) hereof is deemed to have
issued or sold, any shares of Common Stock for no consideration or for a
consideration per share (before deduction of reasonable expenses or commissions
or underwriting discounts or allowances in connection therewith) less than the
Market Price (as hereinafter defined) on the Issue Date (a "Dilutive Issuance"),
then immediately upon the Dilutive Issuance, the Exercise Price will be reduced
to a price determined by multiplying the Exercise Price in effect immediately
prior to the Dilutive Issuance by a fraction, (i) the numerator of which is an
amount equal to the sum of (x) the number of shares of Common Stock actually
outstanding immediately prior to the Dilutive Issuance, plus (y) the quotient of
the aggregate consideration, calculated as set forth in Paragraph 4(b) hereof,
received by the Company upon such Dilutive Issuance divided by the Market Price
in effect immediately prior to the Dilutive Issuance, and (ii) the denominator
of which is the total number of shares of Common Stock Deemed Outstanding (as
defined below) immediately after the Dilutive Issuance.
(b) Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Paragraph 4(a) hereof, the
following will be applicable:
<PAGE>
(i) Issuance of Rights or Options. If the Company in any
manner issues or grants any warrants, rights or options, whether or not
immediately exercisable, to subscribe for or to purchase Common Stock or other
securities convertible into or exchangeable for Common Stock ("Convertible
Securities") (such warrants, rights and options to purchase Common Stock or
Convertible Securities are hereinafter referred to as "Options") and the price
per share for which Common Stock is issuable upon the exercise of such Options
is less than the Market Price on the date of issuance or grant of such Options,
then the maximum total number of shares of Common Stock issuable upon the
exercise of all such Options will, as of the date of the issuance or grant of
such Options, be deemed to be outstanding and to have been issued and sold by
the Company for such price per share. For purposes of the preceding sentence,
the "price per share for which Common Stock is issuable upon the exercise of
such Options" is determined by dividing (i) the total amount, if any, received
or receivable by the Company as consideration for the issuance or granting of
all such Options, plus the minimum aggregate amount of additional consideration,
if any, payable to the Company upon the exercise of all such Options, plus, in
the case of Convertible Securities issuable upon the exercise of such Options,
the minimum aggregate amount of additional consideration payable upon the
conversion or exchange thereof at the time such Convertible Securities first
become convertible or exchangeable, by (ii) the maximum total number of shares
of Common Stock issuable upon the exercise of all such Options (assuming full
conversion of Convertible Securities, if applicable). No further adjustment to
the Exercise Price will be made upon the actual issuance of such Common Stock
upon the exercise of such Options or upon the conversion or exchange of
Convertible Securities issuable upon exercise of such Options.
(ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities, whether or not immediately
convertible (other than where the same are issuable upon the exercise of
Options) and the price per share for which Common Stock is issuable upon such
conversion or exchange is less than the Market Price on the date of issuance,
then the maximum total number of shares of Common Stock issuable upon the
conversion or exchange of all such Convertible Securities will, as of the date
of the issuance of such Convertible Securities, be deemed to be outstanding and
to have been issued and sold by the Company for such price per share. For the
purposes of the preceding sentence, the "price per share for which Common Stock
is issuable upon such conversion or exchange" is determined by dividing (i) the
total amount, if any, received or receivable by the Company as consideration for
the issuance or sale of all such Convertible Securities, plus the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the conversion or exchange thereof at the time such Convertible Securities
first become convertible or exchangeable, by (ii) the maximum total number of
shares of Common Stock issuable upon the conversion or exchange of all such
Convertible Securities. No further adjustment to the Exercise Price will be made
upon the actual issuance of such Common Stock upon conversion or exchange of
such Convertible Securities.
(iii) Change in Option Price or Conversion Rate. If there is a
change at any time in (i) the amount of additional consideration payable to the
Company upon the exercise of any Options; (ii) the amount of additional
consideration, if any, payable to the Company upon the conversion or exchange of
any Convertible Securities; or (iii) the rate at which any Convertible
Securities are convertible into or exchangeable for Common Stock (other than
under or by reason of provisions designed to protect against dilution), the
Exercise Price in effect at the time of such change will be readjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold.
<PAGE>
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. If, in any case, the total number of shares of Common Stock issuable
upon exercise of any Option or upon conversion or exchange of any Convertible
Securities is not, in fact, issued and the rights to exercise such Option or to
convert or exchange such Convertible Securities shall have expired or
terminated, the Exercise Price then in effect will be readjusted to the Exercise
Price which would have been in effect at the time of such expiration or
termination had such Option or Convertible Securities, to the extent outstanding
immediately prior to such expiration or termination (other than in respect of
the actual number of shares of Common Stock issued upon exercise or conversion
thereof), never been issued.
(v) Calculation of Consideration Received. If any Common
Stock, Options or Convertible Securities are issued, granted or sold for cash,
the consideration received therefor for purposes of this Warrant will be the
amount received by the Company therefor, before deduction of reasonable
commissions, underwriting discounts or allowances or other reasonable expenses
paid or incurred by the Company in connection with such issuance, grant or sale.
In case any Common Stock, Options or Convertible Securities are issued or sold
for a consideration part or all of which shall be other than cash, the amount of
the consideration other than cash received by the Company will be the fair value
of such consideration, except where such consideration consists of securities,
in which case the amount of consideration received by the Company will be the
Market Price thereof as of the date of receipt. In case any Common Stock,
Options or Convertible Securities are issued in connection with any acquisition,
merger or consolidation in which the Company is the surviving corporation, the
amount of consideration therefor will be deemed to be the fair value of such
portion of the net assets and business of the non-surviving corporation as is
attributable to such Common Stock, Options or Convertible Securities, as the
case may be. The fair value of any consideration other than cash or securities
will be determined in good faith by the Board of Directors of the Company.
<PAGE>
(vi) Exceptions to Adjustment of Exercise Price. No adjustment
to the Exercise Price will be made (i) upon the exercise of any warrants,
options or convertible securities granted, issued and outstanding on the date of
issuance of this Warrant; (ii) upon the grant or exercise of any stock or
options which may hereafter be granted or exercised under any employee benefit
plan of the Company now existing or to be implemented in the future, so long as
the issuance of such stock or options is approved by a majority of the
independent members of the Board of Directors of the Company or a majority of
the members of a committee of independent directors established for such
purpose; (iii) upon the exercise of the Warrants; (iv) issuances of securities
in connection with a strategic investment or acquisition (the primary purpose of
which is not to raise equity capital), so long as, in connection with an
acquisition or strategic investment that has an aggregate acquisition price in
excess of ten million dollars ($10,000,000), the Company has received an opinion
from a nationally recognized investment banking firm reasonably acceptable to
the holder of this Warrant in connection with such strategic investment or
acquisition that such transaction is fair to the Company from a financial point
of view; (v) issuance of the Bank Warrants (as defined in the Securities
Purchase Agreement); or (vi) issuances of securities (including Common Stock or
securities convertible or exercisable into shares of Common Stock) (AGECC
Redemption Securities@) the proceeds of which are used for the purpose of
purchasing or redeeming the 1,766,245 shares of Common Stock of the Company held
by General Electric Capital Corporation, which issuance is not primarily for the
purpose of raising equity capital (a AGECC Transaction@); provided, that such
GECC Redemption Securities are not issued at a discount in excess of ten percent
(10%) of the Market Price on the date of issuance of such securities (taking
into account the value of any warrants or options to acquire Common Stock issued
in connection therewith) and; provided, further, that if such GECC Redemption
Securities consist solely of warrants, options or similar rights (AGECC
Warrants@) in which the purchaser pays no consideration for such GECC Warrants
in connection with a GECC Transaction, then (A) the number of GECC Warrants
issued in such transaction may not exceed the consideration paid by such
purchasers in the GECC Transaction divided by the market Price of the Common
Stock effect immediately preceding such transaction multiplied by twenty-five
percent (25%), (B) the exercise price of the GECC Warrants must be greater than
the Market Price of the Common Stock in effect immediately preceding such GECC
Transaction and (C) the term of such GECC Warrants must be less than or equal to
four (4) years following the date of such GECC Transaction.
(c) Subdivision or Combination of Common Stock. If the Company at
any time subdivides (by any stock split, stock dividend, recapitalization,
reorganization, reclassification or otherwise) the shares of Common Stock
acquirable hereunder into a greater number of shares, then, after the date of
record for effecting such subdivision, the Exercise Price in effect immediately
prior to such subdivision will be proportionately reduced. If the Company at any
time combines (by reverse stock split, recapitalization, reorganization,
reclassification or otherwise) the shares of Common Stock acquirable hereunder
into a smaller number of shares, then, after the date of record for effecting
such combination, the Exercise Price in effect immediately prior to such
combination will be proportionately increased.
(d) Adjustment in Number of Shares. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Paragraph 4, the number of
shares of Common Stock issuable upon exercise of this Warrant shall be adjusted
by multiplying a number equal to the Exercise Price in effect immediately prior
to such adjustment by the number of shares of Common Stock issuable upon
exercise of this Warrant immediately prior to such adjustment and dividing the
product so obtained by the adjusted Exercise Price.
<PAGE>
(e) Consolidation, Merger or Sale. In case of any consolidation of
the Company with, or merger of the Company into any other corporation, or in
case of any sale or conveyance of all or substantially all of the assets of the
Company other than in connection with a plan of complete liquidation of the
Company, then as a condition of such consolidation, merger or sale or
conveyance, adequate provision will be made whereby the holder of this Warrant
will have the right to acquire and receive upon exercise of this Warrant in lieu
of the shares of Common Stock immediately theretofore acquirable upon the
exercise of this Warrant, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for the number of shares of
Common Stock immediately theretofore acquirable and receivable upon exercise of
this Warrant had such consolidation, merger or sale or conveyance not taken
place. In any such case, the Company will make appropriate provision to insure
that the provisions of this Paragraph 4 hereof will thereafter be applicable as
nearly as may be in relation to any shares of stock or securities thereafter
deliverable upon the exercise of this Warrant. The Company will not effect any
consolidation, merger or sale or conveyance unless prior to the consummation
thereof, the successor or acquiring entity (if other than the Company) and, if
an entity different from the successor or acquiring entity, the entity whose
capital stock or assets the holders of the Common Stock of the Company are
entitled to receive as a result of such consolidation, merger or sale or
conveyance assumes by written instrument the obligations under this Paragraph 4
and the obligations to deliver to the holder of this Warrant such shares of
stock, securities or assets as, in accordance with the foregoing provisions, the
holder may be entitled to acquire.
(f) Distribution of Assets. In case the Company shall declare or
make any distribution of its assets (including cash) to holders of Common Stock
as a partial liquidating dividend, by way of return of capital or otherwise,
then, after the date of record for determining stockholders entitled to such
distribution, but prior to the date of distribution, the holder of this Warrant
shall be entitled upon exercise of this Warrant for the purchase of any or all
of the shares of Common Stock subject hereto, to receive the amount of such
assets which would have been payable to the holder had such holder been the
holder of such shares of Common Stock on the record date for the determination
of stockholders entitled to such distribution.
(g) Notice of Adjustment. Upon the occurrence of any event which
requires any adjustment of the Exercise Price, then, and in each such case, the
Company shall give notice thereof to the holder of this Warrant, which notice
shall state the Exercise Price resulting from such adjustment and the increase
or decrease in the number of Warrant Shares purchasable at such price upon
exercise, setting forth in reasonable detail the method of calculation and the
facts upon which such calculation is based. Such calculation shall be certified
by the chief financial officer of the Company.
(h) Minimum Adjustment of Exercise Price. No adjustment of the
Exercise Price shall be made in an amount of less than 1% of the Exercise Price
in effect at the time such adjustment is otherwise required to be made, but any
such lesser adjustment shall be carried forward and shall be made at the time
and together with the next subsequent adjustment which, together with any
adjustments so carried forward, shall amount to not less than 1% of such
Exercise Price.
(i) No Fractional Shares. No fractional shares of Common Stock are
to be issued upon the exercise of this Warrant, but the Company shall pay a cash
adjustment in respect of any fractional share which would otherwise be issuable
in an amount equal to the same fraction of the Market Price of a share of Common
Stock on the date of such exercise.
(j) Other Notices. In case at any time:
(i) the Company shall declare any dividend upon the Common
Stock payable in shares of stock of any class or make any other distribution
(including dividends or distributions payable in cash out of retained earnings)
to the holders of the Common Stock;
(ii) the Company shall offer for subscription pro rata to the
holders of the Common Stock any additional shares of stock of any class or other
rights;
(iii) there shall be any capital reorganization of the
Company, or reclassification of the Common Stock, or consolidation or merger of
the Company with or into, or sale of all or substantially all its assets to,
another corporation or entity; or
<PAGE>
(iv) there shall be a voluntary or involuntary dissolution,
liquidation or winding-up of the Company;
then, in each such case, the Company shall give to the holder of this Warrant
(a) notice of the date on which the books of the Company shall close or a record
shall be taken for determining the holders of Common Stock entitled to receive
any such dividend, distribution, or subscription rights or for determining the
holders of Common Stock entitled to vote in respect of any such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding-up and (b) in the case of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding-up, notice of
the date (or, if not then known, a reasonable approximation thereof by the
Company) when the same shall take place. Such notice shall also specify the date
on which the holders of Common Stock shall be entitled to receive such dividend,
distribution, or subscription rights or to exchange their Common Stock for stock
or other securities or property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation, or
winding-up, as the case may be. Such notice shall be given at least 30 days
prior to the record date or the date on which the Company's books are closed in
respect thereto. Failure to give any such notice or any defect therein shall not
affect the validity of the proceedings referred to in clauses (i), (ii), (iii)
and (iv) above.
(k) Certain Events. If any event occurs of the type contemplated by
the adjustment provisions of this Paragraph 4 but not expressly provided for by
such provisions, the Company will give notice of such event as provided in
Paragraph 4(g) hereof, and the Company's Board of Directors will make an
appropriate adjustment in the Exercise Price and the number of shares of Common
Stock acquirable upon exercise of this Warrant so that the rights of the Holder
shall be neither enhanced nor diminished by such event.
(l) Certain Definitions.
(i) "Common Stock", for purposes of this Paragraph 4, includes
the Common Stock, par value $.01 per share, and any additional class of stock of
the Company having no preference as to dividends or distributions on
liquidation, provided that the shares purchasable pursuant to this Warrant shall
include only shares of Common Stock, par value $.01 per share, in respect of
which this Warrant is exercisable, or shares resulting from any subdivision or
combination of such Common Stock, or in the case of any reorganization,
reclassification, consolidation, merger, or sale of the character referred to in
Paragraph 4(e) hereof, the stock or other securities or property provided for in
such Paragraph.
<PAGE>
(ii) "Market Price," as of any date, (i) means the average of
the last reported sale prices for the shares of Common Stock on the Nasdaq
National Market ("Nasdaq") for the five (5) trading days immediately preceding
such date as reported by Bloomberg Financial Markets or an equivalent reliable
reporting service mutually acceptable to and hereafter designated by the holder
of this Warrant and the Company ("Bloomberg"), or (ii) if Nasdaq is not the
principal trading market for the shares of Common Stock, the average of the last
reported sale prices on the principal trading market for the Common Stock during
the same period as reported by Bloomberg, or (iii) if market value cannot be
calculated as of such date on any of the foregoing bases, the Market Price shall
be the fair market value as reasonably determined in good faith by (a) the Board
of Directors of the Company or, at the option of a majority-in-interest of the
holders of the outstanding Warrants, by (b) an independent investment bank of
nationally recognized standing in the valuation of businesses similar to the
business of the Company. The manner of determining the Market Price of the
Common Stock set forth in the foregoing definition shall apply with respect to
any other security in respect of which a determination as to market value must
be made hereunder.
5. Issue Tax. The issuance of certificates for Warrant Shares upon the
exercise of this Warrant shall be made without charge to the holder of this
Warrant or such shares for any issuance tax or other costs in respect thereof,
provided that the Company shall not be required to pay any tax which may be
payable in respect of any transfer involved in the issuance and delivery of any
certificate in a name other than the holder of this Warrant.
6. No Rights or Liabilities as a Shareholder. This Warrant shall not
entitle the holder hereof to any voting rights or other rights as a shareholder
of the Company. No provision of this Warrant, in the absence of affirmative
action by the holder hereof to purchase Warrant Shares, and no mere enumeration
herein of the rights or privileges of the holder hereof, shall give rise to any
liability of such holder for the Exercise Price or as a shareholder of the
Company, whether such liability is asserted by the Company or by creditors of
the Company.
7. Transfer, Exchange, and Replacement of Warrant.
(a) Restriction on Transfer. This Warrant and the rights granted to
the holder hereof are transferable, in whole or in part, upon surrender of this
Warrant, together with a properly executed assignment in the form attached
hereto, at the office or agency of the Company referred to in Paragraph 7(e)
below, provided, however, that any transfer or assignment shall be subject to
the conditions set forth in Paragraph 7(f) hereof and to the applicable
provisions of the Securities Purchase Agreement. Until due presentment for
registration of transfer on the books of the Company, the Company may treat the
registered holder hereof as the owner and holder hereof for all purposes, and
the Company shall not be affected by any notice to the contrary. Notwithstanding
anything to the contrary contained herein, the registration rights described in
Paragraph 8 are assignable only in accordance with the provisions of that
certain Registration Rights Agreement, dated as of February 18, 2000, by and
among the Company and the other signatories thereto (the "Registration Rights
Agreement").
(b) Warrant Exchangeable for Different Denominations. This Warrant
is exchangeable, upon the surrender hereof by the holder hereof at the office or
agency of the Company referred to in Paragraph 7(e) below, for new Warrants of
like tenor representing in the aggregate the right to purchase the number of
shares of Common Stock which may be purchased hereunder, each of such new
Warrants to represent the right to purchase such number of shares as shall be
designated by the holder hereof at the time of such surrender.
<PAGE>
(c) Replacement of Warrant. Upon receipt of evidence reasonably
satisfactory to the Company of the loss, theft, destruction, or mutilation of
this Warrant and, in the case of any such loss, theft, or destruction, upon
delivery of an indemnity agreement reasonably satisfactory in form and amount to
the Company, or, in the case of any such mutilation, upon surrender and
cancellation of this Warrant, the Company, at its expense, will execute and
deliver, in lieu thereof, a new Warrant of like tenor.
(d) Cancellation; Payment of Expenses. Upon the surrender of this
Warrant in connection with any transfer, exchange, or replacement as provided in
this Paragraph 7, this Warrant shall be promptly canceled by the Company. The
Company shall pay all taxes (other than securities transfer taxes) and all other
expenses (other than legal expenses, if any, incurred by the Holder or
transferees) and charges payable in connection with the preparation, execution,
and delivery of Warrants pursuant to this Paragraph 7.
(e) Register. The Company shall maintain, at its principal executive
offices (or such other office or agency of the Company as it may designate by
notice to the holder hereof), a register for this Warrant, in which the Company
shall record the name and address of the person in whose name this Warrant has
been issued, as well as the name and address of each transferee and each prior
owner of this Warrant.
(f) Exercise or Transfer Without Registration. If, at the time of
the surrender of this Warrant in connection with any exercise, transfer, or
exchange of this Warrant, this Warrant (or, in the case of any exercise, the
Warrant Shares issuable hereunder), shall not be registered under the Securities
Act and under applicable state securities or blue sky laws, the Company may
require, as a condition of allowing such exercise, transfer, or exchange, (i)
that the holder or transferee of this Warrant, as the case may be, furnish to
the Company a written opinion of counsel, which opinion and counsel are
acceptable to the Company, to the effect that such exercise, transfer, or
exchange may be made without registration under said Act and under applicable
state securities or blue sky laws, (ii) that the holder or transferee execute
and deliver to the Company an investment letter in form and substance acceptable
to the Company and (iii) that the transferee be an "accredited investor" as
defined in Rule 501(a) promulgated under the Securities Act; provided that no
such opinion, letter or status as an "accredited investor" shall be required in
connection with a transfer pursuant to Rule 144 under the Securities Act. The
first holder of this Warrant, by taking and holding the same, represents to the
Company that such holder is acquiring this Warrant for investment and not with a
view to the distribution thereof.
8. Registration Rights. The initial holder of this Warrant (and certain
assignees thereof) is entitled to the benefit of such registration rights in
respect of the Warrant Shares as are set forth in Section 2 of the Registration
Rights Agreement.
<PAGE>
9. Notices. All notices, requests, and other communications required or
permitted to be given or delivered hereunder to the holder of this Warrant shall
be in writing, and shall be personally delivered, or shall be sent by certified
or registered mail or by recognized overnight mail courier, postage prepaid and
addressed, to such holder at the address shown for such holder on the books of
the Company, or at such other address as shall have been furnished to the
Company by notice from such holder. All notices, requests, and other
communications required or permitted to be given or delivered hereunder to the
Company shall be in writing, and shall be personally delivered, or shall be sent
by certified or registered mail or by recognized overnight mail courier, postage
prepaid and addressed, to the office of the Company at 333 Seventh Avenue, 20th
Floor, New York, New York, 10001 Attention: Chairman of the Board and Chief
Executive Officer, or at such other address as shall have been furnished to the
holder of this Warrant by notice from the Company. Any such notice, request, or
other communication may be sent by facsimile, but shall in such case be
subsequently confirmed by a writing personally delivered or sent by certified or
registered mail or by recognized overnight mail courier as provided above. All
notices, requests, and other communications shall be deemed to have been given
either at the time of the receipt thereof by the person entitled to receive such
notice at the address of such person for purposes of this Paragraph 9, or, if
mailed by registered or certified mail or with a recognized overnight mail
courier upon deposit with the United States Post Office or such overnight mail
courier, if postage is prepaid and the mailing is properly addressed, as the
case may be.
10. Governing Law. THIS WARRANT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE APPLICABLE TO AGREEMENTS MADE
AND TO BE PERFORMED IN THE STATE OF DELAWARE (WITHOUT REGARD TO PRINCIPLES OF
CONFLICT OF LAWS). BOTH PARTIES IRREVOCABLY CONSENT TO THE JURISDICTION OF THE
UNITED STATES FEDERAL COURTS AND THE STATE COURTS LOCATED IN DELAWARE WITH
RESPECT TO ANY SUIT OR PROCEEDING BASED ON OR ARISING UNDER THIS AGREEMENT, THE
AGREEMENTS ENTERED INTO IN CONNECTION HEREWITH OR THE TRANSACTIONS CONTEMPLATED
HEREBY OR THEREBY AND IRREVOCABLY AGREE THAT ALL CLAIMS IN RESPECT OF SUCH SUIT
OR PROCEEDING MAY BE DETERMINED IN SUCH COURTS. BOTH PARTIES IRREVOCABLY WAIVE
THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH SUIT OR
PROCEEDING. BOTH PARTIES FURTHER AGREE THAT SERVICE OF PROCESS UPON A PARTY
MAILED BY FIRST CLASS MAIL SHALL BE DEEMED IN EVERY RESPECT EFFECTIVE SERVICE OF
PROCESS UPON THE PARTY IN ANY SUCH SUIT OR PROCEEDING. NOTHING HEREIN SHALL
AFFECT EITHER PARTY'S RIGHT TO SERVE PROCESS IN ANY OTHER MANNER PERMITTED BY
LAW. BOTH PARTIES AGREE THAT A FINAL NON-APPEALABLE JUDGMENT IN ANY SUCH SUIT OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON SUCH JUDGMENT OR IN ANY OTHER LAWFUL MANNER.
11. Miscellaneous.
(a) Amendments. This Warrant and any provision hereof may only be
amended by an instrument in writing signed by the Company and the holder hereof.
(b) Descriptive Headings. The descriptive headings of the several
paragraphs of this Warrant are inserted for purposes of reference only, and
shall not affect the meaning or construction of any of the provisions hereof.
<PAGE>
(c) Cashless Exercise. Notwithstanding anything to the contrary
contained in this Warrant, if the resale of the Warrant Shares by the holder is
not then registered pursuant to an effective registration statement under the
Securities Act as required pursuant to Section 8 hereof, this Warrant may be
exercised by presentation and surrender of this Warrant to the Company at its
principal executive offices with a written notice of the holder=s intention to
effect a cashless exercise, including a calculation of the number of shares of
Common Stock to be issued upon such exercise in accordance with the terms hereof
(a "Cashless Exercise"). In the event of a Cashless Exercise, in lieu of paying
the Exercise Price in cash, the holder shall surrender this Warrant for that
number of shares of Common Stock determined by multiplying the number of Warrant
Shares to which it would otherwise be entitled by a fraction, the numerator of
which shall be the difference between the then current Market Price per share of
the Common Stock and the Exercise Price, and the denominator of which shall be
the then current Market Price per share of Common Stock.
IN WITNESS WHEREOF, the Company has caused this Warrant to be signed by its duly
authorized officer.
MARKETING SERVICES GROUP, INC.
By: _____________________________
J. Jeremy Barbera
Chairman of the Board and Chief Executive
Officer
Dated as of February 24, 2000
<PAGE>
FORM OF EXERCISE AGREEMENT
Dated: ________ __, 2000
To: MARKETING SERVICES GROUP, INC.
The undersigned, pursuant to the provisions set forth in the within
Warrant, hereby agrees to purchase ________ shares of Common Stock covered by
such Warrant, and makes payment herewith in full therefor at the price per share
provided by such Warrant in cash or by certified or official bank check in the
amount of, or, if the resale of such Common Stock by the undersigned is not
currently registered pursuant to an effective registration statement under the
Securities Act of 1933, as amended, by surrender of securities issued by the
Company (including a portion of the Warrant) having a market value (in the case
of a portion of this Warrant, determined in accordance with Section 11(c) of the
Warrant) equal to $_________. Please issue a certificate or certificates for
such shares of Common Stock in the name of and pay any cash for any fractional
share to:
Name: ___________________________________
Signature: ________________________________
Address: ________________________________
--------------------------------
Note: The above signature should correspond exactly
with the name on the face of the within Warrant.
and, if said number of shares of Common Stock shall not be all the shares
purchasable under the within Warrant, a new Warrant is to be issued in the name
of said undersigned covering the balance of the shares purchasable thereunder
less any fraction of a share paid in cash.
<PAGE>
124251-1
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, the undersigned hereby sells, assigns, and transfers
all the rights of the undersigned under the within Warrant, with respect to the
number of shares of Common Stock covered thereby set forth hereinbelow, to:
Name of Assignee Address No of Shares
, and hereby irrevocably constitutes and appoints ______________
________________________ as agent and attorney-in-fact to transfer said Warrant
on the books of the within-named corporation, with full power of substitution in
the premises.
Dated: ________ __, 2000
In the presence of:
- -------------------------
Name: ____________________________________
Signature:_________________________________
Title of Signing Officer or Agent (if any):
----------------------------------
Address:__________________________________
----------------------------------
Note: The above signature should correspond exactly
with the name on the face of the within Warrant.
Exhibit 4.3
REGISTRATION RIGHTS AGREEMENT
REGISTRATION RIGHTS AGREEMENT (this "Agreement"), dated as of February 18,
2000, by and among MARKETING SERVICES GROUP, INC., a Nevada corporation, with
its headquarters located at 333 Seventh Avenue, 20th Floor, New York, New York
10001 (the "Company"), and each of the undersigned (together with their
respective affiliates and any assignee or transferee of all of their respective
rights hereunder, the "Initial Investors").
WHEREAS:
A. In connection with the Securities Purchase Agreement by and among the
parties hereto of even date herewith (the "Securities Purchase Agreement"), the
Company has agreed, upon the terms and subject to the conditions contained
therein, to issue and sell to the Initial Investors: (i) shares of its Series E
Convertible Preferred Stock (the "Preferred Stock") that are convertible into
shares of the Company's common stock, par value $.01 per share (the "Common
Stock"), upon the terms and subject to the limitations and conditions set forth
in the Certificate of Designations, Rights, Preferences, Privileges and
Restrictions with respect to the Preferred Stock (the "Certificate of
Designation"); and (ii) stock purchase warrants (the "Warrants") that are
exercisable into shares of Common Stock upon the terms and conditions subject to
the terms and conditions set forth in the Warrants; and
B. To induce the Initial Investors to execute and deliver the Securities
Purchase Agreement, the Company has agreed to provide certain registration
rights under the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute (collectively, the
"1933 Act"), and applicable state securities laws.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and each of the
Initial Investors hereby agree as follows:
<PAGE>
1. DEFINITIONS.
a. As used in this Agreement, the following terms shall have the
following meanings:
(i) "Investors" means the Initial Investors and any transferee
or assignee who agrees to become bound by the provisions of this Agreement in
accordance with Section 9 hereof.
(ii) "register," "registered," and "registration" refer to a
registration effected by preparing and filing a Registration Statement or
Statements in compliance with the 1933 Act and pursuant to Rule 415 under the
1933 Act or any successor rule providing for offering securities on a continuous
basis ("Rule 415"), and the declaration or ordering of effectiveness of such
Registration Statement by the United States Securities and Exchange Commission
(the "SEC").
(iii) "Registrable Securities" means: (A) the Conversion
Shares issued or issuable upon conversion of or otherwise pursuant to the
Preferred Shares (including, without limitation, any shares issued or issuable
pursuant to Articles V, VI.D(b) and VI.E of the Certificate of Designation and
Section 2(c) herein); (B) the Warrant Shares issued or issuable upon exercise of
or otherwise pursuant to the Warrants; and (C) any shares of capital stock
issued or issuable as a dividend on or in exchange for or otherwise with respect
to any of the foregoing.
(iv) "Registration Statement(s)" means a registration
statement(s) of the Company under the 1933 Act.
b. Capitalized terms used herein and not otherwise defined herein
shall have the respective meanings set forth in the Securities Purchase
Agreement.
2. REGISTRATION.
<PAGE>
a. Mandatory Registration. The Company shall prepare and, on or
prior to the date (the "Filing Date") which is twenty (20) business days after
the date of the closing under the Securities Purchase Agreement (the AClosing
Date@) file with the SEC a Registration Statement on Form S-3 covering the
resale of the Registrable Securities, which Registration Statement, to the
extent allowable under the 1933 Act and the rules and regulations promulgated
thereunder (including Rule 416), shall state that such Registration Statement
also covers such indeterminate number of additional shares of Common Stock as
may become issuable upon conversion of or otherwise pursuant to the Preferred
Shares to prevent dilution resulting from stock splits, stock dividends or
similar transactions. The number of shares of Common Stock initially included in
such Registration Statement shall be equal to 6,130,000. The Company
acknowledges that the number of shares initially included in the Registration
Statement represents a good faith estimate of the maximum number of shares
issuable upon conversion of or otherwise pursuant to the Preferred Shares and
upon exercise of or otherwise pursuant to the Warrants. The Registration
Statement (and each amendment or supplement thereto, and each request for
acceleration of effectiveness thereof) shall be provided to (and subject to the
approval) of the Initial Investors and their counsel prior to its filing or
other submission.
b. Underwritten Offering. If any offering pursuant to a Registration
Statement pursuant to Section 2(a) hereof involves an underwritten offering, the
Investors who hold a majority in interest of the Registrable Securities subject
to such underwritten offering, with the consent of a majority-in-interest of the
Initial Investors, shall have the right to select one legal counsel and an
investment banker or bankers and manager or managers to administer the offering,
which investment banker or bankers or manager or managers shall be reasonably
satisfactory to the Company. In the event that any Investors elect not to
participate in such underwritten offering, the Registration Statement covering
all of the Registrable Securities shall contain appropriate plans of
distribution reasonably satisfactory to the Investors participating in such
underwritten offering and the Investors electing not to participate in such
underwritten offering (including, without limitation, the ability of
non-participating Investors to sell from time to time at any time during the
effectiveness of such Registration Statement).
<PAGE>
c. Payments by the Company. The Company shall use its best efforts
to obtain effectiveness of the Registration Statement as soon as practicable,
but in any event not later than the earlier of (i) the ninetieth (90th) day
after the Filing Date and (ii) the one hundred tenth (110th) calendar day after
the Closing Date (the "Registration Deadline"). If (i) the Registration
Statement covering the Registrable Securities required to be filed by the
Company pursuant to Section 2(a) hereof is not declared effective by the SEC by
the Registration Deadline, or (ii) after the Registration Statement has been
declared effective by the SEC, sales of all of the Registrable Securities cannot
be made pursuant to the Registration Statement, or (iii) the Common Stock is not
listed or included for quotation on the Nasdaq National Market ("Nasdaq"), the
Nasdaq SmallCap Market ("Nasdaq SmallCap"), the New York Stock Exchange (the
"NYSE") or the American Stock Exchange (the "AMEX") after being so listed or
included for quotation, then the Company will make payments to the Investors in
such amounts and at such times as shall be determined pursuant to this Section
2(c) as partial relief for the damages to the Investors by reason of any such
delay in or reduction of their ability to sell the Registrable Securities (which
remedy shall not be exclusive of any other remedies available at law or in
equity). The Company shall pay to each holder of the Preferred Shares or
Registrable Securities an amount equal to the stated value of the Preferred
Shares then outstanding (and, in the case of holders of Registrable Securities,
the stated value of Preferred Shares from which such Registrable Securities were
converted) ("Aggregate Share Price") multiplied by the Applicable Percentage (as
defined below) times the sum of: (i) the number of months (prorated for partial
months) after the end of the Registration Deadline and prior to the date the
Registration Statement is declared effective by the SEC; provided, however, that
there shall be excluded from such period any delays which are solely
attributable to changes required by the Investors in the Registration Statement
with respect to information relating to the Investors, including, without
limitation, changes to the plan of distribution, or to the failure of the
Investors to conduct their review of the Registration Statement pursuant to
Section 3(h) below in a reasonably prompt manner; (ii) the number of months
(prorated for partial months) during the Registration Period (as defined below)
that sales of all of the Registrable Securities cannot be made pursuant to the
Registration Statement after the Registration Statement has been declared
effective (including, without limitation, when sales cannot be made by reason of
the Company's failure to properly supplement or amend the prospectus included
therein in accordance with the terms of this Agreement (including Section 3(b)
hereof or otherwise), but excluding any days during an Allowed Delay (as defined
in Section 3(f)); and (iii) the number of months (prorated for partial months)
that the Common Stock is not listed or included for quotation on the Nasdaq,
Nasdaq SmallCap, NYSE or AMEX or that trading thereon is halted after the
Registration Statement has been declared effective. The term "Applicable
Percentage" means 1.5 hundredths (.015). (For example, if the Registration
Statement becomes effective one (1) month after the Registration Deadline, the
Company would pay $15,000 for each $1,000,000 of Aggregate Share Price. If
thereafter, sales could not be made pursuant to the Registration Statement for
an additional period of one (1) month, the Company would pay an additional
$15,000 for each $1,000,000 of Aggregate Share Price.) Such amounts shall be
paid in cash or, at each Investor's option, may be added to the Conversion
Amount (as defined in the Certificate of Designation) of the Preferred Shares
pursuant to Article VI.A(a) of the Certificate of Designation and thereafter be
convertible into Common Stock at the "Conversion Price" (as defined in the
Certificate of Designation) in accordance with the terms of the Preferred
Shares. Any shares of Common Stock issued upon conversion of such amounts shall
be Registrable Securities. If the Investor desires to convert the amounts due
hereunder into Registrable Securities, it shall so notify the Company in writing
within two (2) business days of the date on which such amounts are first payable
in cash and such amounts shall be so convertible (pursuant to the mechanics set
forth in the Certificate of Designation), beginning on the last day upon which
the cash amount would otherwise be due in accordance with the following
sentence. Payments of cash pursuant hereto shall be made within five (5) days
after the end of each period that gives rise to such obligation, provided that,
if any such period extends for more than thirty (30) days, interim payments
shall be made for each such thirty (30) day period.
<PAGE>
d. Piggy-Back Registrations. Subject to the last sentence of this
Section 2(d), if at any time prior to the expiration of the Registration Period
(as hereinafter defined) the Company shall determine to file with the SEC a
Registration Statement relating to an offering for its own account or the
account of others under the 1933 Act of any of its equity securities (other than
on Form S-4 or Form S-8 or their then equivalents relating to equity securities
to be issued solely in connection with any acquisition of any entity or business
or equity securities issuable in connection with stock option or other employee
benefit plans), the Company shall send to each Investor who is entitled to
registration rights under this Section 2(d) written notice of such determination
and, if within fifteen (15) days after the effective date of such notice, such
Investor shall so request in writing, the Company shall include in such
Registration Statement all or any part of the Registrable Securities such
Investor requests to be registered, except that if, in connection with any
underwritten public offering for the account of the Company the managing
underwriter(s) thereof shall impose a limitation on the number of shares of
Common Stock which may be included in the Registration Statement because, in
such underwriter(s)' judgment, marketing or other factors dictate such
limitation is necessary to facilitate public distribution, then the Company
shall be obligated to include in such Registration Statement only such limited
portion of the Registrable Securities with respect to which such Investor has
requested inclusion hereunder as the underwriter shall permit. Any exclusion of
Registrable Securities shall be made pro rata among the Investors seeking to
include Registrable Securities in proportion to the number of Registrable
Securities sought to be included by such Investors; provided, however, that the
Company shall not exclude any Registrable Securities unless the Company has
first excluded all outstanding securities, the holders of which are not entitled
by contract to inclusion of such securities in such Registration Statement or
are not entitled to pro rata inclusion with the Registrable Securities; and
provided, further, however, that, after giving effect to the immediately
preceding proviso, any exclusion of Registrable Securities shall be made pro
rata with holders of other securities having the contractual right to include
such securities in the Registration Statement other than holders of securities
entitled to inclusion of their securities in such Registration Statement by
reason of demand registration rights. No right to registration of Registrable
Securities under this Section 2(d) shall be construed to limit any registration
required under Section 2(a) hereof. If an offering in connection with which an
Investor is entitled to registration under this Section 2(d) is an underwritten
offering, then each Investor whose Registrable Securities are included in such
Registration Statement shall, unless otherwise agreed by the Company, offer and
sell such Registrable Securities in an underwritten offering using the same
underwriter or underwriters and, subject to the provisions of this Agreement, on
the same terms and conditions as other shares of Common Stock included in such
underwritten offering. Notwithstanding anything to the contrary set forth
herein, the registration rights of the Investors pursuant to this Section 2(d)
shall only be available in the event the Company fails to timely file, obtain
effectiveness or maintain effectiveness of any Registration Statement to be
filed pursuant to Section 2(a) in accordance with the terms of this Agreement.
e. Eligibility for Form S-3. The Company represents and warrants
that it meets the registrant eligibility and transaction requirements for the
use of Form S-3 for registration of the sale by the Initial Investors and any
other Investors of the Registrable Securities and the Company shall file all
reports required to be filed by the Company with the SEC in a timely manner so
as to maintain such eligibility for the use of Form S-3.
3. OBLIGATIONS OF THE COMPANY.
In connection with the registration of the Registrable Securities, the
Company shall have the following obligations:
<PAGE>
a. The Company shall prepare promptly, and file with the SEC as soon
as practicable after the Closing Date (but in no event later than the Filing
Date), a Registration Statement with respect to the number of Registrable
Securities provided in Section 2(a), and thereafter use its best efforts to
cause such Registration Statement relating to Registrable Securities to become
effective as soon as possible after such filing (but in no event later than the
Registration Deadline), and keep the Registration Statement (and, following the
effectiveness of the Registration Statement on Form S-3 referred to in Section
2(e), such later Registration Statement) effective pursuant to Rule 415 at all
times until such date as is the earlier of (i) the date on which all of the
Registrable Securities have been sold and (ii) the date on which the Registrable
Securities (in the opinion of counsel to the Initial Investors) may be
immediately sold to the public without registration or restriction (including
without limitation as to volume by each holder thereof) under the 1933 Act (the
"Registration Period"), which Registration Statement (including any amendments
or supplements thereto and prospectuses contained therein) shall not contain any
untrue statement of a material fact or omit to state a material fact required to
be stated therein, or necessary to make the statements therein not misleading.
b. The Company shall prepare and file with the SEC such amendments
(including post-effective amendments) and supplements to the Registration
Statements and the prospectus used in connection with the Registration
Statements as may be necessary to keep the Registration Statements effective at
all times during the Registration Period, and, during such period, comply with
the provisions of the 1933 Act with respect to the disposition of all
Registrable Securities of the Company covered by the Registration Statements
until such time as all of such Registrable Securities have been disposed of in
accordance with the intended methods of disposition by the seller or sellers
thereof as set forth in the Registration Statements. In the event that on any
Trading Day (as defined in the Certificate of Designation) (the "Registration
Trigger Date") the number of shares available under a Registration Statement
filed pursuant to this Agreement is insufficient to cover all of the Registrable
Securities issued or issuable upon conversion of or otherwise pursuant to the
Preferred Shares (based on the Conversion Price (as defined in the Certificate
of Designation) then in effect) and upon exercise of or otherwise pursuant to
the Warrants, in each case without giving effect to any limitations on the
Investors= ability to convert the Preferred Shares or exercise the Warrants, the
Company shall amend the Registration Statement, or file a new Registration
Statement (on the short form available therefore, if applicable), or both, so as
to cover one hundred fifty percent (150%) of all of the Registrable Securities
so issued or issuable (without giving effect to any limitations on conversion or
exercise contained in the Certificate of Designation or the Warrants) as of the
Registration Trigger Date, in each case, as soon as practicable, but in any
event within twenty (20) business days after the necessity therefor arises
(based on the market price of the Common Stock and other relevant factors on
which the Company reasonably elects to rely). The Company shall use its best
efforts to cause such amendment and/or new Registration Statement to become
effective as soon as practicable following the filing thereof, but in any event
within sixty (60) days of the Registration Trigger Date. The provisions of
Section 2(c) above shall be applicable with respect to the Company=s obligations
under this Section 3(b).
<PAGE>
c. The Company shall furnish to each Investor whose Registrable
Securities are included in a Registration Statement and its legal counsel (i)
promptly after the same is prepared and publicly distributed, filed with the
SEC, or received by the Company, one copy of each Registration Statement and any
amendment thereto, each preliminary prospectus and prospectus and each amendment
or supplement thereto, and, in the case of the Registration Statement referred
to in Section 2(a), each letter written by or on behalf of the Company to the
SEC or the staff of the SEC, and each item of correspondence from the SEC or the
staff of the SEC, in each case relating to such Registration Statement (other
than any portion of any thereof which contains information for which the Company
has sought confidential treatment), and (ii) such number of copies of a
prospectus, including a preliminary prospectus, and all amendments and
supplements thereto and such other documents as such Investor may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Investor. The Company will immediately notify each Investor by
facsimile of the effectiveness of each Registration Statement or any
post-effective amendment. The Company will promptly respond to any and all
comments received from the SEC, with a view towards causing each Registration
Statement or any amendment thereto to be declared effective by the SEC as soon
as practicable and shall file an acceleration request as soon as practicable,
but not more than two (2) business days, following the resolution or clearance
of all SEC comments or, if applicable, following notification by the SEC that
any such Registration Statement or any amendment thereto will not be subject to
review.
d. The Company shall use reasonable efforts to (i) register and
qualify the Registrable Securities covered by the Registration Statements under
such other securities or "blue sky" laws of such jurisdictions in the United
States as the Investors who hold a majority in interest of the Registrable
Securities being offered reasonably request, (ii) prepare and file in those
jurisdictions such amendments (including post-effective amendments) and
supplements to such registrations and qualifications as may be necessary to
maintain the effectiveness thereof during the Registration Period, (iii) take
such other actions as may be necessary to maintain such registrations and
qualifications in effect at all times during the Registration Period, and (iv)
take all other actions reasonably necessary or advisable to qualify the
Registrable Securities for sale in such jurisdictions; provided, however, that
the Company shall not be required in connection therewith or as a condition
thereto to (a) qualify to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 3(d), (b) subject itself
to general taxation in any such jurisdiction, (c) file a general consent to
service of process in any such jurisdiction, (d) provide any undertakings that
cause the Company undue expense or burden, or (e) make any change in its charter
or bylaws, which in each case the Board of Directors of the Company determines
to be contrary to the best interests of the Company and its stockholders.
e. In the event Investors who hold a majority-in-interest of the
Registrable Securities being offered in the offering (with the approval of a
majority-in-interest of the Initial Investors) select underwriters for the
offering, the Company shall enter into and perform its obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
underwriters of such offering.
<PAGE>
f. As promptly as practicable after becoming aware of such event,
the Company shall notify each Investor of the happening of any event, of which
the Company has knowledge, as a result of which the prospectus included in any
Registration Statement, as then in effect, includes an untrue statement of a
material fact or omission to state a material fact required to be stated therein
or necessary to make the statements therein not misleading, and use its best
efforts promptly to prepare a supplement or amendment to any Registration
Statement to correct such untrue statement or omission, and deliver such number
of copies of such supplement or amendment to each Investor as such Investor may
reasonably request; provided that, for not more than thirty (30) consecutive
calendar days (or a total of not more than forty-five (45) calendar days in any
twelve (12) month period), the Company may delay the disclosure of material
non-public information concerning the Company (as well as prospectus or
Registration Statement updating) the disclosure of which at the time is not, in
the good faith opinion of the Company, in the best interests of the Company (an
"Allowed Delay"); provided, further, that the Company shall promptly (i) notify
the Investors in writing of the existence of (but in no event, without the prior
written consent of an Investor, shall the Company disclose to such Investor any
of the facts or circumstances regarding) material non-public information giving
rise to an Allowed Delay and (ii) advise the Investors in writing to cease all
sales under such Registration Statement until the end of the Allowed Delay. Upon
expiration of the Allowed Delay, the Company shall again be bound by the first
sentence of this Section 3(f) with respect to the information giving rise
thereto.
g. The Company shall use its best efforts to prevent the issuance of
any stop order or other suspension of effectiveness of any Registration
Statement, and, if such an order is issued, to obtain the withdrawal of such
order at the earliest possible moment and to notify each Investor who holds
Registrable Securities being sold (or, in the event of an underwritten offering,
the managing underwriters) of the issuance of such order and the resolution
thereof.
h. The Company shall permit a single firm of counsel designated by
the Initial Investors to review such Registration Statement and all amendments
and supplements thereto (as well as all requests for acceleration or
effectiveness thereof) a reasonable period of time prior to their filing with
the SEC, and not file any document in a form to which such counsel reasonably
objects and will not request acceleration of such Registration Statement without
prior notice to such counsel. The sections of such Registration Statement
covering information with respect to the Investors, the Investor's beneficial
ownership of securities of the Company or the Investors intended method of
disposition of Registrable Securities shall conform to the information provided
to the Company by each of the Investors.
i. The Company shall make generally available to its security
holders as soon as practicable, but not later than ninety (90) days after the
close of the period covered thereby, an earnings statement (in form complying
with the provisions of Rule 158 under the 1933 Act) covering a twelve-month
period beginning not later than the first day of the Company's fiscal quarter
next following the effective date of the Registration Statement.
j. At the request of any Investor, the Company shall furnish, on the
date that Registrable Securities are delivered to an underwriter, if any, for
sale in connection with any Registration Statement or, if such securities are
not being sold by an underwriter, on the date of effectiveness thereof (i) an
opinion, dated as of such date, from counsel representing the Company for
purposes of such Registration Statement, in form, scope and substance as is
customarily given in an underwritten public offering, addressed to the
underwriters, if any, and the Investors and (ii) a letter, dated such date, from
the Company's independent certified public accountants in form and substance as
is customarily given by independent certified public accountants to underwriters
in an underwritten public offering, addressed to the underwriters, if any, and
the Investors.
<PAGE>
k. The Company shall make available for inspection by (i) any
Investor, (ii) any underwriter participating in any disposition pursuant to a
Registration Statement, (iii) one firm of attorneys and one firm of accountants
or other agents retained by the Initial Investors, (iv) one firm of attorneys
and one firm of accountants or other agents retained by all other Investors, and
(v) one firm of attorneys retained by all such underwriters (collectively, the
"Inspectors") all pertinent financial and other records, and pertinent corporate
documents and properties of the Company (collectively, the "Records"), as shall
be reasonably deemed necessary by each Inspector to enable each Inspector to
exercise its due diligence responsibility, and cause the Company's officers,
directors and employees to supply all information which any Inspector may
reasonably request for purposes of such due diligence; provided, however, that
each Inspector shall hold in confidence and shall not make any disclosure
(except to an Investor) of any Record or other information which the Company
determines in good faith to be confidential, and of which determination the
Inspectors are so notified, unless (a) the disclosure of such Records is
necessary to avoid or correct a misstatement or omission in any Registration
Statement, (b) the release of such Records is ordered pursuant to a subpoena or
other order from a court or government body of competent jurisdiction, or (c)
the information in such Records has been made generally available to the public
other than by disclosure in violation of this or any other agreement. The
Company shall not be required to disclose any confidential information in such
Records to any Inspector until and unless such Inspector shall have entered into
confidentiality agreements (in form and substance satisfactory to the Company)
with the Company with respect thereto, substantially in the form of this Section
3(k). Each Investor agrees that it shall, upon learning that disclosure of such
Records is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to the Company and allow
the Company, at its expense, to undertake appropriate action to prevent
disclosure of, or to obtain a protective order for, the Records deemed
confidential. Nothing herein (or in any other confidentiality agreement between
the Company and any Investor) shall be deemed to limit the Investor's ability to
sell Registrable Securities in a manner which is otherwise consistent with
applicable laws and regulations.
l. The Company shall hold in confidence and not make any disclosure
of information concerning an Investor provided to the Company unless (i)
disclosure of such information is necessary to comply with federal or state
securities laws, (ii) the disclosure of such information is necessary to avoid
or correct a misstatement or omission in any Registration Statement, (iii) the
release of such information is ordered pursuant to a subpoena or other order
from a court or governmental body of competent jurisdiction, or (iv) such
information has been made generally available to the public other than by
disclosure in violation of this or any other agreement. The Company agrees that
it shall, upon learning that disclosure of such information concerning an
Investor is sought in or by a court or governmental body of competent
jurisdiction or through other means, give prompt notice to such Investor prior
to making such disclosure, and allow the Investor, at its expense, to undertake
appropriate action to prevent disclosure of, or to obtain a protective order
for, such information.
<PAGE>
m. The Company shall (i) cause all the Registrable Securities
covered by the Registration Statement to be listed on each national securities
exchange on which securities of the same class or series issued by the Company
are then listed, if any, if the listing of such Registrable Securities is then
permitted under the rules of such exchange, or (ii) to the extent the securities
of the same class or series are not then listed on a national securities
exchange, secure the designation and quotation of all the Registrable Securities
covered by the Registration Statement on Nasdaq or, if not eligible for Nasdaq
on the Nasdaq SmallCap and, without limiting the generality of the foregoing, to
arrange for at least two market makers to register with the National Association
of Securities Dealers, Inc. ("NASD") as such with respect to such Registrable
Securities.
n. The Company shall provide a transfer agent and registrar, which
may be a single entity, for the Registrable Securities not later than the
effective date of the Registration Statement.
o. The Company shall cooperate with the Investors who hold
Registrable Securities being offered and the managing underwriter or
underwriters, if any, to facilitate the timely preparation and delivery of
certificates (not bearing any restrictive legends) representing Registrable
Securities to be offered pursuant to such Registration Statement and enable such
certificates to be in such denominations or amounts, as the case may be, as the
managing underwriter or underwriters, if any, or the Investors may reasonably
request and registered in such names as the managing underwriter or
underwriters, if any, or the Investors may request, and, within three (3)
business days after a Registration Statement which includes Registrable
Securities is ordered effective by the SEC, the Company shall deliver, and shall
cause legal counsel selected by the Company to deliver, to the transfer agent
for the Registrable Securities (with copies to the Investors whose Registrable
Securities are included in such Registration Statement) an instruction in the
form attached hereto as Exhibit 1 and an opinion of such counsel in the form
attached hereto as Exhibit 2.
p. At the request of any holder of the Registrable Securities, the
Company shall prepare and file with the SEC, within a reasonable time prior to
any proposed sale by such holder, such amendments (including post-effective
amendments) and supplements to a Registration Statement and any prospectus used
in connection with the Registration Statement as may be necessary in order to
incorporate information concerning such holder or such holder=s intended method
of distribution as set forth in such Registration Statement.
q. The Company shall not, and shall not agree to, allow the holders
of any securities of the Company to include any of their securities in any
Registration Statement under Section 2(a) hereof or any amendment or supplement
thereto under Section 3(b) hereof without the consent of the holders of a
majority-in-interest of the Registrable Securities. In addition, the Company
shall not offer any securities for its own account or the account of others in
any Registration Statement under Section 2(a) hereof or any amendment or
supplement thereto under Section 3(b) hereof without the consent of the holders
of a majority-in- interest of the Registrable Securities.
<PAGE>
r. The Company shall take all other reasonable actions necessary to
expedite and facilitate disposition by the Investors of Registrable Securities
pursuant to a Registration Statement.
s. The Company shall comply with all applicable laws related to a
Registration Statement and offering and sale of securities and all applicable
rules and regulations of governmental authorities in connection therewith
(including without limitation the 1933 Act and the 1934 Act and the rules and
regulations promulgated by the SEC).
4. OBLIGATIONS OF THE INVESTORS.
In connection with the registration of the Registrable Securities, the
Investors shall have the following obligations:
a. It shall be a condition precedent to the obligations of the
Company to complete the registration pursuant to this Agreement with respect to
the Registrable Securities of a particular Investor that such Investor shall
furnish to the Company such information regarding itself, the Registrable
Securities held by it and the intended method of disposition of the Registrable
Securities held by it as shall be reasonably required to effect the registration
of such Registrable Securities and shall execute such documents in connection
with such registration as the Company may reasonably request. At least three (3)
business days prior to the first anticipated filing date of the Registration
Statement, the Company shall notify each Investor of the information the Company
requires from each such Investor.
b. Each Investor, by such Investor's acceptance of the Registrable
Securities, agrees to cooperate with the Company as reasonably requested by the
Company in connection with the preparation and filing of the Registration
Statements hereunder, unless such Investor has notified the Company in writing
of such Investor's election to exclude all of such Investor's Registrable
Securities from the Registration Statements.
c. In the event Investors holding a majority-in-interest of the
Registrable Securities being registered (with the approval of the Initial
Investors) determine to engage the services of an underwriter, each Investor
agrees to enter into and perform such Investor's obligations under an
underwriting agreement, in usual and customary form, including, without
limitation, customary indemnification and contribution obligations, with the
managing underwriter of such offering and take such other actions as are
reasonably required in order to expedite or facilitate the disposition of the
Registrable Securities, unless such Investor has notified the Company in writing
of such Investor's election to exclude all of such Investor's Registrable
Securities from such Registration Statement.
<PAGE>
d. Each Investor agrees that, upon receipt of any notice from the
Company of the happening of any event of the kind described in Section 3(f) or
3(g), such Investor will immediately discontinue disposition of Registrable
Securities pursuant to the Registration Statement covering such Registrable
Securities until such Investor's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 3(f) or 3(g) and, if so directed by
the Company, such Investor shall deliver to the Company (at the expense of the
Company) or destroy (and deliver to the Company a certificate of destruction)
all copies in such Investor's possession, of the prospectus covering such
Registrable Securities current at the time of receipt of such notice.
e. No Investor may participate in any underwritten registration
hereunder unless such Investor (i) agrees to sell such Investor's Registrable
Securities on the basis provided in any underwriting arrangements in usual and
customary form entered into by the Company, (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required under the terms of such underwriting
arrangements, and (iii) agrees to pay its pro rata share of all underwriting
discounts and commissions and any expenses in excess of those payable by the
Company pursuant to Section 5 below.
f. The underwriters in connection with any firm commitment
underwritten public offering of the Common Stock resulting in gross proceeds to
the Company of at least $40,000,000 led by at least one underwriter of
nationally recognized standing (a AQualified Public Offering@) shall have the
right to require that the Investors enter into an agreement (a ALock-Up
Agreement@) restricting the Investors from selling Registrable Securities
pursuant to the Registration Statement in any public sale for a period not to
exceed sixty (60) days following the consummation of such Qualified Public
Offering (the AUnderwriters= Lock-Up Period@); provided that such underwriters
deem this to be reasonably necessary to effect such Qualified Public Offering;
and provided, further, that all of the Company=s directors, executive officers,
affiliates and significant stockholders shall have also agreed to identical (or
more restrictive) restrictions. The Investors shall be subject to no more than
one such restriction in each twelve (12) month period during the Registration
Period; provided, however, that the Maturity Date (as defined in the Certificate
of Designation) shall be extended, at the option of each Investor, by the number
of days in which such Investor is subject to a Lock-Up Agreement in accordance
with Article VII of the Certificate of Designation.
5. EXPENSES OF REGISTRATION.
All reasonable expenses, other than underwriting discounts and
commissions, incurred in connection with registrations, filings or
qualifications pursuant to Sections 2 and 3, including, without limitation, all
registration, listing and qualification fees, printers and accounting fees, the
fees and disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel selected by the Initial Investors pursuant to
Sections 2(b) and 3(h) hereof, which fees and disbursements of one counsel
selected by the Initial Investors shall be counted toward the cap of $50,000.00
set forth in Section 4(f) of the Securities Purchase Agreement, shall be borne
by the Company.
<PAGE>
6. INDEMNIFICATION.
In the event any Registrable Securities are included in a Registration
Statement under this Agreement:
<PAGE>
a. To the extent permitted by law, the Company will indemnify, hold
harmless and defend (i) each Investor who holds such Registrable Securities,
(ii) the directors, officers, partners, employees, agents and each person who
controls any Investor within the meaning of the 1933 Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act"), if any, (iii) any underwriter
(as defined in the 1933 Act) for the Investors, and (iv) the directors,
officers, partners, employees and each person who controls any such underwriter
within the meaning of the 1933 Act or the 1934 Act, if any (each, an
"Indemnified Person"), against any joint or several losses, claims, damages,
liabilities or expenses (collectively, together with actions, proceedings or
inquiries by any regulatory or self-regulatory organization, whether commenced
or threatened, in respect thereof, "Claims") to which any of them may become
subject insofar as such Claims arise out of or are based upon: (i) any untrue
statement or alleged untrue statement of a material fact in a Registration
Statement or the omission or alleged omission to state therein a material fact
required to be stated or necessary to make the statements therein not
misleading; (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary prospectus if used prior to the effective date
of such Registration Statement, or contained in the final prospectus (as amended
or supplemented, if the Company files any amendment thereof or supplement
thereto with the SEC) or the omission or alleged omission to state therein any
material fact necessary to make the statements made therein, in light of the
circumstances under which the statements therein were made, not misleading; or
(iii) any violation or alleged violation by the Company of the 1933 Act, the
1934 Act, any other law, including, without limitation, any state securities
law, or any rule or regulation thereunder relating to the offer or sale of the
Registrable Securities (the matters in the foregoing clauses (i) through (iii)
being, collectively, "Violations"). Subject to the restrictions set forth in
Section 6(c) with respect to the number of legal counsel, the Company shall
reimburse the Indemnified Person, promptly as such expenses are incurred and are
due and payable, for any reasonable legal fees or other reasonable expenses
incurred by them in connection with investigating or defending any such Claim.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(a): (i) shall not apply to a Claim arising
out of or based upon a Violation which occurs in reliance upon and in conformity
with information furnished in writing to the Company by any Indemnified Person
or underwriter for such Indemnified Person expressly for use in connection with
the preparation of such Registration Statement or any such amendment thereof or
supplement thereto; (ii) shall not apply to amounts paid in settlement of any
Claim if such settlement is effected without the prior written consent of the
Company, which consent shall not be unreasonably withheld; and (iii) with
respect to any preliminary prospectus, shall not inure to the benefit of any
Indemnified Person if the untrue statement or omission of material fact
contained in the preliminary prospectus was corrected on a timely basis in the
prospectus, as then amended or supplemented, such corrected prospectus was
timely made available by the Company pursuant to Section 3(c) hereof, and the
Indemnified Person was promptly advised in writing not to use the incorrect
prospectus prior to the use giving rise to a Violation and such Indemnified
Person, notwithstanding such advice, used it. Such indemnity shall remain in
full force and effect regardless of any investigation made by or on behalf of
the Indemnified Person and shall survive the transfer of the Registrable
Securities by the Investors pursuant to Section 9.
b. In connection with any Registration Statement in which an
Investor is participating, each such Investor agrees severally and not jointly
to indemnify, hold harmless and defend, to the same extent and in the same
manner set forth in Section 6(a), the Company, each of its directors, each of
its officers who signs the Registration Statement, each person, if any, who
controls the Company within the meaning of the 1933 Act or the 1934 Act, any
underwriter and any other stockholder selling securities pursuant to the
Registration Statement or any of its directors or officers or any person who
controls such stockholder or underwriter within the meaning of the 1933 Act or
the 1934 Act (collectively and together with an Indemnified Person, an
"Indemnified Party"), against any Claim to which any of them may become subject,
under the 1933 Act, the 1934 Act or otherwise, insofar as such Claim arises out
of or is based upon any Violation by such Investor, in each case to the extent
(and only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished to the Company by such Investor
expressly for use in connection with such Registration Statement; and subject to
Section 6(c) such Investor will reimburse any legal or other expenses (promptly
as such expenses are incurred and are due and payable) reasonably incurred by
them in connection with investigating or defending any such Claim; provided,
however, that the indemnity agreement contained in this Section 6(b) shall not
apply to amounts paid in settlement of any Claim if such settlement is effected
without the prior written consent of such Investor, which consent shall not be
unreasonably withheld; provided, further, however, that the Investor shall be
liable under this Agreement (including this Section 6(b) and Section 7) for only
that amount as does not exceed the net proceeds to such Investor as a result of
the sale of Registrable Securities pursuant to such Registration Statement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of such Indemnified Party and shall survive the transfer of
the Registrable Securities by the Investors pursuant to Section 9.
Notwithstanding anything to the contrary contained herein, the indemnification
agreement contained in this Section 6(b) with respect to any preliminary
prospectus shall not inure to the benefit of any Indemnified Party if the untrue
statement or omission of material fact contained in the preliminary prospectus
was corrected on a timely basis in the prospectus, as then amended or
supplemented.
<PAGE>
c. Promptly after receipt by an Indemnified Person or Indemnified
Party under this Section 6 of notice of the commencement of any action
(including any governmental action), such Indemnified Person or Indemnified
Party shall, if a Claim in respect thereof is to be made against any
indemnifying party under this Section 6, deliver to the indemnifying party a
written notice of the commencement thereof, and the indemnifying party shall
have the right to participate in, and, to the extent the indemnifying party so
desires, jointly with any other indemnifying party similarly noticed, to assume
control of the defense thereof with counsel mutually satisfactory to the
indemnifying party and the Indemnified Person or the Indemnified Party, as the
case may be; provided, however, that an Indemnified Person or Indemnified Party
shall have the right to retain its own counsel with the fees and expenses to be
paid by the indemnifying party, if, in the reasonable opinion of counsel
retained by the indemnifying party, the representation by such counsel of the
Indemnified Person or Indemnified Party and the indemnifying party would be
inappropriate due to actual or potential differing interests between such
Indemnified Person or Indemnified Party and any other party represented by such
counsel in such proceeding. The indemnifying party shall pay for only one
separate legal counsel for the Indemnified Persons or the Indemnified Parties,
as applicable, and such legal counsel shall be selected by Investors holding a
majority-in-interest of the Registrable Securities included in the Registration
Statement to which the Claim relates (with the approval of a
majority-in-interest of the Initial Investors), if the Investors are entitled to
indemnification hereunder, or the Company, if the Company is entitled to
indemnification hereunder, as applicable. The failure to deliver written notice
to the indemnifying party within a reasonable time of the commencement of any
such action shall not relieve such indemnifying party of any liability to the
Indemnified Person or Indemnified Party under this Section 6, except to the
extent that the indemnifying party is actually prejudiced in its ability to
defend such action. The indemnification required by this Section 6 shall be made
by periodic payments of the amount thereof during the course of the
investigation or defense, as such expense, loss, damage or liability is incurred
and is due and payable.
7. CONTRIBUTION.
To the extent any indemnification by an indemnifying party is prohibited
or limited by law, the indemnifying party agrees to make the maximum
contribution with respect to any amounts for which it would otherwise be liable
under Section 6 to the fullest extent permitted by law; provided, however, that
(i) no contribution shall be made under circumstances where the maker would not
have been liable for indemnification under the fault standards set forth in
Section 6, (ii) no seller of Registrable Securities guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be
entitled to contribution from any seller of Registrable Securities who was not
guilty of such fraudulent misrepresentation, and (iii) contribution (together
with any indemnification or other obligations under this Agreement) by any
seller of Registrable Securities shall be limited in amount to the net amount of
proceeds received by such seller from the sale of such Registrable Securities.
8. REPORTS UNDER THE 1934 ACT.
With a view to making available to the Investors the benefits of Rule 144
promulgated under the 1933 Act or any other similar rule or regulation of the
SEC that may at any time permit the investors to sell securities of the Company
to the public without registration ("Rule 144"), the Company agrees to:
a. make and keep public information available, as those terms
are understood and defined in Rule 144;
<PAGE>
b. file with the SEC in a timely manner all reports and other
documents required of the Company under the 1933 Act and the 1934 Act so long as
the Company remains subject to such requirements (it being understood that
nothing herein shall limit the Company's obligations under Section 4(c) of the
Securities Purchase Agreement) and the filing of such reports and other
documents is required for the applicable provisions of Rule 144; and
c. furnish to each Investor so long as such Investor owns
Registrable Securities, promptly upon request, (i) a written statement by the
Company that it has complied with the reporting requirements of Rule 144, the
1933 Act and the 1934 Act, (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested to
permit the Investors to sell such securities pursuant to Rule 144 without
registration.
9. ASSIGNMENT OF REGISTRATION RIGHTS.
The rights under this Agreement shall be automatically assignable by the
Investors to any transferee of all or any portion of Registrable Securities if:
(i) the Investor agrees in writing with the transferee or assignee to assign
such rights, and a copy of such agreement is furnished to the Company within a
reasonable time after such assignment, (ii) the Company is, within a reasonable
time after such transfer or assignment, furnished with written notice of (a) the
name and address of such transferee or assignee, and (b) the securities with
respect to which such registration rights are being transferred or assigned,
(iii) following such transfer or assignment, the further disposition of such
securities by the transferee or assignee is restricted under the 1933 Act and
applicable state securities laws, (iv) at or before the time the Company
receives the written notice contemplated by clause (ii) of this sentence, the
transferee or assignee agrees in writing with the Company to be bound by all of
the provisions contained herein, (v) such transfer shall have been made in
accordance with the applicable requirements of the Securities Purchase
Agreement, and (vi) such transferee shall be an "accredited investor" as that
term defined in Rule 501 of Regulation D promulgated under the 1933 Act.
10. AMENDMENT OF REGISTRATION RIGHTS.
Provisions of this Agreement may be amended and the observance thereof may
be waived (either generally or in a particular instance and either retroactively
or prospectively), only with written consent of the Company, each of the Initial
Investors (to the extent such Initial Investor still owns Registrable
Securities) and Investors who hold a majority interest of the Registrable
Securities. Any amendment or waiver effected in accordance with this Section 10
shall be binding upon each Investor and the Company.
11. MISCELLANEOUS.
<PAGE>
a. A person or entity is deemed to be a holder of Registrable
Securities whenever such person or entity owns of record such Registrable
Securities. If the Company receives conflicting instructions, notices or
elections from two or more persons or entities with respect to the same
Registrable Securities, the Company shall act upon the basis of instructions,
notice or election received from the registered owner of such Registrable
Securities.
b. Any notice, demand or request required or permitted to be given
by any party to any other party pursuant to the terms of this Agreement shall be
in writing and shall be deemed given (i) when delivered personally or by
verifiable facsimile transmission (with an original to follow) on or before 5:00
p.m., Eastern Time, on a business day or, if such day is not a business day, on
the next succeeding business day, (ii) on the next business day after timely
delivery to a nationally-recognized overnight courier and (iii) on the business
day actually received if deposited in the U.S. mail (certified or registered
mail, return receipt requested, postage prepaid), addressed to the parties as
follows:
If to the Company:
Marketing Services Group, Inc.
333 Seventh Avenue, 20th Floor
New York, New York 10001
Attention: Chairman of the Board and Chief Executive Officer
Facsimile: 917-339-7111
With copy to:
Camhy Karlinsky Stein LLP
1740 Broadway
New York, New York 10019
Attention: Alan I. Annex, Esq.
Facsimile: 212-977-8389
If to an Investor: to the address set forth immediately below such Investor's
name on the signature pages to the Securities Purchase Agreement.
With copies to:
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street
Philadelphia, PA 19103
Attention: Gerald J. Guarcini, Esq.
Facsimile: 215-864-8999
<PAGE>
Solomon, Zauderer, Ellenhorn, Frischer & Sharp
45 Rockefeller Plaza
New York, New York 10111
Attention: Robert L. Mazzeo, Esq.
Facsimile: (212) 956-4068
c. Failure of any party to exercise any right or remedy under this
Agreement or otherwise, or delay by a party in exercising such right or remedy,
shall not operate as a waiver thereof.
d. This Agreement shall be governed by and construed in accordance
with the laws of the State of Delaware applicable to agreements made and to be
performed in the State of Delaware (without regard to principles of conflict of
laws). Both parties irrevocably consent to the jurisdiction of the United States
federal courts and the state courts located in Delaware with respect to any suit
or proceeding based on or arising under this Agreement, the agreements entered
into in connection herewith or the transactions contemplated hereby or thereby
and irrevocably agree that all claims in respect of such suit or proceeding may
be determined in such courts. Both parties irrevocably waive the defense of an
inconvenient forum to the maintenance of such suit or proceeding. Both parties
further agree that service of process upon a party mailed by first class mail
shall be deemed in every respect effective service of process upon the party in
any such suit or proceeding. Nothing herein shall affect either party's right to
serve process in any other manner permitted by law. Both parties agree that a
final non-appealable judgment in any such suit or proceeding shall be conclusive
and may be enforced in other jurisdictions by suit on such judgment or in any
other lawful manner.
e. This Agreement, the Securities Purchase Agreement and the
Warrants (including all schedules and exhibits thereto) constitute the entire
agreement among the parties hereto with respect to the subject matter hereof and
thereof. There are no restrictions, promises, warranties or undertakings, other
than those set forth or referred to herein and therein. This Agreement, the
Securities Purchase Agreement and the Warrants supersede all prior agreements
and understandings among the parties hereto with respect to the subject matter
hereof and thereof.
f. Subject to the requirements of Section 9 hereof, this Agreement
shall inure to the benefit of and be binding upon the successors and assigns of
each of the parties hereto.
g. The headings in this Agreement are for convenience of reference
only and shall not limit or otherwise affect the meaning hereof.
h. This Agreement may be executed in two or more counterparts, each
of which shall be deemed an original but all of which shall constitute one and
the same agreement. This Agreement, once executed by a party, may be delivered
to the other party hereto by facsimile transmission of a copy of this Agreement
bearing the signature of the party so delivering this Agreement.
<PAGE>
i. Each party shall do and perform, or cause to be done and
performed, all such further acts and things, and shall execute and deliver all
such other agreements, certificates, instruments and documents, as the other
party may reasonably request in order to carry out the intent and accomplish the
purposes of this Agreement and the consummation of the transactions contemplated
hereby.
j. Except as otherwise provided herein, all consents and other
determinations to be made by the Investors pursuant to this Agreement shall be
made by Investors holding at least two-thirds (2/3) of the Registrable
Securities, determined as if the all of the shares of Preferred Stock and
Warrants then outstanding have been converted into or exercised for Registrable
Securities, as the case may be.
k. The Company acknowledges that a breach by it of its obligations
hereunder will cause irreparable harm to each Investor by vitiating the intent
and purpose of the transactions contemplated hereby. Accordingly, the Company
acknowledges that the remedy at law for breach of its obligations hereunder will
be inadequate and agrees, in the event of a breach or threatened breach by the
Company of any of the provisions hereunder, that each Investor shall be
entitled, in addition to all other available remedies in law or in equity, to an
injunction or injunctions to prevent or cure breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof, without
the necessity of showing economic loss and without any bond or other security
being required.
l. The language used in this Agreement will be deemed to be the
language chosen by the parties to express their mutual intent, and no rules of
strict construction will be applied against any party.
m. In the event that any provision of this Agreement is invalid or
unenforceable under any applicable statute or rule of law, then such provision
shall be deemed inoperative to the extent that it may conflict therewith and
shall be deemed modified to conform with such statute or rule of law. Any
provision hereof which may prove invalid or unenforceable under any law shall
not affect the validity or enforceability of any other provision hereof.
<PAGE>
n. The initial number of Registrable Securities included in any
Registration Statement and each increase to the number of Registrable Securities
included therein shall be allocated pro rata among the Investors based on the
number of Registrable Securities held by each Investor at the time of such
establishment or increase, as the case may be. In the event an Investor shall
sell or otherwise transfer any of such holder=s Registrable Securities, each
transferee shall be allocated a pro rata portion of the number of Registrable
Securities included in a Registration Statement for such transferor. Any shares
of Common Stock included on a Registration Statement and which remain allocated
to any person or entity which does not hold any Registrable Securities shall be
allocated to the remaining Investors, pro rata based on the number of shares of
Registrable Securities then held by such Investors. For the avoidance of doubt,
the number of Registrable Securities held by an Investor shall be determined as
if all Preferred Shares and Warrants then outstanding and held by an Investor
were converted into or exercised for Registrable Securities.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the Company and the undersigned Initial
Investors have caused this Agreement to be duly executed as of the date first
above written.
MARKETING SERVICES GROUP, INC.
By:
J. Jeremy Barbera
Chairman of the Board and Chief Executive Officer
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P.,
Investment Manager
By: RGC General Partner Corp.,
as General Partner
By:
Gary S. Kaminsky
Managing Director
MARSHALL CAPITAL MANAGEMENT, INC.
By: ______________________________________
Allan Weine
President
Exhibit 10.1
SECURITIES PURCHASE AGREEMENT
SECURITIES PURCHASE AGREEMENT (this "Agreement"), dated as of February 18,
2000, by and among Marketing Services Group, Inc., a Nevada corporation, with
headquarters located at 333 Seventh Avenue, 20th Floor, New York, New York 10001
("Company") and each of the purchasers set forth on the signature pages hereto
(the "Buyers").
WHEREAS:
A. The Company and the Buyers are executing and delivering this Agreement
in reliance upon the exemption from securities registration afforded by Rule 506
under Regulation D ("Regulation D") as promulgated by the United States
Securities and Exchange Commission (the "SEC") under the Securities Act of 1933,
as amended (the "1933 Act");
B. The Company has authorized a new series of preferred stock, designated
as Series E Convertible Preferred Stock (the "Series E Preferred Stock"), having
the rights, preferences and privileges set forth in the Certificate of
Designations, Rights and Preferences attached hereto as Exhibit "A" (the
"Certificate of Designation");
C. The Preferred Shares (as defined below) are convertible into shares of
common stock, $.01 par value per share, of the Company (the "Common Stock"),
upon the terms and subject to the limitations and conditions set forth in the
Certificate of Designation;
D. The Company has authorized the issuance to the Buyers of warrants, in
the form attached hereto as Exhibit "B", to purchase an aggregate of One Million
Four Hundred Seventy-One Thousand, Seventy-Four (1,471,074) shares of Common
Stock (the "Warrants").
E. The Buyers desire to purchase and the Company desires to issue and
sell, upon the terms and conditions set forth in this Agreement, (i) an
aggregate of Thirty Thousand (30,000) shares of Series E Preferred Stock
(together with any shares of Series E Preferred Stock issued in replacement
thereof or as a dividend thereon or otherwise with respect thereto in accordance
with the terms thereof, the "Preferred Shares"), and (ii) the Warrants, for an
aggregate purchase price of Thirty Million Dollars ($30,000,000) (the APurchase
Price@);
F. Each Buyer wishes to purchase, upon the terms and conditions stated in
this Agreement, the number of Preferred Shares and Warrants as is set forth
immediately below its name on the signature pages hereto; and
<PAGE>
- 45 -
PHL_A 1339291 v 6
G. Contemporaneous with the execution and delivery of this Agreement, the
parties hereto are executing and delivering a Registration Rights Agreement, in
the form attached hereto as Exhibit "C" (the "Registration Rights Agreement"),
pursuant to which the Company has agreed to provide certain registration rights
under the 1933 Act and the rules and regulations promulgated thereunder, and
applicable state securities laws.
NOW, THEREFORE, the Company and each of the Buyers severally (and not
jointly) hereby agree as follows:
1. PURCHASE AND SALE OF PREFERRED SHARES AND WARRANTS.
a. Purchase of Preferred Shares and Warrants. On the Closing
Date (as defined below), the Company shall issue and sell to each Buyer and each
Buyer severally agrees to purchase from the Company such number of Preferred
Shares and Warrants as is set forth immediately below such Buyer=s name on the
signature pages hereto.
b. Form of Payment. On the Closing Date (as defined below),
(i) each Buyer shall pay their respective portion of the Purchase Price, as set
forth on the signature page hereof, for the Preferred Shares and Warrants to be
issued and sold to it at the Closing (as defined below) (the "Purchase Price")
by wire transfer of immediately available funds to the Company, in accordance
with the Company=s written wiring instructions, against delivery of duly
executed certificates representing such number of Preferred Shares and Warrants
which such Buyer is purchasing and (ii) the Company shall deliver such
certificates duly executed on behalf of the Company, to such Buyer, against
delivery of such Purchase Price.
c. Closing Date. Subject to the satisfaction (or waiver) of
the conditions thereto set forth in Section 6 and Section 7 below, the date and
time of the issuance and sale of the Preferred Shares and Warrants pursuant to
this Agreement (the "Closing Date") shall be 12:00 noon Eastern Standard Time on
February 22, 2000 or such other mutually agreed upon time. The closing of the
transactions contemplated by this Agreement (the "Closing") shall occur on the
Closing Date at the offices of Ballard Spahr Andrews & Ingersoll, LLP, 1735
Market Street, Philadelphia, Pennsylvania 19103, or at such other location as
may be agreed to by the parties.
2. BUYERS' REPRESENTATIONS AND WARRANTIES. Each Buyer severally (and
not jointly) represents and warrants to the Company solely as to such Buyer
that:
<PAGE>
a. Investment Purpose. As of the date hereof, the Buyer is
purchasing the Preferred Shares, the shares of Common Stock issuable upon
conversion of or otherwise pursuant to the Preferred Shares (including, without
limitation, such additional shares of Common Stock as are issuable as a result
of the events described in Articles V, VI.D(b) or VI.E of the Certificate of
Designation and Section 2(c) of the Registration Rights Agreement (such shares
of Common Stock being collectively referred to herein as the "Conversion
Shares")), the Warrants and the shares of Common Stock issuable upon exercise of
or otherwise pursuant to the Warrants (the "Warrant Shares" and, collectively
with the Preferred Shares, the Conversion Shares and the Warrants, the
"Securities") for its own account and not with a present view towards the public
sale or distribution thereof. Nonetheless, by making the representations herein,
the Buyer does not agree to hold any of the Securities for any minimum or other
specific term and reserves the right to dispose of the Securities at any time in
accordance with or pursuant to a registration statement or an exemption under
the 1933 Act.
b. Accredited Investor Status. The Buyer is an "accredited
investor" as that term is defined in Rule 501(a) of Regulation D (an "Accredited
Investor").
c. Reliance on Exemptions. The Buyer understands that the
Securities are being offered and sold to it in reliance upon specific exemptions
from the registration requirements of United States federal and state securities
laws and that the Company is relying upon the truth and accuracy of, and the
Buyer's compliance with, the representations, warranties, agreements,
acknowledgments and understandings of the Buyer set forth herein in order to
determine the availability of such exemptions and the eligibility of the Buyer
to acquire the Securities.
d. Information. The Buyer and its advisors, if any, have been
furnished with all materials relating to the business, finances and operations
of the Company and materials relating to the offer and sale of the Securities
which have been requested by the Buyer or its advisors. The Buyer and its
advisors, if any, have been afforded the opportunity to ask questions of the
Company. Neither such inquiries nor any other due diligence investigation
conducted by Buyer or any of its advisors or representatives shall modify, amend
or affect Buyer's right to rely on the Company's representations and warranties
contained in Section 3 below. The Buyer understands that its investment in the
Securities involves a significant degree of risk.
e. Governmental Review. The Buyer understands that no United
States federal or state agency or any other government or governmental agency
has passed upon or made any recommendation or endorsement of the Securities.
<PAGE>
f. Transfer or Re-sale. The Buyer understands that (i) except
as provided in the Registration Rights Agreement, the sale or re-sale of the
Securities has not been and is not being registered under the 1933 Act or any
applicable state securities laws, and the Securities may not be transferred
unless (a) the Securities are sold pursuant to an effective registration
statement under the 1933 Act, (b) the Buyer shall have delivered to the Company
an opinion of counsel (which opinion shall be in form, substance and scope
customary for opinions of counsel in comparable transactions) to the effect that
the Securities to be sold or transferred may be sold or transferred pursuant to
an exemption from such registration, (c) the Securities are sold or transferred
to an "affiliate" (as defined in Rule 144 promulgated under the 1933 Act (or a
successor rule) ("Rule 144")) of the Buyer who agrees to sell or otherwise
transfer the Securities only in accordance with this Section 2(f) and who is an
Accredited Investor or (d) the Securities are sold pursuant to Rule 144; (ii)
any sale of such Securities made in reliance on Rule 144 may be made only in
accordance with the terms of said Rule and further, if said Rule is not
applicable, any re-sale of such Securities under circumstances in which the
seller (or the person through whom the sale is made) may be deemed to be an
underwriter (as that term is defined in the 1933 Act) may require compliance
with some other exemption under the 1933 Act or the rules and regulations of the
SEC thereunder; and (iii) neither the Company nor any other person is under any
obligation to register such Securities under the 1933 Act or any state
securities laws or to comply with the terms and conditions of any exemption
thereunder (in each case, other than pursuant to the Registration Rights
Agreement). Notwithstanding the foregoing or anything else contained herein to
the contrary, the Securities may be pledged as collateral in connection with a
bona fide margin account or other lending arrangement.
g. Legends. The Buyer understands that the Preferred Shares
and Warrants and, until such time as the Conversion Shares and Warrant Shares
have been registered under the 1933 Act as contemplated by the Registration
Rights Agreement or otherwise may be sold pursuant to Rule 144 without any
restriction as to the number of securities as of a particular date that can then
be immediately sold, the Conversion Shares and Warrant Shares, may bear a
restrictive legend in substantially the following form (and a stop-transfer
order may be placed against transfer of the certificates for such Securities):
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended. The
securities may not be sold, transferred or assigned in the absence
of an effective registration statement for the securities under said
Act, or an opinion of counsel, in form, substance and scope
customary for opinions of counsel in comparable transactions, that
registration is not required under said Act or unless sold pursuant
to Rule 144 under said Act."
The legend set forth above shall be removed and the Company shall
issue a certificate without such legend to the holder of any Security upon which
it is stamped, if, unless otherwise required by applicable state securities
laws, (a) such Security is registered for sale under an effective registration
statement filed under the 1933 Act or otherwise may be sold pursuant to Rule 144
without any restriction as to the number of securities as of a particular date
that can then be immediately sold, or (b) such holder provides the Company with
an opinion of counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that a public sale or transfer
of such Security may be made without registration under the 1933 Act and such
sale or transfer is effected, or (c) such holder provides the Company with
reasonable assurances that such Security can be sold pursuant to Rule 144. For
purposes of sales of the Securities within two (2) years after the date hereof
pursuant to Rule 144 in clause (c) in the previous sentence, Areasonable
assurances@ shall mean delivery by the Buyer to the Company of an appropriate
broker=s letter, seller=s letter and Form 144 which demonstrate compliance with
Rule 144. The Buyer agrees to sell all Securities, including those represented
by a certificate(s) from which the legend has been removed, in compliance with
applicable securities laws.
h. Authorization; Enforcement. This Agreement and the
Registration Rights Agreement have been duly and validly authorized. This
Agreement has been duly executed and delivered on behalf of the Buyer, and this
Agreement constitutes, and upon execution and delivery by the Buyer of the
Registration Rights Agreement, such agreement will constitute, valid and binding
agreements of the Buyer enforceable in accordance with their terms.
i. Residency. The Buyer is a resident of the
jurisdiction set forth immediately below such Buyer's name on the signature
pages hereto.
<PAGE>
3. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to each Buyer that:
a. Organization and Qualification. The Company and each of its
Subsidiaries (as defined below), if any, is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated, with full power and authority (corporate and other) to
own, lease, use and operate its properties and to carry on its business as and
where now owned, leased, used, operated and conducted. Schedule 3(a) sets forth
a list of all of the Subsidiaries of the Company and the jurisdiction in which
each is incorporated. The Company and each of its Subsidiaries is duly qualified
as a foreign corporation to do business and is in good standing in every
jurisdiction in which its ownership or use of property or the nature of the
business conducted by it makes such qualification necessary except where the
failure to be so qualified or in good standing would not have a Material Adverse
Effect. "Material Adverse Effect" means any material adverse effect on (i) the
Securities, (ii) the business, operations, assets, financial condition or
prospects of the Company and its Subsidiaries, if any, taken as a whole, or
(iii) on the transactions contemplated hereby or by the agreements or
instruments to be entered into in connection herewith. "Subsidiaries" means any
corporation or other organization, whether incorporated or unincorporated, in
which the Company owns, directly or indirectly, any majority equity or other
ownership interest or is otherwise a Asignificant subsidiary@ as defined in Rule
1-02(w) of Regulation S-X promulgated under the 1933 Act.
b. Authorization; Enforcement. (i) The Company has all
requisite corporate power and authority to file and perform its obligations
under the Certificate of Designation and to enter into and perform this
Agreement, the Registration Rights Agreement and the Warrants and to consummate
the transactions contemplated hereby and thereby and to issue the Securities, in
accordance with the terms hereof and thereof, (ii) the execution and delivery of
this Agreement, the Registration Rights Agreement and the Warrants by the
Company and the consummation by it of the transactions contemplated hereby and
thereby (including without limitation, the issuance of the Preferred Shares and
the Warrants and the issuance and reservation for issuance of the Conversion
Shares and the Warrant Shares issuable upon conversion or exercise of or
otherwise pursuant to the Preferred Shares and the Warrants) have been duly
authorized by the Company's Board of Directors and no further consent or
authorization of the Company, its Board of Directors, or its stockholders is
required, (iii) this Agreement has been duly executed and delivered by the
Company, and (iv) this Agreement constitutes and, upon execution and delivery by
the Company of the Registration Rights Agreement and the Warrants and upon
execution and filing of the Certificate of Designation, each of such agreements
and instruments will constitute, a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms.
<PAGE>
c. Capitalization. As of the date hereof, the authorized
capital stock of the Company consists of (i) 75,000,000 shares of Common Stock,
of which 27,129,544 shares are issued and outstanding, 423,894 shares held as
treasury stock, 1,000,000 shares are reserved for issuance pursuant to the
Company's 1999 Incentive and Nonqualified Stock Option Plan (the A1999 Plan@)
(the Board has approved an increase to 3,000,000, subject to shareholder
approval), 3,150,000 shares were reserved for issuance pursuant to the Company=s
1991 stock option plan (the A1991 Plan@), 2,520,329 shares are reserved for
issuance pursuant to securities (other than the Preferred Shares, the Warrants
or options granted under the 1991 Plan or the 1999 Plan) exercisable for, or
convertible into or exchangeable for shares of Common Stock and 6,130,000 shares
are reserved for issuance upon conversion of the Preferred Shares and exercise
of the Warrants (subject to adjustment pursuant to the Company's covenant set
forth in Section 4(h) below); and (ii) 150,000 shares of preferred stock, 10,000
of which are designated as Series A Preferred Shares (none of which are issued
and outstanding), 6,200 of which are designated as Series B Preferred Stock
(none of which are issued and outstanding), 2,000 of which are designated as
Series C Preferred Stock (none of which are outstanding) and 50,000 of which are
designated as Series D Preferred Stock (none of which are outstanding). All of
such outstanding shares of capital stock are, or upon issuance will be, duly
authorized, validly issued, fully paid and nonassessable. No shares of capital
stock of the Company are subject to preemptive rights or any other similar
rights of the stockholders of the Company or any liens or encumbrances imposed
through the actions or failure to act of the Company. Except as disclosed in
Schedule 3(c), as of the effective date of this Agreement, (i) there are no
outstanding options, warrants, scrip, rights to subscribe for, puts, calls,
rights of first refusal, agreements, understandings, claims or other commitments
or rights of any character whatsoever relating to, or securities or rights
convertible into or exchangeable for any shares of capital stock of the Company
or any of its Subsidiaries, or arrangements by which the Company or any of its
Subsidiaries is or may become bound to issue additional shares of capital stock
of the Company or any of its Subsidiaries, (ii) there are no agreements or
arrangements under which the Company or any of its Subsidiaries is obligated to
register the sale of any of its or their securities under the 1933 Act (except
the Registration Rights Agreement) and (iii) there are no anti-dilution or price
adjustment provisions contained in any security issued by the Company (or in any
agreement providing rights to security holders) that will be triggered by the
issuance of the Preferred Shares, the Conversion Shares, the Warrants or the
Warrant Shares. The Company has furnished to the Buyer true and correct copies
of the Company's Certificate of Incorporation as in effect on the date hereof
("Certificate of Incorporation"), the Company's By-laws, as in effect on the
date hereof (the "By-laws"), and the terms of all securities convertible into or
exercisable for Common Stock of the Company and the material rights of the
holders thereof in respect thereto. The Company shall provide the Buyer with a
written update of this representation signed by the Company's Chief Executive or
Chief Financial Officer on behalf of the Company as of the Closing Date.
d. Issuance of Shares. The Preferred Shares and the Warrants
are duly authorized and, upon issuance in accordance with the terms of this
Agreement, will be validly issued, fully paid and non-assessable, and free from
all taxes, liens, claims and encumbrances with respect to the issue thereof and
shall not be subject to preemptive rights or other similar rights of
stockholders of the Company and will not impose personal liability upon the
holder thereof. The Conversion Shares and the Warrant Shares are duly authorized
and reserved for issuance and, upon conversion of the Preferred Shares and
exercise of the Warrants in accordance with the terms thereof, will be validly
issued, fully paid and non-assessable, and free from all taxes, liens, claims
and encumbrances and will not be subject to preemptive rights or other similar
rights of stockholders of the Company and will not impose personal liability
upon the holder thereof.
<PAGE>
e. Acknowledgment of Dilution. The Company understands and
acknowledges the potentially dilutive effect to the Common Stock upon the
issuance of the Conversion Shares upon conversion of or otherwise pursuant to
the Preferred Shares and upon issuance of the Warrant Shares upon exercise of or
otherwise pursuant to the Warrants. The Company=s directors and executive
officers have studied and fully understand the nature of the Securities being
sold hereunder. The Company further acknowledges that its obligation to issue
Conversion Shares upon conversion of or otherwise pursuant to the Preferred
Shares and Warrant Shares upon exercise of or otherwise pursuant to the Warrants
in accordance with this Agreement, the Certificate of Designation and the
Warrants is absolute and unconditional regardless of the dilutive effect that
such issuance may have on the ownership interests of other stockholders of the
Company. Taking the foregoing into account, the Company=s Board of Directors has
determined, in its good faith business judgment, that the issuance of the
Preferred Shares, the Conversion Shares, the Warrants and the Warrant Shares
hereunder and under the Certificate of Designation and the consummation of the
transactions contemplated hereby and thereby are in the best interest of the
Company and its stockholders.
f. Series of Preferred Stock. The terms, designations, powers,
preferences and relative, participating and optional or special rights, and the
qualifications, limitations and restrictions of each series of preferred stock
of the Company (other than the Preferred Shares) are as stated in the Company=s
Certificate of Incorporation, filed on or prior to the date hereof, and the
Bylaws. The terms, designations, powers, preferences and relative, participating
and optional or special rights, and the qualifications, limitations and
restrictions of the Preferred Shares are as stated in the Certificate of
Designation.
<PAGE>
g. No Conflicts. The execution, delivery and performance of
this Agreement, the Registration Rights Agreement and the Warrants by the
Company and the consummation by the Company of the transactions contemplated
hereby and thereby (including, without limitation, the filing of the Certificate
of Designation and the issuance and reservation for issuance, as applicable, of
the Preferred Shares, Conversion Shares, Warrants and Warrant Shares) will not
(i) conflict with or result in a violation of any provision of the Certificate
of Incorporation or By-laws or (ii) violate or conflict with, or result in a
breach of any provision of, or constitute a default (or an event which with
notice or lapse of time or both could become a default) under, or give to others
any rights of termination, amendment, acceleration or cancellation of, any
agreement, indenture, patent, patent license or instrument to which the Company
or any of its Subsidiaries is a party, or (iii) result in a violation of any
law, rule, regulation, order, judgment or decree (including federal and state
securities laws and regulations and regulations of any self-regulatory
organizations to which the Company or its securities are subject) applicable to
the Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected (except for such
conflicts, defaults, terminations, amendments, accelerations, cancellations and
violations as would not, individually or in the aggregate, have a Material
Adverse Effect). Neither the Company nor any of its Subsidiaries is in violation
of its Certificate of Incorporation, By-laws or other organizational documents
and neither the Company nor any of its Subsidiaries is in default (and no event
has occurred which with notice or lapse of time or both could put the Company or
any of its Subsidiaries in default) under, and neither the Company nor any of
its Subsidiaries has taken any action or failed to take any action that would
give to others any rights of termination, amendment, acceleration or
cancellation of, any agreement, indenture or instrument to which the Company or
any of its Subsidiaries is a party or by which any property or assets of the
Company or any of its Subsidiaries is bound or affected, except for possible
defaults as would not, individually or in the aggregate, have a Material Adverse
Effect. The businesses of the Company and its Subsidiaries, if any, are not
being conducted, and shall not be conducted so long as a Buyer owns any of the
Securities, in violation of any law, ordinance or regulation of any governmental
entity. Except as specifically contemplated by this Agreement and as required
under the 1933 Act and any applicable state securities laws, the Company is not
required to obtain any consent, authorization or order of, or make any filing or
registration with, any court, governmental agency, regulatory agency, self
regulatory organization or stock market or any third party in order for it to
execute, deliver or perform any of its obligations under this Agreement, the
Registration Rights Agreement or the Warrants in accordance with the terms
hereof or thereof or to issue and sell the Preferred Shares and the Warrants in
accordance with the terms hereof and to issue the Conversion Shares upon
conversion of or otherwise pursuant to the Preferred Shares and the Warrant
Shares upon exercise of or otherwise pursuant to the Warrants. Except as
disclosed in Schedule 3(g), all consents, authorizations, orders, filings and
registrations which the Company is required to obtain pursuant to the preceding
sentence have been obtained or effected on or prior to the date hereof. The
Company is not in violation of the listing requirements of the Nasdaq National
Market ("Nasdaq") and does not reasonably anticipate that the Common Stock will
be delisted by the Nasdaq in the foreseeable future. The Company and its
Subsidiaries are unaware of any facts or circumstances which might give rise to
any of the foregoing.
<PAGE>
h. SEC Documents; Financial Statements. Since June 30, 1997,
the Company has timely filed all reports, schedules, forms, statements and other
documents required to be filed by it with the SEC pursuant to the reporting
requirements of the Securities Exchange Act of 1934, as amended (the "1934 Act")
(all of the foregoing filed prior to the date hereof and all exhibits included
therein and financial statements and schedules thereto and documents (other than
exhibits to such documents) incorporated by reference therein, being hereinafter
referred to herein as the "SEC Documents"). The Company has made available to
each Buyer true and complete copies of the SEC Documents, except for such
exhibits and incorporated documents. As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the 1934
Act and the rules and regulations of the SEC promulgated thereunder applicable
to the SEC Documents, and none of the SEC Documents, at the time they were filed
with the SEC, contained any untrue statement of a material fact or omitted to
state a material fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances under which they were
made, not misleading. None of the statements made in any such SEC Documents is,
or has been, required to be amended or updated under applicable law (except for
such statements as have been amended or updated in subsequent filings prior to
the date hereof). As of their respective dates, the financial statements of the
Company included in the SEC Documents complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto. Such financial statements have been
prepared in accordance with United States generally accepted accounting
principles, consistently applied, during the periods involved (except (i) as may
be otherwise indicated in such financial statements or the notes thereto, or
(ii) in the case of unaudited interim statements, to the extent they may not
include footnotes or may be condensed or summary statements) and fairly present
in all material respects the consolidated financial position of the Company and
its consolidated Subsidiaries as of the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments).
Except as set forth in the financial statements of the Company included in the
SEC Documents, the Company has no liabilities, contingent or otherwise, other
than (i) liabilities incurred in the ordinary course of business subsequent to
June 30, 1999 and (ii) obligations under contracts and commitments incurred in
the ordinary course of business and not required under generally accepted
accounting principles to be reflected in such financial statements, which,
individually or in the aggregate, are not material to the financial condition or
operating results of the Company.
i. Absence of Certain Changes. Since June 30, 1999 and except
as set forth in the SEC Documents filed after such date, there has been no
material adverse change and no material adverse development in the assets,
liabilities, business, properties, operations, financial condition or results of
operations of the Company or any of its Subsidiaries.
j. Absence of Litigation. There is no action, suit, claim,
proceeding, inquiry or investigation before or by any court, public board,
government agency, self-regulatory organization or body pending or, to the
knowledge of the Company or any of its Subsidiaries, threatened against or
affecting the Company or any of its Subsidiaries, or their officers or directors
in their capacity as such, that could have a Material Adverse Effect. Schedule
3(j) contains a complete list and summary description of any pending or
threatened proceeding against or affecting the Company or any of its
Subsidiaries, without regard to whether it would have a Material Adverse Effect.
The Company and its Subsidiaries are unaware of any facts or circumstances which
might give rise to any of the foregoing.
k. Patents, Copyrights, etc. The Company and each of its
Subsidiaries owns or possesses the requisite licenses or rights to use all
patents, patent applications, patent rights, inventions, know-how, trade
secrets, trademarks, trademark applications, service marks, service names, trade
names and copyrights ("Intellectual Property") necessary to enable it to conduct
its business as now operated (and, except as set forth in Schedule 3(k) hereof,
to the best of the Company's knowledge, as presently contemplated to be operated
in the future); there is no claim or action by any person pertaining to, or
proceeding pending, or to the Company's knowledge threatened, which challenges
the right of the Company or of a Subsidiary with respect to any Intellectual
Property necessary to enable it to conduct its business as now operated (and,
except as set forth in Schedule 3(k) hereof, to the best of the Company's
knowledge, as presently contemplated to be operated in the future); to the best
of the Company's knowledge, the Company's or its Subsidiaries' current and
intended products, services and processes do not infringe on any Intellectual
Property or other rights held by any person; and the Company is unaware of any
facts or circumstances which might give rise to any of the foregoing. The
Company and each of its Subsidiaries have taken reasonable security measures to
protect the secrecy, confidentiality and value of their Intellectual Property.
<PAGE>
l. No Materially Adverse Contracts, Etc. Neither the Company
nor any of its Subsidiaries is subject to any charter, corporate or other legal
restriction, or any judgment, decree, order, rule or regulation which in the
judgment of the Company's officers has or is expected in the future to have a
Material Adverse Effect. Neither the Company nor any of its Subsidiaries is a
party to any contract or agreement which in the judgment of the Company's
officers has or is expected to have a Material Adverse Effect.
m. Tax Status. Except as set forth on Schedule 3(m), the
Company and each of its Subsidiaries has made or filed all federal, state and
foreign income and all other tax returns, reports and declarations required by
any jurisdiction to which it is subject (unless and only to the extent that the
Company and each of its Subsidiaries has set aside on its books provisions
reasonably adequate for the payment of all unpaid and unreported taxes) and has
paid all taxes and other governmental assessments and charges that are material
in amount, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith, and has set aside on
its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or declarations
apply. There are no unpaid taxes in any material amount claimed to be due by the
taxing authority of any jurisdiction, and the officers of the Company know of no
basis for any such claim. The Company has not executed a waiver with respect to
the statute of limitations relating to the assessment or collection of any
foreign, federal, state or local tax. Except as set forth on Schedule 3(m), none
of the Company's tax returns is presently being audited by any taxing authority.
n. Certain Transactions. Except as set forth on Schedule 3(n)
and except for arm's length transactions pursuant to which the Company or any of
its Subsidiaries makes payments in the ordinary course of business upon terms no
less favorable than the Company or any of its Subsidiaries could obtain from
third parties and other than the grant of stock options disclosed on Schedule
3(c), none of the officers, directors, or employees of the Company is presently
a party to any transaction with the Company or any of its Subsidiaries (other
than for services as employees, officers and directors), including any contract,
agreement or other arrangement providing for the furnishing of services to or
by, providing for rental of real or personal property to or from, or otherwise
requiring payments to or from any officer, director or such employee or, to the
knowledge of the Company, any corporation, partnership, trust or other entity in
which any officer, director, or any such employee has a substantial interest or
is an officer, director, trustee or partner.
o. Disclosure. All information relating to or concerning the
Company or any of its Subsidiaries set forth in this Agreement and provided to
the Buyers pursuant to Section 2(d) hereof and otherwise in connection with the
transactions contemplated hereby is true and correct in all material respects
and the Company has not omitted to state any material fact necessary in order to
make the statements made herein or therein, in light of the circumstances under
which they were made, not misleading. No event or circumstance has occurred or
exists with respect to the Company or any of its Subsidiaries or its or their
business, properties, prospects, operations or financial conditions, which has
not been publicly announced or disclosed but, under applicable law, rule or
regulation, requires public disclosure or announcement by the Company (assuming
for this purpose that the Company's reports filed under the 1934 Act are being
incorporated into an effective registration statement filed by the Company under
the 1933 Act).
<PAGE>
p. Acknowledgment Regarding Buyers' Purchase of Securities.
The Company acknowledges and agrees that the Buyers are acting solely in the
capacity of arm's length purchasers with respect to this Agreement and the
transactions contemplated hereby. The Company further acknowledges that no Buyer
is acting as a financial advisor or fiduciary of the Company (or in any similar
capacity) with respect to this Agreement and the transactions contemplated
hereby and that any statement made by any Buyer or any of their respective
representatives or agents in connection with this Agreement and the transactions
contemplated hereby is not advice or a recommendation and is merely incidental
to the Buyers' purchase of the Securities and has not been publicly relied upon
by the Company, its officers or its directors in any way. The Company further
represents to each Buyer that the Company's decision to enter into this
Agreement has been based solely on the independent evaluation of the Company and
its representatives.
q. No Integrated Offering. Neither the Company, nor any of its
affiliates, nor any person acting on its or their behalf, has directly or
indirectly made any offers or sales of any security or solicited any offers to
buy any security under circumstances that would require registration under the
1933 Act of the issuance of the Securities to the Buyers. The issuance of the
Securities to the Buyers will not be integrated with any other issuance of the
Company's securities (past, current or future) for purposes of any stockholder
approval provisions applicable to the Company or its securities.
r. No Brokers. Except as set forth on Schedule 3(r), the
Company has taken no action which would give rise to any claim by any person for
brokerage commissions, finder's fees or similar payments relating to this
Agreement or the transactions contemplated hereby.
s. Permits; Compliance. The Company and each of its
Subsidiaries is in possession of all franchises, grants, authorizations,
licenses, permits, easements, variances, exemptions, consents, certificates,
approvals and orders necessary to own, lease and operate its properties and to
carry on its business as it is now being conducted (collectively, the "Company
Permits"), and there is no action pending or, to the knowledge of the Company,
threatened regarding suspension or cancellation of any of the Company Permits.
Neither the Company nor any of its Subsidiaries is in conflict with, or in
default or violation of, any of the Company Permits, except for any such
conflicts, defaults or violations which, individually or in the aggregate, would
not reasonably be expected to have a Material Adverse Effect. Since June 30,
1999, neither the Company nor any of its Subsidiaries has received any
notification with respect to possible conflicts, defaults or violations of
applicable laws, except for notices relating to possible conflicts, defaults or
violations, which conflicts, defaults or violations would not have a Material
Adverse Effect.
t. Environmental Matters.
<PAGE>
(i) Except as set forth in Schedule 3(t), there are, to the
Company's knowledge, with respect to the Company or any of its Subsidiaries or
any predecessor of the Company, no past or present violations of Environmental
Laws (as defined below), releases of any material into the environment, actions,
activities, circumstances, conditions, events, incidents, or contractual
obligations which may give rise to any common law environmental liability or any
liability under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980 or similar federal, state, local or foreign laws and
neither the Company nor any of its Subsidiaries has received any notice with
respect to any of the foregoing, nor is any action pending or, to the Company's
knowledge, threatened in connection with any of the foregoing. The term
"Environmental Laws" means all federal, state, local or foreign laws relating to
pollution or protection of human health or the environment (including, without
limitation, ambient air, surface water, groundwater, land surface or subsurface
strata), including, without limitation, laws relating to emissions, discharges,
releases or threatened releases of chemicals, pollutants contaminants, or toxic
or hazardous substances or wastes (collectively, "Hazardous Materials") into the
environment, or otherwise relating to the manufacture, processing, distribution,
use, treatment, storage, disposal, transport or handling of Hazardous Materials,
as well as all authorizations, codes, decrees, demands or demand letters,
injunctions, judgments, licenses, notices or notice letters, orders, permits,
plans or regulations issued, entered, promulgated or approved thereunder.
(ii) Other than those that are or were stored, used or
disposed of
in compliance with applicable law, no Hazardous Materials are contained on or
about any real property currently owned, or to the best of the Company=s
knowledge leased or used, by the Company or any of its Subsidiaries, and no
Hazardous Materials were released on or about any real property previously
owned, or to the Company=s knowledge leased or used, by the Company or any of
its Subsidiaries during the period the property was owned, leased or used by the
Company or any of its Subsidiaries, except in the normal course of the Company's
or any of its Subsidiaries' business.
(iii) Except as set forth in Schedule 3(t), there are no
underground storage tanks on or under any real property owned, or to the
Company=s knowledge leased or used, by the Company or any of its Subsidiaries
that are not in compliance with applicable law.
u. Title to Property. The Company and its Subsidiaries have
good and marketable title in fee simple to all real property and good and
marketable title to all personal property owned by them which is material to the
business of the Company and its Subsidiaries, in each case free and clear of all
liens, encumbrances and defects except such as are described in Schedule 3(u) or
such as would not have a Material Adverse Effect. Any real property and
facilities held under lease by the Company and its Subsidiaries are held by them
under valid, subsisting and enforceable leases with such exceptions as would not
have a Material Adverse Effect.
v. Insurance. The Company and each of its Subsidiaries are
insured by insurers of recognized financial responsibility against such losses
and risks and in such amounts as management of the Company believes to be
prudent and customary in the businesses in which the Company and its
Subsidiaries are engaged. Neither the Company nor any such Subsidiary has any
reason to believe that it will not be able to renew its existing insurance
coverage as and when such coverage expires or to obtain similar coverage from
similar insurers as may be necessary to continue its business at a cost that
would not have a Material Adverse Effect.
<PAGE>
w. Internal Accounting Controls. The Company and each of its
Subsidiaries maintain a system of internal accounting controls sufficient, in
the judgment of the Company's board of directors, to provide reasonable
assurance that (i) transactions are executed in accordance with management's
general or specific authorizations, (ii) transactions are recorded as necessary
to permit preparation of financial statements in conformity with generally
accepted accounting principles and to maintain asset accountability, (iii)
access to assets is permitted only in accordance with management's general or
specific authorization and (iv) the recorded accountability for assets is
compared with the existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
x. Foreign Corrupt Practices. Neither the Company, nor any of
its Subsidiaries, nor any director, officer, agent, employee or other person
acting on behalf of the Company or any Subsidiary has, in the course of his
actions for, or on behalf of, the Company, used any corporate funds for any
unlawful contribution, gift, entertainment or other unlawful expenses relating
to political activity; made any direct or indirect unlawful payment to any
foreign or domestic government official or employee from corporate funds;
violated or is in violation of any provision of the U.S. Foreign Corrupt
Practices Act of 1977 as amended; or made any bribe, rebate, payoff, influence
payment, kickback or other unlawful payment to any foreign or domestic
government official or employee.
y. Solvency. The Company (both before and after giving effect
to the transactions contemplated by this Agreement) is solvent (i.e., its assets
have a fair market value in excess of the amount required to pay its probable
liabilities on its existing debts as they become absolute and matured) and
currently the Company has no information that would lead it to reasonably
conclude that the Company would not have the ability to, nor does it intend to
take any action that would impair its ability to, pay its debts from time to
time incurred in connection therewith as such debts mature. The Company did not
receive a qualified opinion from its auditors with respect to its most recent
fiscal year end and does not anticipate or know of any basis upon which its
auditors might issue a qualified opinion in respect of its current fiscal year.
z. No Investment Company. The Company is not, and upon the
issuance and sale of the Securities as contemplated by this Agreement and the
Certificate of Designation will not be an "investment company" required to be
registered under the Investment Company Act of 1940 (an "Investment Company").
The Company is not controlled by an Investment Company.
aa. Form S-3 Eligibility. The Company is currently eligible to
register the resale of its Common Stock on a registration statement on Form S-3
under the 1933 Act. There exist no facts or circumstances that would prohibit or
delay the preparation and filing of a registration statement on Form S-3 with
respect to the Registrable Securities (as defined in the Registration Right
Agreement) within the time periods referred to therein.
4. COVENANTS.
a. Best Efforts. The parties shall use their best efforts to
satisfy timely each of the conditions described in Section 6 and 7 of this
Agreement.
<PAGE>
b. Form D; Blue Sky Laws. The Company agrees to file a Form D
with respect to the Securities as required under Regulation D and to provide a
copy thereof to each Buyer promptly after such filing. The Company shall, on or
before the Closing Date, take such action as the Company shall reasonably
determine is necessary to qualify the Securities for sale to the Buyers at the
Closing pursuant to this Agreement under applicable securities or "blue sky"
laws of the states of the United States (or to obtain an exemption from such
qualification), and shall provide evidence of any such action so taken to each
Buyer on or prior to the Closing Date.
c. Reporting Status; Eligibility to Use Form S-3. The
Company's Common Stock is registered under Section 12(g) of the 1934 Act. So
long as any Buyer beneficially owns any of the Securities, the Company shall
timely file all reports required to be filed with the SEC pursuant to the 1934
Act, and the Company shall not terminate its status as an issuer required to
file reports under the 1934 Act even if the 1934 Act or the rules and
regulations thereunder would permit such termination. The Company currently
meets, and will take all necessary action to continue to meet, the "registrant
eligibility" requirements set forth in the general instructions to Form S-3.
d. Use of Proceeds. The Company shall use the proceeds from
the sale of the Preferred Shares in the manner set forth in Schedule 4(d)
attached hereto and made a part hereof and, shall not, directly or indirectly,
use such proceeds for (i) any loan to, (ii) satisfaction of obligations for or
(iii) redemption of securities of, any stockholder, employee, officer or
director of the Company or any Subsidiary.
<PAGE>
e. Additional Equity Capital; Right of First Offer. Subject to
the exceptions described below, the Company will not, without the prior written
consent of a majority-in-interest of the Buyers, negotiate or contract with any
party to obtain additional equity or equity-equivalent financing (including debt
financing with an equity component) pursuant to which the Company grants
registration rights or public resale rights with respect to any Common Stock
issued or issuable in connection therewith (including Common Stock issuable upon
conversion, exercise or otherwise of any instrument issued or issuable in such
financing) which registration or public resale rights are to take effect within
twelve (12) months of the Closing Date, during the period (the "Lock-Up Period")
beginning on the Closing Date and ending on the date which is the later of (i)
one hundred eighty (180) days from the Closing Date and (ii) ninety (90) days
from the date the Registration Statement required to be filed pursuant to
Section 2(a) of the Registration Rights Agreement is declared effective;
provided that the foregoing restriction shall not apply to (i) a financing by
the Company involving the issuance of securities (including Common Stock or
securities convertible or exercisable into shares of Common Stock) the proceeds
of which are used for the purpose of purchasing or redeeming the 1,766,245
shares of Common Stock of the Company held by General Electric Capital
Corporation, which financing is not primarily for the purpose of raising equity
capital (a AGECC Transaction@) or (ii) issuances of warrants to Banque Paribas
in connection with the financing of the proposed acquisition by the Company of
Grizzard Advertising Incorporated (the ABank Warrants@). In addition, subject to
the exceptions described below, the Company will not negotiate or contract with
any party to obtain equity or equity-equivalent financing (including debt
financing with an equity component) ("Future Offerings") during the period
beginning on the Closing Date and ending one hundred eighty (180) days from the
end of the Lock-Up Period, unless it shall have first delivered to each Buyer,
at least fifteen (15) business days prior to offering such Future Offering to
any other Person (as defined in Article IV.B of the Certificate of Designation),
written notice describing the proposed Future Offering, including the terms and
conditions thereof and proposed definitive documentation to be entered into in
connection therewith, and providing each Buyer an option during the ten (10) day
period following delivery of such notice to purchase up to its pro rata share
(based on the ratio that the number of Preferred Shares purchased by it
hereunder bears to the aggregate number of Preferred Shares purchased hereunder)
of the securities being offered in the Future Offering on the same terms as
contemplated by such Future Offering (the limitations referred to in this
sentence and the preceding sentence are collectively referred to as the "Capital
Raising Limitations"). If one or more Buyers choose not to purchase all or any
portion of their pro rata share (a ANon-Participation Election@), the other
Buyers will be provided the option to purchase, for a period of ten (10)
business days after receipt of written notice from the Company of a
Non-Participation Election the portion of such non-participating Buyer=s or
Buyers=, as the case may be, pro rata share or shares which such Buyer or Buyers
chose not to purchase. In the event that the Buyers do not purchase all of the
shares in the proposed transaction, the Company may complete such transaction
with such other Person, provided that such transaction is consummated within
sixty (60) days and on the same material terms and conditions as originally
proposed. In the event the terms and conditions of a proposed Future Offering
are amended in any respect after delivery of the notice to the Buyers concerning
the proposed Future Offering, the Company shall deliver a new notice to each
Buyer describing the amended terms and conditions of the proposed Future
Offering and each Buyer thereafter shall have an option during the ten (10) day
period following delivery of such new notice to purchase its pro rata share of
the securities being offered on the same terms as contemplated by such proposed
Future Offering, as amended. The foregoing sentence shall apply to successive
amendments to the terms and conditions of any proposed Future Offering. The
Capital Raising Limitations shall not apply to any transaction involving (i)
issuances of securities in a firm commitment underwritten public offering
(excluding a continuous offering pursuant to Rule 415 under the 1933 Act), (ii)
issuances of securities as consideration for a merger, consolidation or purchase
of assets, or in connection with any strategic partnership or joint venture (the
primary purpose of which is not to raise equity capital), or in connection with
the disposition or acquisition of a business, product or license by the Company,
(iii) a GECC Transaction or (iv) the Bank Warrants. The Capital Raising
Limitations also shall not apply to the issuance of securities upon exercise or
conversion of the Company's options, warrants or other convertible securities
outstanding as of the date hereof or to the grant of additional options or
warrants, or the issuance of additional securities, under any Company stock
option or restricted stock plan approved by the stockholders of the Company.
f. Expenses. The Company shall reimburse the Buyers for all
expenses incurred by it in connection with the negotiation, preparation,
execution, delivery and performance of this Agreement and the other agreements
to be executed in connection herewith, including, without limitation, attorneys=
and consultants= fees and expenses and travel expenses. The Company=s obligation
to reimburse the Buyers' expenses under this Section 4(f) shall be limited to
Fifty Thousand Dollars ($50,000).
<PAGE>
g. Financial Information. The Company agrees to send the
following reports to each Buyer until such Buyer transfers, assigns, or sells
all of the Securities: (i) within ten (10) business days after the filing with
the SEC, a copy of its Annual Report on Form 10-K, its Quarterly Reports on Form
10-Q and any Current Reports on Form 8-K; (ii) within one (1) business day after
release, copies of all press releases issued by the Company or any of its
Subsidiaries; and (iii) contemporaneously with the making available or giving to
the stockholders of the Company, copies of any notices or other information the
Company makes available or gives to such stockholders.
h. Reservation of Shares. The Company shall at all times have
authorized, and reserved for the purpose of issuance, a sufficient number of
shares of Common Stock to provide for the full conversion of the outstanding
Preferred Shares (based on the Conversion Price (as defined in the Certificate
of Designation) in effect from time to time) and the issuance of the Conversion
Shares in connection therewith and as otherwise required by the Certificate of
Designation and the full exercise of the Warrants and the issuance of the
Warrant Shares (based on the exercise price of the Warrants in effect from time
to time). The Company shall not reduce the number of shares of Common Stock
reserved for issuance upon conversion of or otherwise pursuant to the Preferred
Shares and the exercise of or otherwise pursuant to the Warrants without the
consent of each Buyer. Subject to the proviso contained in the first sentence of
this Section 4(h), the Company shall use its best efforts at all times to
maintain the number of shares of Common Stock so authorized and reserved for
issuance at no less than 6,130,000. Subject to the proviso contained in the
first sentence of this Section 4(h), if at any time the number of shares of
Common Stock authorized and reserved for issuance is below the number of
Conversion Shares issued and issuable upon conversion of or otherwise pursuant
to the Preferred Shares (based on the Conversion Price (as defined in the
Certificate of Designation) in effect from time to time) and Warrant Shares
issued and issuable upon exercise of or otherwise pursuant to Warrants (based on
the exercise price of the Warrants in effect from time to time), the Company
will promptly take all corporate action necessary to authorize and reserve a
sufficient number of shares, including, without limitation, calling a special
meeting of stockholders to authorize additional shares to meet the Company's
obligations under this Section 4(h), in the case of an insufficient number of
authorized shares, and using its best efforts to obtain stockholder approval of
an increase in such authorized number of shares.
i. Listing. The Company shall promptly secure the listing of
the Conversion Shares and the Warrant Shares upon each national securities
exchange or automated quotation system, if any, upon which shares of Common
Stock are then listed (subject to official notice of issuance) and, so long as
any Buyer owns any of the Securities shall maintain, so long as any other shares
of Common Stock shall be so listed, such listing of all Conversion Shares from
time to time issuable upon conversion of or otherwise pursuant to the Preferred
Shares and Warrant Shares from time to time issuable upon exercise of or
otherwise pursuant to the Warrants. The Company will obtain and, so long as any
Buyer owns any of the Securities, maintain the listing and trading of its Common
Stock on Nasdaq, the Nasdaq SmallCap Market ("Nasdaq SmallCap"), the New York
Stock Exchange ("NYSE"), or the American Stock Exchange ("AMEX") and will comply
in all respects with the Company's reporting, filing and other obligations under
the bylaws or rules of the National Association of Securities Dealers ("NASD")
and such exchanges, as applicable. The Company shall promptly provide to each
Buyer copies of any notices it receives from Nasdaq and any other exchanges or
quotation systems on which the Common Stock is then listed regarding the
continued eligibility of the Common Stock for listing on such exchanges and
quotation systems.
<PAGE>
j. Corporate Existence. So long as a Buyer beneficially owns
any Preferred Shares, the Company shall maintain its corporate existence and
shall not merge, consolidate or sell all or substantially all of the Company's
assets, except in the event of a merger or consolidation or sale of all or
substantially all of the Company's assets, where (i) the surviving or successor
entity (and, if an entity different from the surviving or successor entity, the
entity whose securities into which the Preferred Shares shall become convertible
pursuant to Article VI.C(b) of the Certificate of Designation) in such
transaction assumes the Company's obligations hereunder and under the agreements
and instruments entered into in connection herewith and (ii) the entity whose
securities into which the Preferred Shares shall become convertible pursuant to
Article VI.C(b) of the Certificate of Designation is a publicly traded
corporation whose Common Stock is listed for trading on Nasdaq, Nasdaq SmallCap,
NYSE or AMEX.
k. No Integration. The Company shall not make any offers or
sales of any security (other than the Securities) under circumstances that would
require registration of the Securities being offered or sold hereunder under the
1933 Act or cause the offering of Securities to be integrated with any other
offering of securities by the Company for the purpose of any stockholder
approval provision applicable to the Company or its securities.
5 TRANSFER AGENT INSTRUCTIONS. The Company shall issue irrevocable
instructions to its transfer agent to issue certificates, registered in the name
of each Buyer or its nominee, for the Conversion Shares and the Warrant Shares
in such amounts as specified from time to time by each Buyer to the Company upon
conversion of the Preferred Shares or exercise of the Warrants in accordance
with the terms thereof (the "Irrevocable Transfer Agent Instructions"). Prior to
registration of the Conversion Shares and the Warrant Shares under the 1933 Act
or the date on which the Conversion Shares and the Warrant Shares may be sold
pursuant to Rule 144 without any restriction as to the number of securities as
of a particular date that can then be immediately sold, all such certificates
shall bear the restrictive legend specified in Section 2(g) of this Agreement.
The Company warrants that no instruction other than the Irrevocable Transfer
Agent Instructions referred to in this Section 5, and stop transfer instructions
to give effect to Section 2(f) hereof (in the case of the Conversion Shares and
the Warrant Shares, prior to registration of the Conversion Shares and the
Warrant Shares under the 1933 Act or the date on which the Conversion Shares and
the Warrant Shares may be sold pursuant to Rule 144 without any restriction as
to the number of securities as of a particular date that can then be immediately
sold), will be given by the Company to its transfer agent and that the
Securities shall otherwise be freely transferable on the books and records of
the Company as and to the extent provided in this Agreement and the Registration
Rights Agreement. Nothing in this Section shall affect in any way the Buyer's
obligations and agreement set forth in Section 2(g) hereof to comply with all
applicable prospectus delivery requirements, if any, upon re-sale of the
Securities. If a Buyer provides the Company with (i) an opinion of counsel, in
form, substance and scope customary for opinions in comparable transactions, to
the effect that a public sale or transfer of such Securities may be made without
registration under the 1933 Act and such sale or transfer is effected or (ii)
the Buyer provides reasonable assurances that the Securities can be sold
pursuant to Rule 144, the Company shall permit the transfer, and, in the case of
the Conversion Shares and the Warrant Shares, promptly instruct its transfer
agent to issue one or more certificates, free from any restrictive legend, in
such name and in such denominations as specified by such Buyer.
<PAGE>
6 CONDITIONS TO THE COMPANY'S OBLIGATION TO SELL. The obligation of
the Company hereunder to issue and sell the Preferred Shares and Warrants to a
Buyer at the Closing is subject to the satisfaction, at or before the Closing
Date, of each of the following conditions thereto, provided that these
conditions are for the Company's sole benefit and may be waived by the Company
at any time in its sole discretion:
a. The applicable Buyer shall have executed this Agreement and
the Registration Rights Agreement and delivered the same to the Company.
b. The Company shall have received the aggregate Purchase
Price for the Securities of $30,000,000 from the Buyers.
c. The Certificate of Designation shall have been accepted for
filing with the Secretary of State of the State of Nevada.
d. The representations and warranties of the applicable Buyer
shall be true and correct in all material respects as of the date when made and
as of the Closing Date as though made at that time (except for representations
and warranties that speak as of a specific date, which representations and
warranties shall be true and correct as of such date), and the applicable Buyer
shall have performed, satisfied and complied in all material respects with the
covenants, agreements and conditions required by this Agreement to be performed,
satisfied or complied with by the applicable Buyer at or prior to the Closing
Date.
e. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
7 CONDITIONS TO EACH BUYER'S OBLIGATION TO PURCHASE. The obligation
of each Buyer hereunder to purchase the Preferred Shares and the Warrants at the
Closing is subject to the satisfaction, at or before the Closing Date, of each
of the following conditions, provided that these conditions are for such Buyer's
sole benefit and may be waived by such Buyer at any time in its sole discretion:
a. The Company shall have executed this Agreement and the
Registration Rights Agreement and delivered the same to the Buyer.
b. The Company shall have delivered to such Buyer duly
executed certificates (in such denominations as the Buyer shall request)
representing the Preferred Shares and duly executed Warrants purchased at the
Closing in accordance with Section 1(b) above.
c. The Certificate of Designation shall have been accepted for
filing with the Secretary of State of the State of Nevada, and a copy thereof
certified by such Secretary of State shall have been delivered to such Buyer.
<PAGE>
d. The Irrevocable Transfer Agent Instructions, in form and
substance satisfactory to a majority-in-interest of the Buyers, shall have been
delivered to and acknowledged in writing by the Company's Transfer Agent.
e. The representations and warranties of the Company shall be
true and correct in all material respects as of the date when made and as of the
Closing Date as though made at such time (except for representations and
warranties that speak as of a specific date, which representations and
warranties shall be true and correct as of such date) and the Company shall have
performed, satisfied and complied in all material respects with the covenants,
agreements and conditions required by this Agreement to be performed, satisfied
or complied with by the Company at or prior to the Closing Date. The Buyer shall
have received a certificate or certificates, executed by the chief executive
officer or chief financial officer of the Company, dated as of the Closing Date,
to the foregoing effect and as to such other matters as may be reasonably
requested by such Buyer including, but not limited to certificates with respect
to the Company's Certificate of Incorporation, By-laws and Board of Directors'
resolutions relating to the transactions contemplated hereby.
f. No litigation, statute, rule, regulation, executive order,
decree, ruling or injunction shall have been enacted, entered, promulgated or
endorsed by or in any court or governmental authority of competent jurisdiction
or any self-regulatory organization having authority over the matters
contemplated hereby which prohibits the consummation of any of the transactions
contemplated by this Agreement.
g. The Conversion Shares and the Warrant Shares shall have
been authorized for quotation on Nasdaq and trading in the Common Stock on
Nasdaq shall not have been suspended by the SEC or Nasdaq.
h. The Buyer shall have received an opinion of the Company's
counsel, dated as of the Closing Date, in form, scope and substance reasonably
satisfactory to the Buyer and in substantially the same form as Exhibit "D"
attached hereto.
i. The Buyer shall have received an officer's certificate
described in Section 3(c) above, dated as of the Closing Date.
j. No material adverse change or development in the business,
operations, properties, prospects, financial condition or operations of the
Company shall have occurred since the date hereof.
k. Neither Buyer is obligated to pay its respective portion of
the aggregate Purchase Price pursuant to Section 1(b) hereof if the other Buyer
is in breach of its obligation under such Section 1(b).
<PAGE>
8 GOVERNING LAW; MISCELLANEOUS.
a. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware applicable to
agreements made and to be performed in the State of Delaware (without regard to
principles of conflict of laws). Both parties irrevocably consent to the
jurisdiction of the United States federal courts and the state courts located in
Delaware with respect to any suit or proceeding based on or arising under this
Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby and irrevocably agree that all
claims in respect of such suit or proceeding may be determined in such courts.
Both parties irrevocably waive the defense of an inconvenient forum to the
maintenance of such suit or proceeding. Both parties further agree that service
of process upon a party mailed by first class mail shall be deemed in every
respect effective service of process upon the party in any such suit or
proceeding. Nothing herein shall affect either party's right to serve process in
any other manner permitted by law. Both parties agree that a final
non-appealable judgment in any such suit or proceeding shall be conclusive and
may be enforced in other jurisdictions by suit on such judgment or in any other
lawful manner.
b. Counterparts; Signatures by Facsimile. This Agreement may
be executed in one or more counterparts, all of which shall be considered one
and the same agreement and shall become effective when counterparts have been
signed by each party and delivered to the other party. This Agreement, once
executed by a party, may be delivered to the other party hereto by facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.
c. Headings. The headings of this Agreement are for
convenience of reference and shall not form part of, or affect the
interpretation of, this Agreement.
d. Severability. If any provision of this Agreement shall be
invalid or unenforceable in any jurisdiction, such invalidity or
unenforceability shall not affect the validity or enforceability of the
remainder of this Agreement or the validity or enforceability of this Agreement
in any other jurisdiction.
e. Entire Agreement; Amendments. This Agreement and the
instruments referenced herein contain the entire understanding of the parties
with respect to the matters covered herein and therein and, except as
specifically set forth herein or therein, neither the Company nor the Buyer
makes any representation, warranty, covenant or undertaking with respect to such
matters. No provision of this Agreement may be waived or amended other than by
an instrument in writing signed by the party to be charged with enforcement.
<PAGE>
f. Notices. Any notice, demand or request required or
permitted to be given by any party to any other party pursuant to the terms of
this Agreement shall be in writing and shall be deemed given (i) when delivered
personally or by verifiable facsimile transmission (with an original to follow)
on or before 5:00 p.m., Eastern Time, on a business day or, if such day is not a
business day, on the next succeeding business day, (ii) on the next business day
after timely delivery to a nationally-recognized overnight courier and (iii) on
the business day actually received if deposited in the U.S. mail (certified or
registered mail, return receipt requested, postage prepaid), addressed to the
parties as follows:
If to the Company:
Marketing Services Group, Inc.
333 Seventh Avenue, 20th Floor
New York, New York 10001
Attention: Chairman of the Board and Chief Executive Officer
Facsimile: (917) 339-7111
With copy to:
Camhy Karlinsky Stein LLP
1740 Broadway
New York, New York 10019
Attention: Alan I. Annex, Esq.
Facsimile: (212) 977-8389
<PAGE>
If to a Buyer: To the address set forth immediately below such
Buyer's name on the signature pages hereto.
With copies to:
Ballard Spahr Andrews & Ingersoll, LLP
1735 Market Street, 51st Floor
Philadelphia, Pennsylvania 19103
Attention: Gerald J. Guarcini, Esq.
Facsimile: (215) 864-8999
Solomon, Zauderer, Ellenhorn, Frischer & Sharp
45 Rockefeller Plaza
New York, New York 10111
Attention: Robert L. Mazzeo, Esq.
Facsimile: (212) 956-4068
Each party shall provide notice to the other party of any change in
address.
g. Successors and Assigns. This Agreement shall be binding
upon and inure to the benefit of the parties and their successors and assigns.
Neither the Company nor any Buyer shall assign this Agreement or any rights or
obligations hereunder without the prior written consent of the other.
Notwithstanding the foregoing, subject to Section 2(f), any Buyer may assign its
rights hereunder to (i) any of its "affiliates," as that term is defined under
the 1934 Act and (ii) after the Maximum Share Amount (as defined in the
Certificate of Designation) has been issued, any person that purchases
Securities in a private transaction from a Buyer, without the consent of the
Company.
h. Third Party Beneficiaries. This Agreement is intended for
the benefit of the parties hereto and their respective permitted successors and
assigns, and is not for the benefit of, nor may any provision hereof be enforced
by, any other person.
i. Survival. The representations and warranties of the Company
and the agreements and covenants set forth in Sections 3, 4, 5 and 8 shall
survive the closing hereunder notwithstanding any due diligence investigation
conducted by or on behalf of the Buyers. The Company agrees to indemnify and
hold harmless each of the Buyers and all their officers, directors, employees
and agents for loss or damage arising as a result of or related to any breach or
alleged breach by the Company of any of its representations, warranties and
covenants set forth in Sections 3 and 4 hereof or any of its covenants and
obligations under this Agreement or the Registration Rights Agreement, including
advancement of expenses as they are incurred.
<PAGE>
j. Publicity. The Company and each of the Buyers shall have
the right to review a reasonable period of time before issuance of any press
releases, filings with the SEC, the NASD or any stock exchange or interdealer
quotation system, or any other public statements with respect to the
transactions contemplated hereby; provided, however, that the Company shall be
entitled, without the prior approval of each of the Buyers, to make any press
release or public filings with respect to such transactions as is required by
applicable law and regulations (although each of the Buyers shall be consulted
by the Company in connection with any such press release prior to its release
and shall be provided with a copy thereof and be given an opportunity to comment
thereon).
k. Further Assurances. Each party shall do and perform, or
cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as the other party may reasonably request in order to carry out the
intent and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
l. No Strict Construction. The language used in this Agreement
will be deemed to be the language chosen by the parties to express their mutual
intent, and no rules of strict construction will be applied against any party.
m. Remedies. The Company acknowledges that a breach by it of
its obligations hereunder will cause irreparable harm to each Buyer by vitiating
the intent and purpose of the transactions contemplated hereby. Accordingly, the
Company acknowledges that the remedy at law for a breach of its obligations
under this Agreement will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Agreement, that each
Buyer shall be entitled, in addition to all other available remedies in law or
in equity, to an injunction or injunctions to prevent or cure any breaches of
the provisions of this Agreement and to enforce specifically the terms and
provisions of this Agreement, without the necessity of showing economic loss and
without any bond or other security being required.
[REMAINDER OF PAGE LEFT INTENTIONALLY BLANK]
<PAGE>
IN WITNESS WHEREOF, the undersigned Buyers and the Company have
caused this Agreement to be duly executed as of the date first above written.
MARKETING SERVICES GROUP, INC.
By:
J. Jeremy Barbera
Chairman of the Board and Chief Executive Officer
RGC INTERNATIONAL INVESTORS, LDC
By: Rose Glen Capital Management, L.P.,
Investment Manager
By: RGC General Partner Corp.,
as General Partner
By:
Gary S. Kaminsky
Managing Director
RESIDENCE: Cayman Islands
ADDRESS:
c/o Rose Glen Capital Management, L.P.
3 Bala Plaza East, Suite 200
251 St. Asaphs Road
Bala Cynwyd, PA 19004
Facsimile: (610) 617-0570
Telephone: (610) 617-5900
AGGREGATE SUBSCRIPTION AMOUNT:
Number of Preferred Shares: 15,000
Number of Warrants: 735,537
Aggregate Purchase Price: $15,000,000
<PAGE>
PHL_A 1339289 v 5
MARSHALL CAPITAL MANAGEMENT, INC.
By:__________________________________
Alan Weine
President
RESIDENCE:
ADDRESS:
11 Madison Avenue, 7th Floor
New York, NY 10010
Facsimile: (212) 325-0038
Telephone: (212) 325-6519
AGGREGATE SUBSCRIPTION AMOUNT:
Number of Preferred Shares: 15,000
Number of Warrants: 735,537
Aggregate Purchase Price: $15,000,000
Exhibit 20.1
MSGi Completes Private Placement
An Affiliate Of Credit Suisse First Boston Makes Investment In MSGi
New York, NY - February 25, 2000 - Marketing Services Group, Inc. (Nasdaq:
MSGI), an Internet incubator and integrated marketing services industry leader,
today announced at its annual shareholders meeting in New York that it has
completed a $30 million strategic private placement of its Series E Convertible
Preferred Stock. The shares were purchased by Marshall Capital Management, an
affiliate of Credit Suisse First Boston and by funds managed by Rose Glen
Capital Management.
"Proceeds from this strategic round will be used for general working capital
including additional minority Internet investments. We are very pleased to begin
our relationship with Credit Suisse First Boston and will be a presenting
company at their Global Services Conference next week. Rose Glen Capital, which
has invested $100million in CMGI since December 1998, is a welcome addition to
our growing number of institutional investors that have embraced our Internet
strategy," commented Jeremy Barbera, Chairman and Chief Executive Officer of
MSGi.
Marshall Capital is a proprietary investment vehicle that invests First Boston
capital into small capitalization emerging growth companies after careful
fundamental due diligence. Marshall's investment strategy is to form long term
partnerships with its issuers. Other recent investments that have been made by
Marshall include Click2Learn.com (NASDAQ:CLKS) and Webb Interactive Services
(NASDAQ:WEBB).
Rose Glen Capital is an asset management firm which makes direct investments in
publicly traded companies with promising growth potential and superior
management. The firm has made similar investments over the last few years in
companies such as CMGI, Inc. (NASDAQ:CMGI), Geron Corporation (NASDAQ:GERN),
Lernout Hauspie Speech Products N.V. (NASDAQ:LHSP) and Softnet Systems, Inc.
(NASDAQ: SOFN).
About MSGi
- ----------
Marketing Services Group, Inc. is a leader in the Internet incubation and
integrated marketing services industries. MSGi's revenues have grown from $16
million in fiscal 1996 to in excess of $110 million on an annualized basis. GE
Capital is the owner of a 16 percent stockholder position in MSGi and CMGI is
the owner of a 9 percent stockholder position in MSGi.
MSGi is organized into two business divisions: The Internet Group and The Direct
Group. The Internet Group's mission is to acquire, invest in and incubate
Internet companies. Its preliminary focus is on WiredEmpire and its Marketing
Agent technology. MSGi plans to expand into other strategic areas. The Internet
Group provides Internet marketing, e-commerce applications, Web development and
hosting, online ad sales and consulting. The Direct Group provides strategic
planning, direct marketing, database marketing, telemarketing, telefundraising,
media planning and buying. Through this business segment, MSGi will continue to
grow by leveraging the synergies it has across all its companies in marketing,
technology and capabilities.
Thousands of clients worldwide are provided services by MSGi, which has offices
throughout the United States and in London. Corporate headquarters are located
at 333 Seventh Ave., New York, NY 10001. Telephone: 917-339-7100. Additional
information is available on the company's Website: http://www.msginet.com.
Matters discussed in this release include forward-looking statements that
involve risks and uncertainties, and actual results may be materially different.
Factors that could cause actual results to differ are stated in the company's
reports to the Securities and Exchange Commission including its 10-Q for the
period ended December 31, 1999 and the annual report on Form 10-K for the year
ended June 30, 1999.
