SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Date of report (Date of earliest event reported): October 16, 1998
CANISCO RESOURCES, INC.
(Exact Name of Registrant as Specified in Charter)
Delaware 0-12293 54-0952207
(State or Other Jurisdiction (Commission (IRS Employer
of Incorporation) File Number) Identification No.)
300 Delaware Avenue, Suite 714, Wilmington, Delaware 19801
(Address of Principal Executive Offices) (Zip Code)
Registrant s telephone number, including area code: (302) 777-5050
Item 5 Other Events
Canisco Resources, Inc., a Delaware corporation (the "Company"),
entered into a Securities Purchase Agreement, dated as of October 16, 1998 (the
"Agreement"), by and among Mellon Ventures, L.P. ("Mellon Ventures") and Morse
Partners, Ltd. ("Morse" and collectively with Mellon Ventures the "Investors")
and the Company, pursuant to which the Investors may purchase up to an aggregate
of 75,000 shares of convertible preferred stock at an issue price of $100.00 per
share.
The purchase is to be made in two separate closings. The obligation
of the Investors to close the transactions is subject to numerous conditions,
including the satisfactory completion of their due diligence investigation. The
obligation of the parties to complete the second closing will be subject to
additional considerations including, but not limited to, adoption of amendment
to the Company's Certificate of Incorporation (the "Amendment") and approval
of the transaction by the Company s shareholders. There can be no assurance
that either closing will occur.
In the first closing, if it occurs, the Investors will purchase
preferred stock having an aggregate purchase price of $1,412,000. If the second
closing occurs, the Investors will purchase a further tranche of preferred stock
having an aggregate purchase price of $6,088,000. If both closings occurs the
aggregate purchase price for the preferred stock will be $7,500,000. The
Agreement provides that either the Company or the Investors may terminate the
Agreement if the first closing does not occur within 60 days of the date of the
Agreement (provided such failure to close is not the result of a breach of the
Agreement by the party seeking to terminate).
The preferred stock is to be issued in two separate series, the 12%
Series A Cumulative Convertible Preferred Stock, par value $1.00 per share (the
"Series A Preferred Stock") and the 12% Series B Cumulative Convertible
Preferred Stock, par value $1.00 per share (the "Series B Preferred Stock"
and collectively with the Series A Preferred Stock, the "Preferred Stock" ).
The Series A Preferred Stock will be voting and will be convertible into the
Company s common stock. The Series B Preferred Stock will be non-voting and
will be convertible at the option of the holder into either a newly created
class of non-voting common stock or Series A Preferred Stock.
The Amendment will create a new class of non-voting common stock each
share of which will be convertible into a share of voting common stock and vice
versa. There will be no differences between the rights of holders of voting
common stock and non-voting common stock, except that the latter will have no
voting rights (unless otherwise required by law).
At the first closing, the Investors will purchase 14,120 shares
Series A preferred stock, which, upon conversion, would represent at a maximum
(assuming a $2.25 conversion price as discussed below) approximately 19.9% of
the Company s outstanding common stock. Mellon Ventures will purchase
11,296 shares of Series A Preferred Stock at the first closing and Morse will
purchase 2,824 shares of Series A Preferred Stock. If the second closing
occurs, Mellon
Ventures will purchase 48,704 shares of Series B Preferred Stock and Morse
will purchase 12,176 shares of Preferred Stock which at Morse s option may be
either Series A Preferred Stock or Series B Preferred Stock. If the second
closing occurs the Investors would own, on a fully converted and fully diluted
basis, in the aggregate a maximum (assuming a $2.25 conversion price) of
close to 57% of the Company's outstanding common stock.
The Preferred Stock acquired by Investors will be convertible into
the Company s common stock, based on the par value of the Preferred Stock,
initially at $2.50 per common share and thereafter at prices ranging from $2.75
to $2.25 per share depending on the level of Pro Forma EBITDA (as defined in the
Agreement) for the Company s fiscal year ending March 31, 1999. If Pro Forma
EBITDA is equal to or less than $6,013,000 the conversion price will be $2.25
per share. If Pro Forma EBITDA is more than $6,013,000 but equal to or
less than $7,349,000 the conversion price will be $2.50 per share. If Pro
Forma EBITDA is more than $7,349,000 the conversion price will be $2.75 per
share.
The Preferred Stock will have a 12% compounded dividend preference,
payable only in the event of liquidation or deemed liquidation
(as defined in the
agreement), or if approved by the Directors elected by the common
stockholders. On conversion, the Company s obligation with respect to
accrued and unpaid dividends will terminate and no common stock will be
issued in respect of such dividends.
The Common Stock Directors (as defined in the Agreement) may require
the holders to convert the Preferred Stock at any time after the second
anniversary of issuance of the first share of the respective series if the
Closing Stock Market Price (as defined in the Agreement) is more than 200%
of the then current conversion price for a period of sixty consecutive
trading days.
The Agreement provides that upon the occurrence of the Initial
Closing, the Company will take such actions as are necessary to ensure that the
Board of Directors of the Company consists of six directors and will elect
three designees of the Investors to the Board of Directors. Thereafter, the
size of the Board of Directors will remain at six, except that upon the
approval of the stockholders of the Company either of the transactions
contemplated by the Agreement or the election of a fourth designee of the
Investors to the Board of Directors, the Company will take such actions as
are necessary to increase the size of the Board of Directors to seven and
to fill the resulting vacancy with a designee of the Investors.
The Agreement provides that so long as the Investors continue to own
the "Threshold Number" (as defined below) of shares of Preferred Stock (or such
number of common shares of the Company into which such shares have been
converted, or a combination thereof), following the Initial Closing the Company
will support the nomination of, and the Company's nominating committee (or other
board committee exercising a similar function) will recommend to the Board of
Directors that, and the Board of Directors will ensure that, (i) four designees
of the Investors (if, the Investors and their affiliates together beneficially
own more than 25% of Total Outstanding Common Shares (as defined below)) or (ii)
three designees of the Investors (if the Investors and their affiliates together
beneficially own more than 15% and 25% or less of the Total Outstanding Common
Shares) or (iii) two designees of the Investors (if, the Investors and their
affiliates together beneficially own more than 5% and 15% or less of the Total
outstanding Common Shares), be included in the slate of nominees recommended by
the Board of Directors of the Company to stockholders for election as directors
at each annual meeting of stockholders of the Company commencing with the first
annual meeting of stockholders after the Initial Closing.
As used above, the "Threshold Number" means 40% of the aggregate
number of shares of Preferred Stock the Investors purchase at the Initial
Closing or, if the Second Closing occurs, 40% of the aggregate number of
shares of Preferred Stock the Investors purchase at the Initial Closing and
the Second Closing. The percentage of Total Outstanding Common Shares
beneficially owned by the Investors and their affiliates shall be calculated
by dividing the number of shares of common stock of any class of the Company
owned by the Investors and
their affiliates (assuming conversion of all shares of Preferred Stock
then owned by the Investors and their affiliates at the conversion price
then in effect), by the number of Total Outstanding Common Shares (which is
defined as the aggregate number of shares of common stock of any class of
the Company outstanding on the date of determination).
However, the Agreement also provides that, so long as any shares of
Preferred Stock are outstanding, the Company will support the nomination of, and
the Company's nominating committee or other board committee exercising a similar
function) shall recommend to the Board of Directors that, and the Board of Direc
tors will ensure that, four designees of the Investors be included in the
slate of nominees recommended by the Board of Directors of the Company to
holders of Common Stock for election as directors by such stockholders at
each such annual meeting.
Under the Agreement any directors the holders of Series A Preferred
Stock are entitled to elect will be deducted from the foregoing number of direc
tors the Investors are entitled to designate. In the event any such designee
shall cease to serve as a director for any reason, the Board of Directors
shall fill the vacancy resulting thereby with a person designated by the
Investors.
During such time as the Investors are entitled to have a designee on
the Board of Directors, the Investors shall also be entitled to have such
designee serve on each committee of the Board of Directors, including any
special committee, and the Company has agreed to cause such designee to be so
appointed; provided, however, that if such designee would not be considered
"independent" or "disinterested" (i) for purposes of any applicable rule of
Nasdaq or any provision of the Internal Revenue Code of 1986, as amended,
or (ii) for purposes of any special committee formed in connection with any
transaction or potential transaction involving the Company and Mellon
Ventures or Morse, then such designee shall not be required to be
appointed to such committee.
The Agreement further provides that the Company will not, without
the prior written consent of the Investors, (i) amend, alter or repeal any
provision of the Certificate of Incorporation, as amended, or Bylaws of the
Company; (ii) create, authorize, or reclassify any authorized stock of the
Company into, or increase the authorized amount of, any class or series of the
Company's capital stock ranking prior to or on a parity with Series A Preferred
Stock as to dividends or distributions upon liquidation, dissolution or winding
up of the Company, whether voluntary or involuntary, or any security convertible
into or exchange for, or any option, warrant or right to purchase, shares of
such a class or series; (iii) sell, convey, transfer, abandon, lease or
otherwise dispose of or encumber all or substantially all of its property or
business or effect a change in the nature of its business; (iv) purchase,
lease or otherwise acquire all or substantially all of the properties or
assets of any other corporation or entity (whether through the purchase of
stock or assets); (v) merge or consolidate with or into any other corporation,
corporations, entity or entities; (vi) voluntarily dissolve, liquidate, or
wind up or carry out any partial liquidation or dissolution or transaction
in the nature of a partial liquidation or dissolution; (vii) increase the
authorized number of shares of common stock of any class or preferred stock
of the Company; (viii) issue any shares of Class A Common Stock or any
class or series of capital stock, options, warrants, bonds, debentures,
notes or other obligations or securities convertible into or exchangeable
for, or having optional rights to purchase, Class A Common
Stock (except such issuances of capital stock or options, warrants or rights
that do not trigger an anti-dilution adjustment under the terms of the
Preferred Stock) or (ix) incur any indebtedness in excess of the available
indebtedness under the existing credit facility of the Company; provided,
however, that the foregoing approval rights of the Investors will terminate
on the first date that (i) (a) the Investors and their affiliates together
beneficially own less than 15% of the Total Outstanding Common Shares and
(b) the Investors together are not the largest single stockholder of the
Company or (ii) the Investors and their affiliates together beneficially
own less than 10% of the Total Outstanding Common Shares.
The Investors will be entering into a shareholders agreement among
themselves and, pursuant to a management agreement with the Company, will be
entitled to management fees amounting to $50,000 per annum following the first
closing and $100,000 per annum following the second closing.
The foregoing description of the transaction is qualified in its
entirety by reference to the Agreement a copy of which is attached hereto as
Exhibit 10.X.
Mellon Ventures, a Delaware limited partnership, is a small business
investment company organized under the Small Business Investment Act of 1958, as
mended, whose principal business is to invest in equity or equity-related
securities of companies. The majority limited partner of Mellon Ventures is
Mellon Bank, N.A. The companies comprising Mellon Bank, N.A. and its affiliates
are direct and indirect subsidiaries of Mellon Bank Corporation. MVMA, L.P. is
the general partner of Mellon Ventures and holds a 1% equity interest in Mellon
Ventures. Its principal business is to act as general partner of Mellon
Ventures. Mellon Ventures principal executive office and principal business
address is 919 North Market Street, Wilmington, Delaware 19801
Morse, a Pennsylvania corporation, is a venture capital investment
firm whose principal business is to invest in equity or equity-related
securities of companies. Morse s principal executive office and principal
business address is Suite 205, 200 Four Falls Corporate Center, West
Conshohocken, Pennsylvania 19428.
The Company currently intends to use the proceeds of the sale of
Preferred Stock principally to implement its previously announced strategic
acquisition plan and for working capital.
Item 7. Financial Statements, Pro Forma Financial Information and Exhibits.
(a) Financial Statements of Business Acquired.
Not Applicable
(b) Pro Forma Financial Information.
Not Applicable
(c) Exhibits.
10.2
Securities Purchase Agreement, dated as of October 16, 1998, by
and among Mellon Ventures, L.P. and Morse Partners, Ltd. and
Canisco Resources, Inc.
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.
Dated: October 29, 1998
CANISCO RESOURCES, INC.
By: /s/ Ralph A. Trallo
Name: Ralph A. Trallo
Title: President
EXHIBIT INDEX
Exhibit Description Page
10.2 Securities Purchase Agreement, dated as of October 16,
1998, by and among Mellon Ventures, L.P. and Morse Partners,
Ltd, and Canisco Resources, Inc.
Exhibit 10.2
[Securities Purchase Agreement]
Exhibit 1
Execution Copy
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SECURITIES PURCHASE AGREEMENT
by and among
MELLON VENTURES, L.P.
MORSE PARTNERS LTD.
and
CANISCO RESOURCES, INC.
Dated as of October 16, 1998
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TABLE OF CONTENTS
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Page
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ARTICLE I SALE AND PURCHASE OF SECURITIES................................ 2
1.1 Sale and Purchase of Preferred Stock........................ 2
1.2 Closing; Termination........................................ 2
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................. 3
2.1 Organization and Qualification.............................. 3
2.2 Capitalization.......................... ................... 4
2.3 Authority Relative to this Agreement........................ 5
2.4 Issuance of Shares.......................................... 5
2.5 Absence of Certain Changes.................................. 6
2.6 Reports..................................................... 6
2.7 Proxy Statement............................................. 7
2.8 Consents and Approvals; No Violation........................ 7
2.9 Brokerage Fees and Commissions.............................. 8
2.10 Litigation......................................... ....... 8
2.11 Absence of Changes in Benefit Plans........................ 8
2.12 ERISA Compliance........................................... 9
2.13 Taxes......................................................11
2.14 No Excess Parachute Payments; Termination Payments; Section
162(m) of the Code.........................................11
2.15 Compliance with Applicable Law............... .............11
2.16 Contracts; Debt Instruments................................14
2.17 Labor Matters..............................................14
2.18 Title to Properties........................................15
2.19 Undisclosed Liabilities; Affiliated Transactions...........15
2.20 Patents, Trademarks, Trade Names, Etc......................15
2.21 Certain Agreements............................. ...........15
2.22 Indemnification Claims.....................................16
2.23 Antitakeover Statute.......................................16
2.24 Acknowledgment Regarding Investors' Purchase of Securities.16
2.25 No Integrated Offering.....................................16
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE INVESTORS................17
3.1 Authority Relative to this Agreement........................17
3.2 Proxy Statement.............................................17
3.3 Consents and Approvals; No Violation........................17
3.4 Investment Intent...........................................18
ARTICLE IV COVENANTS......................................................18
4.1 Conduct of Business of the Company..........................18
i
4.2 No Solicitation.............................................19
4.3 Access to Information.......................................21
4.4 Proxy Statement and Stockholder Meeting.....................21
4.5 Amendments to Certificate of Incorporation..................22
4.6 Board of Directors Matters..................................22
4.7 Nasdaq Listing..............................................24
4.8 Reasonable Best Efforts.....................................24
4.9 Public Announcements........................................25
4.10 Shareholder Litigation.....................................25
4.11 Disclosure Schedules.......................................26
4.12 Stock Options................... ........................26
4.13 Certain Approval Rights....................................26
4.14 No Integration.............................................27
ARTICLE V CONDITIONS TO CONSUMMATION OF THE INVESTMENT TRANSACTION.......27
5.1 Conditions to the Investors' Obligations for the Initial Closing 27
5.2 Conditions to the Company's Obligations for the Initial Closing.28
5.3 Conditions to the Investors' Obligations for the Second Closing.29
5.4 Conditions to the Company's Obligations for the Second Closing..30
ARTICLE VI TERMINATION; AMENDMENT; INDEMNITY..............................31
6.1 Termination.................................................31
6.2 Effect of Termination.......................................32
6.3 Termination Fee and Expense Fee.............................32
6.4 Amendment...................................................33
6.5 Company's Obligation to Indemnify...........................33
6.6 Investor's Obligation to Indemnify..........................33
6.7 Indemnity Procedures for Third Party Claims.................33
6.8 Indemnity Procedures for Claims by the Parties..............34
6.9 Effect of Insurance.................................... ....35
ARTICLE VII MISCELLANEOUS............................................. ....35
7.1 Extension; Waiver...........................................35
7.2 Entire Agreement; Assignment................................35
7.3 Survival; Enforcement of the Agreement......................36
7.4 Validity....................................................36
7.5 Notices.....................................................36
7.6 Governing Law...............................................37
7.7 Descriptive Headings........................................37
7.8 Parties in Interest.........................................38
7.9 Counterparts............................. ..................38
7.10 Expenses...................................................38
7.11 Certain Definitions........................................38
ii
EXHIBITS
Exhibit A Amendment to Certificate of Incorporation
Exhibit B Certificate of Designation for Series A Preferred Stock
Exhibit C Certificate of Designation for Series B Preferred Stock
Exhibit D Opinion of Counsel to the Company
iii
DEFINED TERMS
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"Release".............................................................. 12
1990 Plan.............................................................. 4
1998 Plan.............................................................. 4
affiliate.............................................................. 38
Agreement.............................................................. 1
Asserted Liability..................................................... 33
beneficial owner....................................................... 38
beneficially own....................................................... 38
Benefit Plans.......................................................... 9
Certificates of Designation............................................ 22
Charter Amendment...................................................... 22
Claim Response......................................................... 34
Claims Notice.......................................................... 33
Closings............................................................... 2
Code................................................................... 9
Common Stock........................................................... 1
Company................................................................ 1
Company Indemnified Party.............................................. 33
Compensation Program................................................... 4
Confidentiality Agreement.............................................. 21
control................................................................ 38
controlled by.......................................................... 38
Conversion Shares...................................................... 5
DGCL................................................................... 5, 8
Environmental Claim.................................................... 13
Environmental Laws..................................................... 12
Environmental Liabilities.............................................. 13
Environmental Permit................................................... 12
Equity Plans........................................................... 4
ERISA.................................................................. 9
ERISA Affiliate........................................................ 9
Exchange Act........................................................... 6
Expense Fee............................................................ 32
fully diluted.......................................................... 38
Governmental Entity.................................................... 8
Hazardous Material..................................................... 12
indebtedness........................................................... 14
Indemnified Party...................................................... 33
Indemnifying Party..................................................... 33
Initial Closing........................................................ 2
Initial Closing Date................................................... 2
iv
Investment Transactions................................................ 2
Investor............................................................... 1
Investor Indemnified Party............................................. 33
Investors.............................................................. 1
Liens.................................................................. 3
Litigation Conditions.................................................. 34
Losses................................................................. 33
Material Adverse Effect................................................ 38
Mellon Ventures........................................................ 1
Morse Partners......................................................... 1
Nasdaq................................................................. 1
Notice of Superior Proposal............................................ 20
Option Programs........................................................ 4
Payment Date........................................................... 32
Permits................................................................ 11
person................................................................. 39
Preferred Stock........................................................ 1
Proxy Statement........................................................ 21
Response Period........................................................ 34
SAR Plan............................................................... 4
SEC.................................................................... 4
SEC Documents.......................................................... 6
Second Closing......................................................... 2
Second Closing Date.................................................... 3
Securities Act......................................................... 6
Series A Preferred Stock............................................... 1
Series B Preferred Stock............................................... 1
Series A Certificate of Designation.................................... 22
Series B Certificate of Designation.................................... 22
Significant Subsidiary................................................. 4
Stockholder Meeting.................................................... 22
subsidiary............................................................. 39
superior proposal...................................................... 20
takeover proposal...................................................... 20
Taxes.................................................................. 11
Termination Fee........................................................ 32
Threshold Number....................................................... 23
Total Outstanding Common Shares........................................ 23
Warrants............................................................... 4
v
SECURITIES PURCHASE AGREEMENT
THIS IS A SECURITIES PURCHASE AGREEMENT, dated as of October 16, 1998
(the "Agreement"), by and among, Mellon Ventures, L.P., a Delaware limited
partnership ("Mellon Ventures"), Morse Partners Ltd., a Pennsylvania corporation
("Morse Partners"), and Canisco Resources, Inc., a Delaware corporation (the
"Company"). As used herein, Mellon Ventures and Morse Partners are sometimes
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referred to individually as an "Investor" and collectively as the "Investors."
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Background
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A. The Company currently has issued and outstanding 2,526,565 shares
of Common Stock, par value $.0025 per share ("Common Stock"). Shares of the
------------
Company's Common Stock are currently authorized for quotation on the Nasdaq
SmallCap Market of the Nasdaq Stock Market.
B. On August 6, 1998, the Company received notification from The
Nasdaq Stock Market, Inc. ("Nasdaq") that shares of Common Stock no longer meet
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the requirements for continued inclusion in the Nasdaq Stock Market as a result
of a failure of the Company to maintain the required levels of net tangible
assets, market capitalization or net income, and requesting a proposal from the
Company for achieving compliance with listing standards of the Nasdaq Stock
Market. By letter dated August 27, 1998, Nasdaq notified the Company that
Nasdaq had determined not to accept the plan of compliance presented by the
Company and that the shares of Common Stock would be delisted from the Nasdaq
Small Cap Market effective September 4, 1998. Such delisting has been suspended
pending the completion of an oral hearing to be convened by Nasdaq on behalf and
at the request of the Company. Such hearing is to take place on October 16,
1998.
C. In order to meet the requirements of the Nasdaq for continued
inclusion of shares of Common Stock on the Nasdaq SmallCap Market and in order
to obtain additional equity for working capital and possible future
acquisitions, the Company desires to sell a number of shares of 12% Series A
Cumulative Convertible Preferred Stock, par value $1.00 per share ("Series A
Preferred Stock"), of the Company and 12% Series B Cumulative Convertible
Preferred Stock, par value $1.00 per share ("Series B Preferred Stock" and,
together with Series A Preferred Stock, "Preferred Stock"), of the Company to
the Investors, all subject to the terms and conditions hereinafter set forth, it
being the intent of the parties that a number of shares of Preferred Stock
convertible into approximately 19.9% of the outstanding Common Stock of the
Company shall be sold initially to the Investors in order to meet the listing
requirements of Nasdaq, with the balance of such shares to be sold at a later
date following approval by the stockholders of the Company of this Agreement and
the transactions contemplated hereby.
Terms
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THEREFORE, in consideration of the mutual covenants contained herein,
and intending to be legally bound hereby, the parties hereto agree as follows:
ARTICLE I
SALE AND PURCHASE OF SECURITIES
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1.1 Sale and Purchase of Preferred Stock. (a) Subject to the terms and
- --- ------------------------------------
conditions set forth herein, at the Initial Closing (as defined in Section
1.2(a)), the Company will (i) issue and sell to Mellon Ventures, and Mellon
Ventures will purchase, the number of shares of Series A Preferred Stock set
forth opposite the name of Mellon Ventures on Schedule I hereto, and (ii) issue
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and sell to Morse Partners, and Morse Partners will purchase, the number of
shares of Series A Preferred Stock set forth opposite the name of Morse Partners
on such Schedule I.
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(b) Subject to the terms and conditions set forth herein, at the Second
Closing (as defined in Section 1.2(b)), the Company will (i) issue and sell
to Mellon Ventures, and Mellon Ventures will purchase, the number of shares
of Series B Preferred Stock set forth opposite the name of Mellon Ventures
on Schedule II hereto, and (ii) issue and sell to Morse Partners, and Morse
-----------
Partners will purchase, the number of shares of Series A or Series B
Preferred Stock (such series to be determined by Morse Partners in its
discretion) set forth opposite the name of Morse Partners on such Schedule
--------
II. The purchase and sale of Preferred Stock pursuant to Sections 1.1(a)
--
and (b) hereof shall sometimes hereinafter be referred to as the
"Investment Transactions".
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(c) The per share purchase price for the Preferred Stock to be paid by
each Investor pursuant to this Section 1.1 is $100.00. At each Closing (as
hereinafter defined) Mellon Ventures and Morse Partners shall pay the
aggregate purchase price for the shares of Preferred Stock purchased by
them hereunder at such Closing by wire transfer of immediately available
funds to an account designated by the Company not less than two business
days prior to such Closing.
(d) The obligations of the Investors to purchase the shares of Series A
Preferred Stock subscribed for hereunder are several in nature, and neither
Investor shall have any obligation to purchase any shares of Preferred
Stock subscribed for hereunder by the other Investor.
1.2 Closing; Termination. (a) The closing of the purchase and sale of the
- --- --------------------
shares of Series A Preferred Stock referred to in Section 1.1(a) above (the
"Initial Closing") will take place on the third business day after the
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conditions to the Initial Closing set forth in Sections 5.1 and 5.2 hereof shall
have been satisfied or waived in writing, or on such other date as may be agreed
by the parties hereto (the "Initial Closing Date").
--------------------
(b) The closing of the purchase and sale of the shares of Series B Preferred
Stock referred to in Section 1.1(b) above (the "Second Closing" and,
--------------
together with the Initial Closing, the "Closings") will take place on the
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third business day after the conditions to the Second Closing set forth in
Sections 5.3 and 5.4 hereof shall have been satisfied or waived in writing,
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or on such other date as may be agreed by the parties hereto (the "Second
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Closing Date").
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(c) At each Closing, the Company will deliver to the applicable Investor
certificates evidencing the number of shares of Preferred Stock to be
purchased by such Investor as set forth opposite such Investor's name on
Schedule I or Schedule II, as applicable, registered in such Investor's
---------- -----------
name (or the name of any nominee of such Investor), against payment of the
purchase price therefor in cash, by wire transfer of immediately available
funds, with confirmed receipt.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE COMPANY
---------------
The Company hereby represents and warrants to each of the Investors as
follows:
2.1 Organization and Qualification.
- --- ------------------------------
(a) The Company is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware and has the requisite
corporate power to carry on its business as it is now being conducted. The
Company is duly qualified as a foreign corporation to do business, and is
in good standing, in each jurisdiction where the character of its
properties owned or leased or the nature of its activities makes such
qualification necessary, except where the failure to be so qualified could
not reasonably be expected to result in a Material Adverse Effect (as
defined in Section 7.11).
(b) The only subsidiaries of the Company are those named in Exhibit 22 to the
Company's Annual Report on Form 10-K for the fiscal year ended March 31,
1998 or set forth on Schedule 2.1(b) of this Agreement. Each subsidiary of
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the Company is a corporation duly organized, validly existing and in good
standing under the laws of its jurisdiction of incorporation and has the
requisite corporate power to carry on its business as it is now being
conducted. Each such subsidiary is duly qualified as a foreign corporation
to do business, and is in good standing, in each jurisdiction where the
character of its properties owned or leased or the nature of its activities
makes such qualification necessary, except where the failure to be so
qualified could not reasonably be expected to result in a Material Adverse
Effect. Except as set forth on Schedule 2.1(b), all of the outstanding
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shares of capital stock of each such subsidiary have been validly issued,
are fully paid and non-assessable and are owned by the Company, by another
wholly owned subsidiary of the Company or by the Company and another such
wholly owned subsidiary, free and clear of all pledges, claims, equities,
options, liens, charges, rights of first refusal, "tag" or "drag" along
rights, encumbrances and security interests of any kind or nature
whatsoever (collectively, "Liens"). Except for the capital stock of its
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subsidiaries or as otherwise set forth in Schedule 2.1(b), the Company does
---------------
not own, directly or indirectly, any
-3-
capital stock or other ownership interest in any corporation, partnership,
joint venture or other entity.
(c) The Company has delivered to the Investors complete and correct copies of
its Certificate of Incorporation, as amended, and Bylaws and will promptly
(but in any event within 10 days) after the date hereof deliver to the
Investors the comparable charters and bylaws or other organizational
documents of its Significant Subsidiaries, in each case as amended to the
date of this Agreement. For purposes of this Agreement, a "Significant
-----------
Subsidiary" means any subsidiary of the Company that constitutes a
----------
significant subsidiary within the meaning of Rule 1-02 of Regulation S-X
promulgated by the U.S. Securities and Exchange Commission (the "SEC").
---
2.2 Capitalization.
- --- --------------
(a) The authorized capital stock of the Company consists of 20,000,000 shares
of Common Stock and 5,000,000 shares of preferred stock, par value $1.00
per share. As of the date hereof, no shares of preferred stock of the
Company are issued or outstanding. As of the date hereof, 2,526,565 shares
of Common Stock are issued and outstanding, and 201,047 shares of Common
Stock are held in the treasury of the Company. An additional 922,225
shares of Common Stock are reserved in the aggregate for issuance pursuant
to the Company's 1998 Stock Option/Incentive Plan (the "1998 Plan"), the
---------
Company's Senior Executive Compensation Program (the "Compensation
------------
Program") the Company's Stock Option and Director Stock Option Programs
(the "Option Programs"), the Company's Stock Appreciation Plan (the "SAR
--------------- ---
Plan") and the Nuclear Support Services, Inc. 1990 Stock Option Plan (the
----
"1990 Plan" and, together with the 1998 Plan, the Compensation Program, the
----------
Option Programs and the SAR Plan, the "Equity Plans"), and 110,000 shares
------------
of Common Stock are reserved for issuance pursuant to warrants to purchase
Common Stock (the "Warrants"). All of the issued and outstanding shares of
--------
Common Stock have been duly authorized and validly issued, are fully paid
and nonassessable and are not subject to preemptive rights. Schedule
--------
2.2(a) sets forth the exercise prices and number of shares of Common Stock
------
issuable in respect of outstanding stock options and Warrants under the
Equity Plans and Warrants.
(b) There are no bonds, debentures, notes or other indebtedness of the Company
having the right to vote (or convertible into, or exchangeable for,
securities having the right to vote) on any matters on which stockholders
of the Company may vote. Except as set forth above, there are no
outstanding securities, options, warrants, calls, rights, commitments,
agreements, arrangements or undertakings of any kind to which the Company
or any of its subsidiaries is a party or by which any of them is bound
obligating the Company or any of its subsidiaries to issue, deliver or
sell, or cause to be issued, delivered or sold, directly or indirectly,
additional shares of capital stock or other voting securities of the
Company or any of its subsidiaries, or obligating the Company or any of its
subsidiaries to issue, grant, extend or enter into any such security,
option, warrant, call, right, commitment, agreement, arrangement or
undertaking. There are not any outstanding contractual obligations of the
Company or any of its
-4-
subsidiaries to repurchase, redeem or otherwise acquire, or providing
preemptive or registration rights with respect to, any shares of capital
stock of the Company or any of its subsidiaries. Except as set forth on
Schedule 2.2, 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 Stock or Preferred Stock or any common stock
issuable upon conversion of the Preferred Stock (the
"Conversion Shares"). The Company and its subsidiaries do not have
------------------
outstanding any loans to any person (as defined in Section 7.11) in respect
of the purchase of securities issued by the Company and its subsidiaries.
2.3 Authority Relative to this Agreement. The Company has all requisite
- --- ------------------------------------
corporate power and authority to execute and deliver this Agreement and to
consummate the transactions contemplated hereby (subject, with respect to the
Second Closing, to approval of the Second Closing, the Charter Amendment (as
defined in Section 4.4), this Agreement and the transactions contemplated hereby
by the requisite holders of outstanding shares of Common Stock in accordance
with the Delaware General Corporation Law (the "DGCL")). The execution and
delivery of this Agreement by the Company and the consummation by the Company of
the transactions contemplated hereby (including, without limitation, the
issuance of the Preferred Stock and the issuance and reservation for issuance of
the Conversion Shares issuable upon conversion of the Preferred Stock) have been
duly and validly authorized by the Board of Directors of the Company, and no
other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions so contemplated
(other than with respect to the Second Closing, the Charter Amendment, this
Agreement and the transactions contemplated hereby, the approval of this
Agreement by the requisite holders of outstanding shares of Common Stock). This
Agreement has been duly and validly executed and delivered by the Company, and,
assuming this Agreement constitutes a valid and binding obligation of each
Investor, this Agreement constitutes a valid and binding agreement of the
Company, enforceable against the Company in accordance with its terms, subject
to applicable bankruptcy and other laws affecting creditors rights generally and
to general principles of equity. Upon the execution and filing with the
Secretary of State of Delaware (and acceptance for filing) of each Certificate
of Designation, each such instrument will constitute a legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms, subject to applicable bankruptcy and other laws affecting creditors
rights generally and to general principles of equity.
2.4 Issuance of Shares. The Preferred Stock, upon issuance in accordance with
the terms of this Agreement, will be duly authorized, validly issued, fully paid
and non-assessable, and free from all taxes, liens, claims and encumbrances with
respect to the issue thereof 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. Upon completion of the transactions
contemplated hereby, the Conversion Shares will be duly authorized and reserved
for issuance, and, upon conversion of the Preferred Stock in accordance with the
terms thereof, will be validly issued, fully paid and non-assessable, and free
from all taxes, liens, claims and
-5-
encumbrances and will not be subject to preemptive rights or other similar
rights or stockholders of the Company and will not impose personal liability
upon the holder thereof.
2.5 Absence of Certain Changes. Except as disclosed in the SEC Documents (as
- --- --------------------------
defined in Section 2.6 below) or as contemplated by this Agreement or as set
forth in Schedule 2.5, since March 31, 1998, no event has occurred, and no
------------
circumstances exist, that could reasonably be expected to result in a Material
Adverse Effect. Except as disclosed in the Company's filings and reports under
the Exchange Act or as set forth in Schedule 2.5, since March 31, 1998, there
------------
has not been (a) any declaration, setting aside or payment of any dividend or
other distribution in respect of the capital stock of the Company or any
redemption or other acquisition by the Company of any shares of Common Stock or
other equity securities of the Company; (b) any entry into any agreement,
commitment or transaction by the Company or any of its subsidiaries which is
material to the Company and its subsidiaries taken as a whole, except
agreements, commitments or transactions in the ordinary course of business,
consistent with prior practice; (c) any split, combination or reclassification
of the Company's capital stock or any issuance or the authorization of any
issuance of any other securities in respect of, in lieu of or in substitution
for shares of its capital stock; (d)(i) any granting by the Company or any of
its subsidiaries to any officer or key employee of the Company or any of its
subsidiaries of any increase in compensation, except in the ordinary course of
business consistent with prior practice or as was required under employment
agreements in effect as of the date of the most recent audited financial
statements included in the SEC Documents, (ii) any granting by the Company or
any of its subsidiaries to any such officer or key employee of any increase in
severance or termination pay, except as was required under employment, severance
or termination agreements in effect as of the date of the most recent audited
financial statements included in the SEC Documents, or (iii) any entry by the
Company or any of its subsidiaries into any employment, severance or termination
agreement with any such officer or key employee; (e) any damage, destruction or
loss, whether or not covered by insurance, that could reasonably be expected to
have a Material Adverse Effect; or (f) any change in accounting methods,
principles or practices by the Company materially affecting its assets,
liabilities or business, except insofar as may have been required by a change in
generally accepted accounting principles.
2.6 Reports. (a) Since January 1, 1996, except as set forth on Schedule 2.6,
- --- ------- ------------
the Company has filed all required forms, reports and documents with the SEC
required to be filed by it pursuant to the federal securities laws and the rules
and regulations promulgated thereunder (collectively, the "SEC Documents"), all
-------------
of which have complied as of their respective filing dates in all material
respects with all applicable requirements of the Securities Act of 1933, as
amended (the "Securities Act") and the Securities Exchange Act of 1934, as
--------------
amended (the "Exchange Act"), and the rules and regulations promulgated
------------
thereunder. None of such forms, reports or documents at the time filed
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. Except to the extent that information contained in any SEC Document
has been revised or superseded by a later-filed SEC Document filed and publicly
available prior to the date hereof, none of the SEC
-6-
Documents contains any untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading. The financial statements of the Company included in the SEC
Documents comply as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally accepted accounting
principles (except, in the case of unaudited statements, as permitted by Form
10-Q of the SEC) applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present 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).
(b) The interim financial statements for the Company for the period ended June
30, 1998 previously provided to the Investors comply as to form in all
material respects with applicable accounting requirements and the rules and
regulations of the SEC with respect to interim financial statements, have
been prepared in accordance with generally accepted accounting principles
(except as permitted by Form 10-Q of the SEC) applied on a consistent basis
during the periods involved (except as may be indicated in the notes
thereto) and fairly present the consolidated financial position of the
Company and its consolidated subsidiaries as of the date thereof and the
consolidated results of their operations and cash flows for the periods
then ended. Since the date of such financial statements, there has been no
material change in the Company's liabilities other than in the ordinary
course of the Company's business.
2.7 Proxy Statement. The Proxy Statement (as defined in Section 4.4) will
- --- ---------------
comply in all material respects with the Exchange Act, except that no
representation is made by the Company with respect to information supplied by
either Investor specifically for inclusion in the Proxy Statement. None of the
information supplied by the Company for inclusion in the Proxy Statement shall,
at the time the Proxy Statement is mailed or at the time of the Stockholder
Meeting (as defined in Section 4.4) relating thereto, contain any untrue
statement of a material fact or omit to state any 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.
2.8 Consents and Approvals; No Violation. Except as set forth in Schedule 2.8,
- --- ------------------------------------ ------------
neither the execution and delivery of this Agreement by the Company nor the
consummation of the transactions contemplated hereby (including the issuance of
the Preferred Stock and the Conversion Shares upon conversion of the Preferred
Stock) will conflict with, or result in any violation of or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of any obligation or to loss of a
material benefit under, or result in the creation of any Lien upon any of the
properties or assets or the Company or any of its subsidiaries under, (a) the
Certificate of Incorporation, as amended, or Bylaws of the Company or the
comparable charter or organizational documents of any of its subsidiaries, (b)
any loan or credit agreement, note, bond, mortgage, indenture, lease or other
agreement, instrument,
-7-
permit, concession, franchise or license applicable to the Company or any of its
subsidiaries or their respective properties or assets, or (c) subject to the
governmental filings and other matters referred to in the following sentence,
any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or any of its subsidiaries or their respective
properties or assets, other than, in the case of clauses (b) or (c), any such
conflicts, violations, defaults, rights or Liens that individually or in the
aggregate could not reasonably be expected to have a Material Adverse Effect. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any Federal, state or local government or any court, administrative
or regulatory agency or commission or other governmental authority or agency,
domestic or foreign (a "Governmental Entity"), is required by the Company or
-------------------
any of its subsidiaries in connection with the execution and delivery of this
Agreement by the Company or the consummation by the Company of the transactions
contemplated by this Agreement (including the issuance of the Preferred Stock
and the Conversion Shares upon conversion of the Preferred Stock), except for
(i) the filing with the SEC (and Nasdaq) of the Proxy Statement, and such other
reports under the Exchange Act as may be required in connection with this
Agreement and the transactions contemplated by this Agreement, (ii) the filing
of the Charter Amendment and Certificates of Designation (as such terms are
defined in Section 4.5) with the Secretary of State of Delaware pursuant to the
DGCL and (iii) such other consents, approvals, orders, authorizations,
registrations, declarations and filings the failure of which to be obtained or
made could not reasonably be expected to have a Material Adverse Effect.
2.9 Brokerage Fees and Commissions. No person is entitled to receive from the
- --- ------------------------------
Company or its subsidiaries any investment banking, brokerage or finder's fee in
connection with this Agreement or the transactions contemplated hereby.
2.10 Litigation. Except as disclosed in the SEC Documents or as set forth in
- ---- ----------
Schedule 2.10, there is no suit, action or proceeding pending or, to the
- -------------
knowledge of the Company, threatened against the Company or any of its
subsidiaries that could reasonably be expected to have a Material Adverse
Effect, nor is there any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against the Company or any of its
subsidiaries that could reasonably be expected to have a Material Adverse
Effect.
2.11 Absence of Changes in Benefit Plans. Except as actually disclosed in the
- ---- -----------------------------------
SEC Documents or as required by applicable law, since January 1, 1997, there has
not been any adoption or amendment by the Company or any of its subsidiaries of
any collective bargaining agreement or any bonus, pension, profit sharing,
deferred compensation, incentive compensation, stock ownership, stock purchase,
stock option, phantom stock, retirement, vacation, severance, disability, death
benefit, hospitalization, medical or other plan, arrangement or understanding
(whether or not legally binding) providing benefits to any current or former
employee, officer or director of the Company or any of its subsidiaries or for
which the Company or any of its subsidiaries is liable which, under the
applicable rules and regulations of the SEC, is or was required to be disclosed
in any SEC Document. Except as actually disclosed in the SEC Documents, there
exist no employment, consulting, severance, termination or indemnification
-8-
agreements, arrangements or understandings between either of the Company or any
of its subsidiaries and any current or former officer or director of either of
the Company or any of its subsidiaries or for which either of the Company or any
of its subsidiaries is liable which, under the applicable rules and regulations
of the SEC, is or was required to be disclosed in any SEC Document.
2.12 ERISA Compliance. (a) Schedule 2.12(a) sets forth a complete list of all
- ---- ---------------- ----------------
"employee benefit plans" (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")), employment contracts, bonus,
-----
pension, profit sharing, deferred compensation, incentive compensation, excess
benefit, stock, stock option, severance, termination pay, change in control or
other employee benefit plans, programs or arrangements, including, but not
limited to, those providing medical, dental, vision, disability, life insurance
and vacation benefits (other than those required to be maintained by law),
whether written or unwritten, qualified or unqualified, funded or unfunded,
foreign or domestic currently maintained, or contributed to, or required to be
maintained or contributed to, by the Company or any other person or entity that,
together with the Company, is treated as a single employer under Section 414 of
the Internal Revenue Code of 1986, as amended (the "Code") (each an "ERISA
---- -----
Affiliate") for the benefit of any current or former employees, officers or
- ---------
directors of the Company or any of its subsidiaries or with respect to which the
Company or any of its subsidiaries has any liability (collectively, the "Benefit
-------
Plans"). Except as set forth in Schedule 2.12(a), no Benefit Plan is a union
- ----- ----------------
sponsored benefit plan or "multiemployer plan" (as defined in Section 3(37) of
ERISA), and neither the Company nor any ERISA Affiliate has at any time
contributed to or been required to contribute to any multiemployer plan. The
Company will, within 10 days after the date hereof, deliver to the Investors
true, complete and correct copies of each Benefit Plan and related trust
agreement and annuity contract and (to the extent applicable) a copy of each
Benefit Plan's current summary plan description. In addition, to the extent
applicable, the Company will provide to the Investors where reasonably requested
by the Investors a copy of the most recent IRS determination letter issued to
each Benefit Plan and a copy of the most recently filed IRS Form 5500 together
with all schedules, actuarial reports and accountants' statements for each
Benefit Plan.
(b) Each Benefit Plan has been administered in all material respects with its
terms. The Company, each ERISA Affiliate and all the Benefit Plans are all
in compliance in all material respects with the applicable provisions of
ERISA and the Code.
(c) All Benefit Plans intended to be qualified under Section 401(a) of the Code
have been the subject of determination letters from the Internal Revenue
Service to the effect that such Benefit Plans are qualified and exempt from
Federal income taxes under Section 401(a) and 501(a), respectively, of the
Code and no such determination letter has been revoked nor, to the
knowledge of the Company, has revocation been threatened, nor has any such
Benefit Plan been amended since the date of its most recent determination
letter or application therefor in any respect that would adversely affect
its qualification or materially increase its costs.
-9-
(d) Except as set forth in Schedule 2.12(b), no Benefit Plan, had, as of it
----------------
most recent valuation date, an "unfunded benefit liability" (as such term
is defined in Section 4001(a)(18) of ERISA), based on actuarial assumptions
which will be furnished to the Investors to the extent reasonably requested
by the Investors, and, to the knowledge of the Company, neither the Company
nor any of its subsidiaries is aware of any facts or circumstances that
would materially change the funded status of any such Benefit Plans.
(e) None of the Company, any ERISA Affiliate, any officer of the Company or any
of its subsidiaries or any of the Benefit Plans, any trusts created
thereunder or any trustee or administrator thereof, has engaged in a non-
exempt "prohibited transaction" (as such term is defined in Section 406 of
ERISA or Section 4975 of the Code) or any other breach of fiduciary
responsibility that could subject the Company, any ERISA Affiliate or any
officer of the Company or any of its subsidiaries or the Investors to tax
or penalty under ERISA, the Code or other applicable law. Neither any of
such Benefit Plans nor any of such trusts has been terminated during the
last five years.
(f) With respect to any Benefit Plan that is an employee welfare benefit plan
(as defined in Section 3(1) of ERISA), (i) no such Benefit Plan is funded
through a "welfare benefit fund", as such term is defined in Section 419(e)
of the Code, (ii) each such Benefit Plan that is a "group health plan", as
such term is defined in Section 5000(b)(l) of the Code, complies in all
material respects with the applicable requirements of Section 4980B(f) of
the Code, (iii) no such Benefit Plan provides benefits, including without
limitation, death or medical benefits, beyond termination of employment or
retirement other than (A) coverage mandated by law or (B) death or
retirement benefits under a Benefit Plan qualified under Section 401(a) of
the Code, and (iv) each such Benefit Plan (including any such Plan covering
retirees or other former employees) may be amended or terminated without
material liability to the Company or any of its subsidiaries on or at any
time after the consummation of the Offer.
(g) Neither the Company nor any ERISA Affiliate has, at any time since January
1, 1991 (i) maintained or contributed to any employee pension benefit plan
subject to Title IV of ERISA or Code Section 412 or (ii) been required to
contribute to, or incurred any withdrawal liability within the meaning of
ERISA Section 4201, including any contingent liability within the meaning
of ERISA Section 4201, to any multiemployer plan as defined in ERISA
Section 3(37).
(h) There are no pending investigations by any governmental agency involving
the Benefit Plans, no termination proceedings involving the Benefit Plans,
and no threatened or pending claims (except for claims for benefits payable
in the normal operation of the Benefit Plans), suits or proceedings against
any Benefit Plan or asserting any rights or claims to benefits under any
Benefit Plan which could give rise to any material liability, nor, to the
best of the Company's or any affiliate's knowledge are there any facts
which could give rise to any material liability in the event of any such
investigation, claim, suit or proceeding.
-10-
2.13 Taxes. Except as set forth in Schedule 2.13:
- ---- ----- -------------
(a) The Company and each of its subsidiaries have filed all Federal income tax
returns and all other material tax returns and reports required to be filed
by it. All such returns are complete and correct in all material respects.
The Company and each of its subsidiaries have paid (or the Company has paid
on their behalf) all taxes due for the periods for which such returns were
filed and all material taxes for which no return was required to be filed,
and the most recent financial statements contained in the SEC Documents
reflect an adequate reserve for all taxes payable by the Company and its
subsidiaries for all taxable periods and portions thereof through the date
of such financial statements.
(b) No material deficiencies for any taxes have been proposed, asserted or
assessed against the Company or any of its subsidiaries, and no requests
for waivers of the time to assess any such taxes are pending. The Federal
income tax returns of the Company and each of its subsidiaries consolidated
in such returns have been examined by and settled with the Internal Revenue
Service for all years through 1993.
(c) As used in this Agreement, "Taxes" shall include all Federal, state, local
-----
and foreign income, property, sales, excise and other taxes, tariffs or
governmental charges of any nature whatsoever.
(d) The Company is not a "real property holding corporation" as defined in the
Code.
2.14 No Excess Parachute Payments; Termination Payments; Section 162(m) of the
- ---- -------------------------------------------------------------------------
Code. Except as set forth in Schedule 2.14 of this Agreement, any amount that
- ---- --------------
could be received (whether in cash or property or the vesting of property) as a
result of any of the transactions contemplated by this Agreement by any
employee, officer or director of either of the Company or any of their
affiliates who is a "disqualified individual" (as is defined in proposed
Treasury Regulation Section 1.280G-1) under any employment, severance or
termination agreement, other compensation arrangement or Benefit Plan would not
be characterized as an "excess parachute payment" (as is defined in Section
280G(b)(1) of the Code). Except as set forth in Schedule 2.14, there are no
-------------
payments that the Company or any of its subsidiaries is or would be required to
make to any of the Company's current or former employees or to any third party
which payment is contingent upon a change of control of the Company or any of
its subsidiaries or payable as a result of the transactions contemplated by this
Agreement. The disallowance of a deduction under Section 162(m) of the Code for
employee remuneration will not apply to any amount paid or payable by the
Company or any of its subsidiaries under any commitment, program, arrangement or
understanding.
2.15 Compliance with Applicable Laws. (a) Except as disclosed on Schedule
- ---- ------------------------------- --------
2.15(a), the Company and its subsidiaries have in effect all Federal, state,
- -------
local and foreign governmental approvals, authorizations, certificates, filings,
franchises, licenses, notices, permits and rights ("Permits") necessary for them
-------
to own, lease or operate their properties and assets and
-11-
to carry on their business as now conducted, and there has occurred no default
under any such Permit, except for the lack of Permits and for defaults under
Permits which could not reasonably be expected to have a Material Adverse
Effect. Except as disclosed in the SEC Documents or on Schedule 2.15(a), each of
----------------
the Company and its subsidiaries is in compliance with all applicable statutes,
laws, ordinances, rules, orders and regulations of any Governmental Entity,
except for possible noncompliance which could not reasonably be expected to have
a Material Adverse Effect. Except as disclosed on Schedule 2.15(a), the Company
----------------
and its subsidiaries have obtained and maintained all Environmental Permits
required with respect to their respective properties, assets, businesses and
operations, except where the failure to obtain or maintain an Environmental
Permit could not reasonably be expected to have a Material Adverse Effect. The
term "Environmental Permit" means any permit, license, approval or other
----------------------
authorization under any Environmental Law (as defined below).
(b) Except as disclosed on Schedule 2.15(b), each of the Company and its
----------------
subsidiaries and their respective properties, assets, businesses and
operations is, and has been, and each of the Company's former subsidiaries,
while subsidiaries of the Company and their respective properties, assets,
businesses and operations, was, in compliance with all applicable
Environmental Laws and Environmental Permits, except for possible
noncompliance which would not have a Material Adverse Effect. The term
"Environmental Laws" means any Federal, state, local or foreign statute,
-------------------
code, ordinance, rule, regulation, policy, guideline, permit, consent,
approval, license, judgment, order, writ, decree, injunction or other
authorization, including the requirement to register underground storage
tanks, relating to: (i) pollution or protection of health or the
environment, the Release or threatened Release of Hazardous Material (as
hereinafter defined) into the environment, including, without limitation,
into ambient air, soil, sediments, land surface or subsurface, buildings or
facilities, surface water, groundwater, publicly-owned treatment works,
septic systems or land; or (ii) the generation, treatment, storage,
disposal, use, handling, manufacturing, transportation or shipment of
Hazardous Material.
(c) During the period of ownership or operation by the Company and its
subsidiaries of any of their respective current or previously-owned
properties, there have been no Releases of Hazardous Material in, on, under
or affecting such properties or any surrounding site, except in each case
for those which are not reasonably likely to have a Material Adverse
Effect. Prior to the period of ownership by the Company and its
subsidiaries of any of their respective current or previously-owned
properties there were no releases of Hazardous Material in, on, under or
affecting any such property or any surrounding site, except in each case
for those which could not reasonably be expected to have a Material Adverse
Effect. The term "Release" means spilling, leaking, pumping, pouring,
-------
emitting, emptying, discharging, injecting, escaping, leaching, dumping or
depositing, and the term "Hazardous Material" means (i) hazardous
------------------
materials, pollutants or contaminants, medical, hazardous or infectious
wastes, hazardous waste constituents, hazardous chemicals, hazardous or
toxic pollutants, and hazardous or toxic substances as those terms are
defined in or regulated by Environment Laws, including the following
statutes and their implementing regulations: the Hazardous Materials
Transportation Act, 49 U.S.C /S//S/ 1801 et seq., the Resource Conservation
-- ---
and Recovery Act, 42 U.S.C. /S//S/ 6901 et seq., the Comprehensive
-- ---
-12-
Environment Response, Compensation and Liability Act, as amended by the
Superfund Amendments and Reauthorization Act, 42 U.S.C. /S//S/ 9601 et
--
seq., the Toxic Substance Control Act, 15 U.S.C. /S//S/ 2601 et seq., the
--- -- ---
Clean Water Act, 33 U.S.C. /S//S/ 1251 et seq. and the Clean Air Act, 42
-- ---
U.S.C. /S//S/ 7401 et seq., (ii) petroleum, including crude oil and any
-- ---
fractions thereof, (iii) natural gas, synthetic gas and any mixtures
thereof, (iv) radioactive materials including, without limitation, source
byproduct or special nuclear materials and (v) pesticides.
(d) Except as disclosed on Schedule 2.15(d), (i) the Company and its
----------------
subsidiaries and their respective properties, assets, businesses and
operations are not subject to any material Environmental Claims (direct or
contingent, and whether known or unknown) or material Environmental
Liabilities arising from or based upon any act, omission, event, condition
or circumstance ocurring or existing on or prior to the date hereof,
including without limitation, any such Environmental Claims or
Environmental Liabilities arising from or based upon the ownership or
operation of assets, businesses or properties of the Company or any
subsidiary or thier respective predecessors, and (ii) neither the Company
nor any of its subsidiaries has received any notice of any violation of any
Environmental Law or Environmental Permit of any Environmental Claim in
connection with their respective assets, properties, businesses or
operations, or, in each case, those of their respective predessors, which
could reasonably be expected to have a Material Adverse Effect. The Company
has disclosed on Schedule 2.15(d) all material environmental assessment
----------------
reports prepared by or for the Company's consultants since January 1, 1993
regarding the environmental condition of the Company's properties or
relating to its activities. The term "Environmental Claim" means any third
-------------------
party (including governmetal agencies, regulatory agencies and employees)
action, lawsuit, claim, preceeding (including claims or proceedings under
the Occupational Safety and Health Act or similar laws relating to safety
of employees) which seeks to impose liability for (i) noise; (ii) pollution
or contamination of the air, surface water, ground water or land; (iii)
solid, gaseous or liquid waste generation, handling, treatment, storage,
disposal or transportation; (iv) exposure to Hazardous Material; (v) the
safety or health of employees; or (vi) the manufacture, processing,
distribution in commerce, use, or storage of chemical or other Hazardous
Material. An "Environmental Claim" includes, but is not limited, to, a
common law action, as well as a proceeding to issue, modify or terminate
and Environmental Permit of the Company or any of its subsidiaries, or to
adopt or amend a regulations to the extent that such a proceeding attempts
to redress violations of such an Environmental Permit as alleged by a
Fedral, state or local executive, legislative, judicial, regulatory or
administrative agency, board or authority. The term "Environmental
-------------
Liabilities" includes all costs arising from any Environmental Claim or
-----------
violation or alleged violation or circumstance or condition which would
give rise to a violation or liability under any Environmental Permit or
Environmental Law under any theory of recovery, at law or in equity, and
whether based on negligence, strict liability or otherwise, including but
not limited to: remedial, removal, response, abatement, investigative,
monitoring, personal injury and damage to property, and any otehr related
costs, expenses, losses, damages, penalties, fines, liabilties and
obligations, including reasonable attorney's fees and court costs.
-13-
2.16 Contracts; Debt Instruments. (a) Except as actually filed as part of the
- ---- ---------------------------
SEC Documents or as set forth on Schedule 2.16, there is no contract or
-------------
agreement binding on the Company or any of its subsidiaries or any of their
assets or properties that is or was required to be filed with any SEC Document.
Neither the Company nor any of its subsidiaries is in violation of or in default
under (nor does there exist any condition which upon the passage of time or the
giving of notice, or both, would cause such a violation of or default under) any
loan or credit agreement, note, bond, mortgage, indenture, lease, or any other
contract, agreement, arrangement or understanding, to which it is a party or by
which it or any of its properties or assets is bound, except for violations or
defaults that could not reasonably be expected to result in a Material Adverse
Effect.
(b) Set forth on Schedule 2.16(b) of the Agreement is (i) a list of all loan or
----------------
credit agreements, notes, bonds, mortgages, indentures and other agreements
and instruments pursuant to which any indebtedness of the Company or any of
its subsidiaries in an aggregate principal amount in excess of $25,000 is
outstanding or may be incurred and (ii) the respective principal amounts
currently outstanding thereunder. For purposes of this Section 2.16,
"indebtedness" shall mean, with respect to any person, without duplication,
-------------
(i) all obligations of such person for borrowed money, or with respect to
deposits or advances of any kind to such person, (ii) all obligations of
such person evidenced by bonds, debentures, notes or similar instruments,
(iii) all obligations of such person upon which interest charges are
customarily paid, (iv) all obligations of such person under conditional
sale or other title retention agreements relating to property purchased by
such person, (v) all obligations of such person issued or assumed as the
deferred purchase price of property or services (excluding obligations of
such person to creditors for raw materials, inventory, services and
supplies incurred in the ordinary course of such person's business), (vi)
all capitalized lease obligations of such person, (vii) all obligations of
others secured by any Lien on property or assets owned or acquired by such
person, whether or not the obligations secured thereby have been assumed,
(viii) all obligations of such person under interest rate or currency
hedging transactions (valued at the termination value thereof), (ix) all
letters of credit issued for the account of such person (excluding letters
of credit issued for the benefit of suppliers to support accounts payable
to suppliers incurred in the ordinary course of business) and (x) all
guarantees and arrangements having the economic effect of a guarantee of
such person of any indebtedness of any other person.
2.17 Labor Matters. Except to the extent set forth in Schedule 2.17 to this
- ---- ------------- -------------
Agreement, (a) no employee of the Company or any of its subsidiaries is
represented by any union or other labor organization; (b) the Company and all of
its subsidiaries are in compliance with applicable laws respecting employment
and employment practices, terms and conditions of employment and wages and
hours, and are not engaged in any unfair labor practice; (c) there is no unfair
labor practice complaint against the Company or any of its subsidiaries pending
before the National Labor Relations Board; (d) there is no labor strike,
dispute, material slowdown, representation campaign or material work stoppage
pending or threatened against or affecting the Company or any of its
subsidiaries; (e) no grievance or arbitration proceeding arising out of or under
collective bargaining agreements is pending and no claim therefor has been
asserted against
-14-
the Company or its subsidiaries; and (f) neither the Company or any of its
subsidiaries has experienced any material work stoppage since January 1, 1997.
2.18 Title to Properties. (a) Except as set forth in Schedule 2.18(a), the
- ---- ------------------- ----------------
Company and its subsidiaries have good, valid and marketable title to, or valid
leasehold interests in, all their material properties and assets except for such
as are no longer used or useful in the conduct of its businesses or as have been
disposed of in the ordinary course of business and except for defects in title,
easements, restrictive covenants and similar encumbrances or impediments that,
in the aggregate, do not and will not materially interfere with its ability to
conduct its business as currently conducted. All such material properties and
assets, other than properties and assets in which the Company or any of its
subsidiaries has leasehold interests, are free and clear of all Liens, except
for Liens that, in the aggregate, do not and will not materially interfere with
the ability of the Company and its subsidiaries to conduct business as currently
conducted.
(b) The Company and each of its subsidiaries has complied in all material
respects with the terms of all material leases to which it is a party and
under which it is in occupancy, and all such leases are in full force and
effect. The Company and each of its subsidiaries enjoy peaceful and
undisturbed possession under all such material leases.
2.19 Undisclosed Liabilities; Affiliated Transactions. Except as and to the
- ---- ------------------------------------------------
extent disclosed in the SEC Documents, or as set forth in Schedule 2.19, and
-------------
except for liabilities incurred in the ordinary course of business and otherwise
not in contravention of this Agreement which individually and in the aggregate
are not material, the Company does not have any liabilities or obligations of
any nature (whether absolute, contingent or otherwise) that could reasonably be
expected to have a Material Adverse Effect.
2.20 Patents, Trademarks, Trade Names, Etc. The Company and its subsidiaries
- ---- -------------------------------------
own, or are licensed or otherwise have the right to use, all patents,
trademarks, trade names, copyrights, technology, know-how and processes except
where the lack of ownership, license or right to use could not reasonably be
expected to have a Material Adverse Effect, and the consummation of the
transactions contemplated by this Agreement will not alter or impair any such
rights. No claims have been asserted by any person to the use of any such
patents, trademarks, trade names, copyrights, technology, know-how or processes
owned or used by the Company or challenging or questioning the validity or
effectiveness of any license or agreement relating thereto to which the Company
is a party and which could reasonably be expected to have a Material Adverse
Effect.
2.21 Certain Agreements. Neither the Company nor any of its subsidiaries is a
- ---- ------------------
party to, or bound by, any contract or agreement that materially limits the
ability of the Company directly or through any of its subsidiaries to compete in
any line of business or with any person in any geographic area during any period
of time.
-15-
2.22 Indemnification Claims. Other than as set forth on Schedule 2.21, the
- ---- ---------------------- -------------
Company is not aware of any indemnification, breach of contract or similar
claims by or against the Company or any of its subsidiaries which are pending or
threatened (or which could be reasonably expected to be made in the future), in
each case in excess of $50,000 in amount, with respect to any acquisition of any
business by the Company after January 1, 1996.
2.23 Antitakeover Statute. The Board of Directors of the Company has taken all
- ---- --------------------
action necessary to approve the acquisition of shares of Preferred Stock (and
Common Stock or any other class of common stock of the Company upon conversion
of Preferred Stock) by each investor pursuant to this Agreement (which shares
represent 15% or more of the voting stock of the Company) in accordance with and
pursuant to Section 203(a)(1) of the DGCL.
2.24 Acknowledgment Regarding Investors' Purchase of Securities'. The Company
- ---- ----------------------------------------------------------
acknowledges and agrees that the Investors 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 Investor is
acting as a financial advisor of the Company (or in any similar capacity) with
respect to this Agreement and the transactions contemplated hereby and any
statement made by any Investor 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
Investors' purchase of securities hereunder. The Company further represents to
each Investor that the Company's decision to enter into this Agreement has been
based solely on the independent evaluation of the Company and its
representatives.
2.25 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 in any security or solicited any offers to buy any security
under circumstances that would require registration under the Securities Act of
the issuance of the shares of Preferred Stock (or Conversion Shares) to the
Investors. The issuance of the shares of Preferred Stock (or Conversion Shares)
to the Investors 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.
-16-
ARTICLE III
REPRESENTATIONS AND WARRANTIES
OF THE INVESTORS
----------------
Each Investor severally represents and warrants to the Company as
follows:
3.1 Authority Relative to this Agreement. Such Investor has the requisite power
- --- ------------------------------------
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated hereby without the consent of any other person (except
for such consents as have heretofore been obtained and the consents referred to
in Section 5.1(l)). This Agreement has been duly and validly executed and
delivered by such Investor and, assuming this Agreement constitutes a valid and
binding obligation of the other parties hereto, this Agreement constitutes a
valid and binding agreement of such Investor, enforceable against such Investor
in accordance with its terms, subject to applicable bankruptcy and other laws
affecting creditors rights generally and to general principles of equity.
3.2 Proxy Statement. None of the information supplied by such Investor and its
- --- ---------------
affiliates specifically for inclusion in the Proxy Statement, if required,
shall, at the time the Proxy Statement is mailed, or at the time of the
Stockholder Meeting, contain any untrue statement of a material fact or omit to
state any 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. If, at any time prior to the Second Closing Date, any
event relating to such Investor or any of its affiliates, officers or directors
is discovered by such Investor that should be set forth in a supplement to the
Proxy Statement, such Investor will promptly inform the Company.
3.3 Consents and Approvals; No Violation. Neither the execution and delivery
- --- ------------------------------------
of this Agreement by such Investor nor the consummation of the transactions
contemplated hereby will conflict with, or result in any violation of or default
(with or without notice or lapse of time, or both) under, or give rise to a
right of termination, cancellation or acceleration of any obligation or to loss
of a material benefit under, or result in the creation of any Lien upon any of
the properties or assets or such Investor under, (a) the organizational
documents of such Investor, (b) any loan or credit agreement, note, bond,
mortgage, indenture, lease or other agreement, instrument, permit, concession,
franchise or license applicable to such Investor or its properties or assets or
(c) subject to the governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law, ordinance, rule
or regulation applicable to such Investor or its properties or assets, other
than, in the case of clauses (b) or (c), any such conflicts, violations,
defaults, rights or Liens that individually or in the aggregate could not
reasonably be expected to have a material adverse effect on the ability of such
Investor to consummate the transactions contemplated hereby. No consent,
approval, order or authorization of, or registration, declaration or filing
with, any Governmental Entity, is required by such Investor in connection with
the execution and delivery of this Agreement by such Investor or the
-17-
consummation by such Investor of the transactions contemplated by this
Agreement, except for the filings referred to in Section 2.7 and any filing
required under Section 13(d) of the Exchange Act.
3.4 Investment Intent. The shares of Preferred Stock being purchased by such
- --- -----------------
Investor are being purchased by the Investor for its own account, and not with a
present view to any distribution thereof that would violate the Securities Act,
or the applicable state securities laws of any state. The Investor will not
distribute the shares of Preferred Stock in violation of the Securities Act or
the applicable securities laws of any state.
ARTICLE IV
COVENANTS
---------
4.1 Conduct of Business of the Company. Except as contemplated by this
- --- ----------------------------------
Agreement or as disclosed in writing to the Investors in Schedule 4.1, during
------------
the period from the date of this Agreement to the date five business days after
the Stockholder Meeting, the Company and its subsidiaries will each conduct its
operations according to its ordinary and usual course of business and consistent
with past practice. Without limiting the generality of the foregoing, and
except as otherwise expressly provided in this Agreement or as disclosed in
writing to the Investors prior to the date five business days after the
Stockholder Meeting, neither the Company nor any of its subsidiaries shall,
without the prior written consent of the Investors, (a) issue, sell or pledge,
or authorize or propose the issuance, sale or pledge of (i) additional shares of
capital stock of any class, or securities convertible into any such shares, or
any rights, warrants or options to acquire any such shares or other convertible
securities, or grant or accelerate any right to convert or exchange any
securities of the Company for shares, other than (A) shares of Common Stock
issuable pursuant to the terms of outstanding Stock Options and commitments
disclosed in Section 2.2, or (B) issuance of shares of capital stock to the
Company by a wholly owned subsidiary of the Company, or (ii) any other
securities in respect of, in lieu of or in substitution for shares of Common
Stock outstanding on the date thereof; (b) purchase or otherwise acquire, or
propose to purchase or otherwise acquire, any of its outstanding capital stock
or other equity or debt securities; (c) declare or pay any dividend or
distribution on any shares of capital stock of the Company, except that a direct
or indirect wholly owned subsidiary of the Company may pay a dividend to its
parent; (d) make any acquisition of a material amount of assets (other than
capital expenditures in accordance with the Company's existing budget not in
excess of $100,000 for any single expenditure) or securities, any disposition
(including by way of mortgage, license, encumber or any Lien) of a material
amount of assets or securities, or enter into a material contract (except for
entering into new contracts involving amounts under $5,000,000 in the ordinary
course of business) or release or relinquish any material contract rights not in
the ordinary course of business, or make any amendments, or modifications
thereto; (e) (i) incur any indebtedness for borrowed money (other than takedowns
under the Company's existing credit facility) or guarantee any such indebtedness
of another person, issue or sell any debt securities or warrants or other rights
to acquire any debt securities of the Company or any of its
-18-
subsidiaries, guarantee any debt securities of another person, enter into any
"keep well" or other agreement to maintain any financial statement condition of
another person or enter into any arrangement having the economic effect of any
of the foregoing or (ii) make any loans, advances of capital contributions to,
or investments in, any other person, other than to the Company or any direct or
indirect wholly owned subsidiary of the Company; (f) pay, discharge, settle or
satisfy any claims, liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge,
settlement or satisfaction, in the ordinary course of business consistent with
past practice or in accordance with their terms, of workers compensation claims
under $50,000 or claims by or against customers involving amounts under
$200,000; (g) propose or adopt any amendments to the Certificate of
Incorporation, as amended, or Bylaws of the Company (or any such similar
organizational documents of its subsidiaries), except as contemplated hereby;
(h) enter into any new employment agreements with any officers, directors or key
employees or grant any material increases in the compensation or benefits to
officers, directors and key employees; (i) take any of the actions set forth in
Section 2.5 not otherwise specified herein; (j) settle the terms of any
litigation affecting the Company or any of its subsidiaries; (k) make any tax
election or settle or compromise any income tax liability; (l) make or agree to
make any new capital expenditures (other than capital expenditures in accordance
with the Company's existing budget not in excess of $100,000 for any single
expenditure); or (m) agree in writing or otherwise to take any of the foregoing
actions or any action which would make any representation or warranty in this
Agreement untrue or incorrect.
4.2 No Solicitation.
- --- ---------------
(a) The Company shall not, nor shall it permit any of its subsidiaries to, nor
shall it authorize or permit any officer, director or employee of or any
investment banker, attorney or other advisor or representative of the
Company or any of its subsidiaries to, directly or indirectly, (i) solicit,
initiate or encourage (including by way of furnishing non-public
information), or take any other action to facilitate any inquiries or the
making of any proposal that constitutes or may reasonably be expected to
lead to any takeover proposal or (ii) participate in any discussions or
negotiations regarding, any takeover proposal; provided, however, that
-------- -------
prior to the Stockholder Meeting, to the extent required by the fiduciary
obligations of the Board of Directors of the Company, as determined in good
faith by the Board of Directors based on the written advice of outside
counsel that failure to do so would be reasonably likely to constitute a
breach of its fiduciary duties to the Company's stockholders under
applicable law, the Company may upon receipt by the Company of an
unsolicited takeover proposal, following delivery to the Investors of the
notice required pursuant to Section 4.2(d), participate in negotiations
regarding such takeover proposal and furnish information with respect to
the Company pursuant to a customary confidentiality agreement (containing
"standstill" provisions no less onerous than in the Confidentiality
Agreement (as defined in Section 4.3). Without limiting the foregoing, it
is understood that any violation of the restrictions set forth in the
preceding sentence by any officer, director or employee of the Company or
any of its subsidiaries or any investment banker, attorney or other advisor
or representative of the Company or any of its subsidiaries, whether or not
such person is purporting to act on behalf of the Company or any of its
subsidiaries or otherwise, shall
-19-
be deemed to be a breach of this Section 4.2(a) by the Company. For
purposes of this Agreement, "takeover proposal" means any proposal for a
-----------------
merger or other business combination involving the Company or any of its
Significant Subsidiaries or any proposal or offer to acquire in any manner
(including through a joint venture with the Company), directly or
indirectly, an equity interest in not less than 20% of the outstanding
voting securities of, or assets representing not less than 20% of the
annual revenues or net earnings of the Company or any of its Significant
Subsidiaries.
(b) Neither the Board of Directors of the Company nor any committee thereof
shall (i) withdraw or modify, or propose to withdraw or modify, in a manner
adverse to the Investors, the approval or recommendation by such Board of
Directors nor any such committee of the transactions contemplated hereby,
(ii) approve or recommend, or propose to approve or recommend, any takeover
proposal or (iii) enter into any agreement with respect to any takeover
proposal. Notwithstanding the foregoing, in the event the Board of
Directors of the Company receives an unsolicited takeover proposal that, in
the exercise of its fiduciary obligations (as determined in good faith by
the Board of Directors and based on the written advice of outside counsel),
it determines to be a superior proposal, the Board of Directors may
(subject to the following sentences) withdraw or modify its approval or
recommendation of this Agreement, approve or recommend any such superior
proposal, or terminate this Agreement in order to enter into an agreement
with respect to such a superior proposal, in each case at any time after
the fifth business day following the Investors' receipt of written notice
(a "Notice of Superior Proposal") advising the Investors that the Board of
---------------------------
Directors has received a superior proposal, specifying the material terms
and conditions of such superior proposal and identifying the person making
such superior proposal. The Company may take any of the foregoing actions
pursuant to the preceding sentence only if the Company is not otherwise in
material breach of this Agreement, and the Company has paid to the
Investors the Termination Fee and the Expense Fee (as defined in Section
6.3). For purposes of this Agreement, a "superior proposal" means any bona
-----------------
fide takeover proposal on terms which the Board of Directors of the Company
determines in its good faith reasonable judgment (and based on the written
advice of a financial advisor of nationally recognized reputation) to be
more favorable to the Company's stockholders than the transactions
contemplated hereby.
(c) Nothing contained in this Section shall prohibit the Company from at any
time taking and disclosing to its stockholders a position contemplated by
Rule 14e-2(a) promulgated under the Exchange Act, provided, however, that
-------- -------
neither the Company nor its Board of Directors shall, except as permitted
by paragraph (b) of this section, propose to approve or recommend a
takeover proposal.
(d) In addition to the obligations of the Company set forth in paragraph (b)
above, the Company shall promptly (but in any event within one day) advise
the Investors orally and in writing of any request for information or any
takeover proposal, or any inquiry with respect to or which could lead to
any takeover proposal, the material terms and conditions of such request,
takeover
-20-
proposal or inquiry, and the identity of the person making any such
takeover proposal or inquiry. The Company will keep the Investors fully
informed of the status and details of any such requests, takeover proposal
or inquiry.
4.3 Access to Information.
- --- ---------------------
(a) Between the date of this Agreement and the Second Closing Date, the Company
will upon reasonable notice (i) give the Investors and their authorized
representatives access during regular business hours to all of the
Company's plants, offices, warehouses and other facilities and to all books
and records of it, (ii) permit the Investors to make such inspections as
they may require (and the Company shall cooperate with the Investors in any
inspections, including, without limitation, environmental due diligence),
and (iii) cause its officers and those of its subsidiaries to furnish the
Investors with such financial and operating data and other information with
respect to the business and properties of the Company and their respective
subsidiaries as the Investors may from time to time request.
(b) Information obtained by the Investors pursuant to this Section 4.3 shall be
subject to the provisions of the confidentiality agreement between the
Company and Morse Partners Limited, dated July 16, 1998 (the
"Confidentiality Agreement"), which remains in full force and effect, but
--------------------------
shall terminate upon the earlier of (i) the Second Closing Date, or (ii)
the termination of this Agreement by (A) the Investors as a result of a
willful breach by the Company of this Agreement or (B) the Company pursuant
to Section 6.1(e).
4.4 Proxy Statement and Stockholder Meeting. (a) As promptly as practicable
- --- ---------------------------------------
after the execution and delivery of this Agreement, the Company and the
Investors will prepare and file with the SEC preliminary proxy materials
relating to the adoption of this Agreement and the approval of the Investment
Transactions by the stockholders of the Company. As promptly as practicable
after comments are received from the SEC on the preliminary proxy material, the
Company and the Investors will file with the SEC the Proxy Statement. As used
herein, "Proxy Statement" means the letter to stockholders, notice of meeting,
---------------
proxy statement and form of proxy (and any schedule required to be filed with
the SEC in connection therewith) to be distributed to stockholders of the
Company in connection with the Stockholder Meeting. The Proxy Statement will
contain any necessary information required under Rule 14f-1 of the SEC to effect
the appointments to the Board of Directors referred to in Section 4.6, unless
such information is not required under the rules and regulations of the SEC. If
requested by the Investors, the Proxy Statement will also present as a separate
item for vote by the stockholders the election of a fourth designee of the
Investors to the Board of Directors as contemplated by Section 4.6 below. The
Company will make all necessary filings with respect to the transactions
contemplated by this Agreement under the Securities Act, the Exchange Act and
the rules and regulations thereunder, and applicable state securities laws, and
will use all reasonable efforts to obtain any required approvals or clearances
with respect thereto. Subject to Section 4.2, the Proxy Statement will include
the recommendation of the Board of Directors of the Company in favor of the
approval of the Investment Transactions, the Charter
-21-
Amendment (as defined in Section 4.5) and the other transactions contemplated by
this Agreement.
(b) Promptly after the execution and delivery of this Agreement, the Company
will take all action necessary in accordance with the DGCL and the
Company's Certificate of Incorporation, as amended, and Bylaws to convene a
special meeting of stockholders of the Company (the "Stockholder Meeting")
-------------------
(i) to adopt this Agreement and approve the transactions contemplated
hereby and (ii) to adopt an amendment to the Company's Certificate of
Incorporation in the form of Exhibit A hereto (the "Charter Amendment").
--------- -----------------
The Company will not postpone or adjourn (other than by reason of an
absence of quorum) the Stockholder Meeting without the consent of the
Investors. The Company will use all reasonable efforts to solicit from
stockholders of the Company proxies in favor of the Investment
Transactions, the Charter Amendment and the other transactions contemplated
hereby and to secure the vote or consent of stockholders required by the
DGCL and the Company's Certificate of Incorporation, as amended, and Bylaws
to approve such transactions.
4.5 Amendments to Certificate of Incorporation.
- --- ------------------------------------------
(a) Prior to the Initial Closing, the Board of Directors of the Company will
take any action necessary to adopt the resolutions set forth in Exhibit B
---------
to this Agreement, and the Company will file a Certificate of Designation
for Series A Preferred Stock in the form of Exhibit B hereto (the "Series A
--------- --------
Certificate of Designation ") with the Secretary of State of Delaware.
--------------------------
(b) In the event the stockholders of the Company approve the Charter Amendment
at the Stockholder Meeting in accordance with the DGCL, the Board of
Directors will as soon as practicable thereafter adopt the resolutions set
forth in Exhibit C to this Agreement, and the Company will as soon as
---------
practicable thereafter (i) file a Certificate of Designation for Series B
Preferred Stock in the form of Exhibit C hereto (the "Series B Certificate
--------- --------------------
of Designation " and, together with the Series A Certificate of
--------------
Designation, the "Certificates of Designation") with the Secretary of State
---------------------------
of Delaware and (ii) will file the Charter Amendment with the Secretary of
State of Delaware.
4.6 Board of Directors Matters.
- --- --------------------------
(a) During such time after the Initial Closing as the Investors (or their
affiliates) shall continue to own in the aggregate not less than the
Threshold Number (as defined below) of shares of Preferred Stock (or such
number of common shares of the Company into which such shares have been
converted, or a combination thereof), the Company will support the
nomination of, and the Company's nominating committee (or other board
committee exercising a similar function) shall recommend to the Board of
Directors, and the Board of Directors will ensure, that (A) four designees
of the Investors (if the Investors and their affiliates together
beneficially own more than 25% of the Total Outstanding Common Shares
-22-
) or (B) three designees of the Investors (if the Investors and their
affiliates together beneficially own more than 15% and 25% or less of the
Total Outstanding Common Shares) or (C) two designees of the Investors (if
the Investors and their affiliates together beneficially own more than 5%
and 15% or less of the Total Outstanding Common Shares), be included in the
slate of nominees recommended by the Board of Directors of the Company to
stockholders for election as directors (or, if any shares of Series A
Preferred Stock are then outstanding, Common Stock Directors (as defined in
the Series A Certificate of Designation)) at each annual meeting of
stockholders of the Company commencing with the first annual meeting of
stockholders after the Initial Closing Date; provided, however, that so
-------- -------
long as any shares of Preferred Stock are outstanding, the Company will
support the nomination of,and the Company's nominating committee (or other
board committee exercising a similar function) shall recommend to the Board
of Directors that, and the Board of Directors will ensure that, four
designees of the Investors be included in the slate of nominees
recommended by the Board of Directors of the Company to stockholders for
election as Common Stock Directors at each such annual meeting of
stockholders; provided further, however, that any Preferred Stock Directors
-------- ------- -------
(as defined in the Series A Certificate of Designation) entitled to be
elected by the holders of Series A Preferred Stock shall be deducted from
the number of directors the Investors are entitled to designate pursuant to
this sentence. In the event any such designee shall cease to serve as a
director for any reason, the Board of Directors shall fill the vacancy
resulting thereby with a person designated by the Investors. During such
time as the Investors are entitled to have a designee on the Board of
Directors, the Investors shall also be entitled to have such designee serve
on each committee of the Board of Directors, including any special
committee, and the Company agrees to cause such designee to be so
appointed; provided, however, that if such designee would not be considered
-------- -------
"independent" or "disinterested" (i) for purposes of any applicable rule of
Nasdaq or any provision of the Code or (ii) for purposes of any special
committee formed in connection with any transaction or potential
transaction involving the Company and Mellon Ventures or Morse Partners,
then such designee shall not be required to be appointed to such committee.
As used above, the "Threshold Number" means 40% of the aggregate number of
----------------
shares of Preferred Stock the Investors purchase at the Initial Closing or,
if the Second Closing occurs, 40% of the aggregate number of shares of
Preferred Stock the Investors purchase at the Initial Closing and the
Second Closing. The number of "Total Outstanding Common Shares" means the
-------------------------------
aggregate number of shares of common stock of any class of the Company
outstanding on the date of determination. The percentage of Total
Outstanding Common Shares beneficially owned by the Investors and their
affiliates shall be calculated by adding (x) the number of shares of common
stock of any class of the Company owned by Mellon Ventures and its
affiliates (assuming conversion of all shares of Preferred Stock then owned
by Mellon Ventures and its affiliates at the conversion price then in
effect) and (y) the number of shares of common stock of any class of the
Company owned by Morse Partners and its affiliates (assuming conversion of
all shares of Preferred Stock then owned by Morse Partners and its
affiliates at the conversion price then in effect), and dividing such sum
by the number of Total Outstanding Common Shares.
(b) Without limiting the effect of paragraph (a) above, the Company (i) will
during the period after the Initial Closing until the Second Closing (or
the earlier approval by the Company's stockholders of the election of a
fourth designee of the Investors to the
-23-
Company's Board of Directors), take such actions as are necessary to ensure
that the Board of Directors of the Company consists of six directors, and
(ii) upon the occurrence of the Initial Closing, will elect three Preferred
Stock Directors (as defined in the Series A Certificate of Designation) to
the Board of Directors. Upon approval by the stockholders of the Company at
the Stockholder Meeting of either (i) this Agreement and the transactions
contemplated hereby or (ii) the election of a fourth designee of the
Investors to the Board of Directors, the Company will take such actions as
are necessary to increase the size of the Board of Directors to seven
directors and will appoint an additional designee of the Investors either
as a Preferred Stock Director (if the stockholders shall have approved the
Investment Transactions at the Stockholder Meeting) or as a Common Stock
Director (if the stockholders shall have approved the election of such
fourth designee without approving the Investment Transactions). In the
event that the stockholders of the Company do not approve the Investment
Transactions and the election of a fourth designee of the Investors to the
Board of Directors at the Stockholder Meeting, the size of the Board will
remain at six; provided, however, that the Company, if requested by the
-------- -------
Investors, will call a special meeting of stockholders and take any other
actions necessary to seek approval by the stockholders of the Company for
an increase in the size of the Board of Directors to seven and the election
of an additional designee of the Investors to the Board (including by
supporting the nomination of such designee, and including such designee in
the Company's slate of nominees, at each annual meeting of stockholders of
the Company thereafter as more fully set forth in paragraph (a) above), and
if such stockholder approval is obtained at a special meeting or if at any
annual meeting of directors occurring thereafter a fourth designee of the
Investors to the Board is approved by the stockholders of the Company, the
size of the Board shall be increased to seven and such designee of the
Investors shall be immediately elected to the Board to fill such vacancy.
4.7 Nasdaq Listing. The Company will use its best efforts to insure that the
- --- --------------
shares of stock issuable upon conversion of the Preferred Stock purchased by the
Investors hereunder (other than the Series A Preferred Stock issuable upon
conversion of Series B Preferred Stock) are listed or authorized to be quoted on
the Nasdaq Stock Market or listed on any national securities exchange on which
shares of Common Stock are then listed.
4.8 Reasonable Best Efforts. (a) Subject to the terms and conditions herein
- --- -----------------------
provided for the Company, each of the parties hereto agrees to use its
reasonable best efforts to take, or cause to be taken, all appropriate action,
and to do, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement. In case at any time after Closing
Date any further action is necessary or desirable to carry out the purposes of
this Agreement, the proper officers and directors of each party to this
Agreement shall take all such necessary action. Such reasonable best efforts
shall include, without limitation, (i) the obtaining of all necessary consents,
approvals or waivers from third parties and governmental authorities necessary
to the consummation of the transactions contemplated by this Agreement and (ii)
opposing vigorously any litigation or administrative proceeding relating to this
Agreement or the transactions contemplated hereby, including, without
limitation, promptly appealing any adverse court or
-24-
agency order. Notwithstanding the foregoing or any other provisions contained in
this Agreement to the contrary, neither the Investors nor any of their
affiliates shall be under any obligation of any kind to enter into any
negotiations or to otherwise agree with any Governmental Entity, including but
not limited to any governmental or regulatory authority with jurisdiction over
the enforcement of any applicable federal, state, local and foreign antitrust,
competition or other similar laws, or any other party to sell or otherwise
dispose of, hold separate (through the establishment of a trust or otherwise)
particular assets or categories of assets or businesses of any of the Company,
the Investors or any of the Investors' affiliates. Further, (i) in the event the
requisite approval of stockholders is not obtained at the Stockholder Meeting,
no party hereto will be under any further obligation to cause the Second Closing
to occur, and (ii) in the event such or any other closing condition applicable
to an Investor set forth in Section 5.3 remains unfulfilled and unwaived by such
party for a period of 120 days after the date hereof, such Investor will have no
further obligation hereunder to proceed with the transactions contemplated by
Section 1.1(b).
(b) The Company shall give and make all required notices and reports to the
appropriate persons with respect to the Permits and Environmental Permits
that may be necessary for the consummation of the Investment Transactions.
(c) The Company and its Board of Directors shall (i) take all action necessary
to ensure that no state takeover statute or similar statute or regulation
is or becomes applicable to this Agreement or any of the transactions
hereby and (ii) if any state takeover statute or similar statute or
regulation becomes applicable to this Agreement or any of the transactions
contemplated hereby, take all action necessary to ensure that the
transactions contemplated by this Agreement may be consummated as promptly
as practicable on the terms contemplated by this Agreement and otherwise to
minimize the effect of such statute or regulation on the transactions
contemplated by this Agreement.
4.9 Public Announcements. The Investors and the Company shall to the fullest
- --- --------------------
extent practicable consult with each other before issuing any press release or
otherwise making any public statement with respect to the transactions
contemplated hereby and shall not issue any such press release or make any such
public statement prior to such consultation, except as may be required by law.
4.10 Stockholder Litigation. The Company shall give the Investors the
- ---- ----------------------
opportunity to participate in the defense or settlement of any stockholder
litigation against the Company and its directors relating to any of the
transactions contemplated by this Agreement until the purchase of shares of
Preferred Stock at the Initial Closing, and thereafter, shall give the Investors
the opportunity to direct the defense of such litigation and, if the Investors
so choose to direct such litigation, the Investors shall give the Company and
its directors an opportunity to participate in such litigation; provided,
--------
however, that no such settlement shall be agreed to without the Investors'
- -------
consent, which consent shall not be unreasonably withheld; and provided further
-------- -------
that no settlement requiring a payment by a director shall be agreed to without
such director's consent.
-25-
4.11 Disclosure Schedules. Notwithstanding anything to the contrary herein, it
- ---- --------------------
is understood and agreed that the disclosure schedules to the representations
and warranties of the Company in this Agreement shall be delivered by the
Company to the Investors no later than 10 days after the date hereof, and the
Company shall not have any liability for any representation or warranty herein
until such date. The Company (a) shall have the right, at any time prior to the
date five days prior to the Initial Closing Date, to amend or update the
disclosures schedules to this Agreement and (b) shall have the right, at any
time prior to the date five days prior to the Second Closing Date, to update or
amend the disclosures schedules to this Agreement to reflect any event occurring
between the Initial Closing Date and the Second Closing Date; provided, however,
-------- -------
that the Investors in their sole discretion shall have a right to terminate this
Agreement in the event any amendment or update pursuant to clause (a) or (b)
reflects a Material Adverse Effect (or, if the Initial Closing has occurred
prior to such update or amendment, terminate the obligations of the Investors to
proceed with the transactions contemplated by Section 1.1(b)). The liability of
the Company for any breach of a representation or warranty in this Agreement
shall be determined with reference to the disclosure schedules as most recently
amended up to the date five days prior to the Initial Closing.
4.12 Stock Options. The Company will not take any action to accelerate the
- ---- -------------
exercisability or vesting of any outstanding options to purchase Common Stock or
modify any other terms of such options as a result of the transactions
contemplated hereby.
4.13 Certain Approval Rights. The Company shall not, without the prior written
- ---- -----------------------
consent of the Investors, (a) amend, alter or repeal any provision of the
Certificate of Incorporation, as amended, or Bylaws of the Company; (b) create,
authorize, or reclassify any authorized stock of the Company into, or increase
the authorized amount of, any class or series of the Company's capital stock
ranking prior to or on a parity with Series A Preferred Stock as to dividends or
distributions upon liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary, or any security convertible into or exchange
for, or any option, warrant or right to purchase, shares of such a class or
series; (c) sell, convey, transfer, abandon, lease or otherwise dispose of or
encumber all or substantially all of its property or business or effect a change
in the nature of its business; (d) purchase, lease or otherwise acquire all or
substantially all of the properties or assets of any other person (whether
through the purchase of stock or assets); (e) merge or consolidate with or into
any other person; (f) voluntarily dissolve, liquidate, or wind up or carry out
any partial liquidation or dissolution or transaction in the nature of a partial
liquidation or dissolution; (g) increase the authorized number of shares of
common stock of any class or preferred stock of the Company; (h) issue any
shares of Common Stock or any class or series of capital stock, options,
warrants, bonds, debentures, notes or other obligations or securities
convertible into or exchangeable for, or having optional rights to purchase,
Common Stock (except such issuances of capital stock or options, warrants or
rights that do not constitute Additional Stock under the Certificates of
Designation) or (i) incur any indebtedness in excess of the available
indebtedness under the existing credit facility of the Company; provided,
--------
however, that the approval rights of the Investors under this Section 4.13 shall
- -------
terminate on the first date that (i) (A) the Investors and their affiliates
together beneficially own less than 15% of the Total
-26-
Outstanding Common Shares and (B) the Investors together are not the largest
single stockholder of the Company or (ii) the Investors and their affiliates
together beneficially own less than 10% of the Total Outstanding Common Shares.
4.14 No Integration. The Company shall not make any offers or sales of any
- ---- --------------
security (other than the securities to be issued pursuant to the Investment
Transactions) prior to the Second Closing under circumstances that would require
registration of the securities being offered or sold hereunder under the
Securities Act or cause the offering of securities being offered or sold
hereunder 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.
ARTICLE V
---------
CONDITIONS TO CONSUMMATION OF THE INVESTMENT TRANSACTION
--------------------------------------------------------
5.1 Conditions to the Investors' Obligations for the Initial Closing. The
- --- ----------------------------------------------------------------
obligations of the Investors to effect the purchase of shares of Series A
Preferred Stock contemplated by Section 1.1(a) of this Agreement are subject to
the satisfaction or written waiver of the following conditions:
(a) the representations and warranties of the Company contained in this
agreement shall be true and correct in all material respects, on and as of
the Initial Closing Date (irrespective of any notice delivered after the
date hereof), and the Company shall have performed in all material respects
all of its obligations under this Agreement required to be performed prior
to the Initial Closing Date;
(b) there shall not have occurred after the date hereof any Material Adverse
Effect;
(c) the Investors shall have received a certificate of the President of the
Company, on behalf of the Company, certifying as to the fulfillment of the
conditions set forth in clauses (a) and (b) above;
(d) no statute, rule, regulation, judgment, order or injunction shall be
enacted, entered, promulgated or enforced (i) challenging the transactions
contemplated hereby, seeking to restrain or prohibit the Investment
Transactions or any other transactions contemplated hereby or seeking any
damages material in relation to the Company or the Investors, (ii) seeking
to impose limitations on the ability of the Investors to acquire or hold,
or exercise full rights of ownership of any shares of Series A Preferred
Stock, including the right to vote such shares (or Conversion Shares) or
(iii) which otherwise could reasonably be expected to have a Material
Adverse Effect;
-27-
(e) the Investors shall have been provided with evidence satisfactory to the
Investors in their discretion that the Board of Directors of the Company
has approved the transactions contemplated by this Agreement for purposes
of Section 203 of the DGCL;
(f) the Investors shall have received a certificate, dated the Closing Date,
duly executed by the Secretary of the Company certifying as to (i) the
attached copy of resolutions of the Board of Directors of the Company
authorizing and approving the execution, delivery and performance of this
Agreement and the consummation of the transactions contemplated hereby and
stating that such resolutions have not been modified, amended, revoked or
rescinded and (ii) the incumbency, authority and specimen signature of each
officer of the Company executing this Agreement and any other document or
instrument contemplated hereby;
(g) the Investors shall have received a certificate of the Company's
organization, valid existence and good standing as a domestic corporation
in the State of Delaware as of a date not more than five days prior to the
Initial Closing Date;
(h) the Investors shall have received an opinion of counsel to the Company,
dated the Initial Closing Date, in the form attached hereto as Exhibit D;
---------
(i) the Company shall have received (and furnished to the Investors evidence
thereof reasonably satisfactory to the Investors) any necessary or required
approvals or consents from all Governmental Entities and other third
parties (including any lender to the Company) necessary or required to
complete the transactions contemplated hereby, and such approvals and
consents shall not have been withdrawn or expired as of the Initial Closing
Date (and the Series A Certificate of Designation shall have been duly
filed and accepted for filing with the Secretary of State of Delaware);
(j) the Company shall have entered into a management agreement with the
Investors reasonably acceptable to the Investors and the Company providing
for an annual management fee to the Investors of $50,000;
(k) the Investors shall be satisfied in their sole discretion with the results
of their due diligence investigation of the Company and its subsidiaries
and their management and affairs; and
(l) the Board of Directors or analogous body of Mellon Ventures shall have
approved the transactions contemplated hereby.
5.2 Conditions to the Company's Obligations for the Initial Closing. The
- --- ---------------------------------------------------------------
obligations of the Company to effect the sale of shares of Series A Preferred
Stock contemplated by Section 1.1(a) of this Agreement are subject to the
satisfaction or written waiver of the following conditions:
-28-
(a) the representations and warranties of the Investors contained in this
Agreement shall be true and correct in all material respects, on and as of
the Initial Closing Date (irrespective of any notice delivered after the
date hereof), and the Investors shall have performed in all material
respects all of their obligations under this Agreement required to be
performed prior to the Initial Closing Date; and
(b) the Company shall have received a certificate of an officer of or the
general partner of each of the Investors certifying as to the fulfillment
of the condition set forth in clause (a) above.
5.3 Conditions to the Investors' Obligations for the Second Closing. The
- --- ---------------------------------------------------------------
obligations of the Investors to effect the purchase of shares of Series A or
Series B Preferred Stock contemplated by Section 1.1(b) of this Agreement are
subject to the satisfaction or written waiver of the following conditions:
(a) the representations and warranties of the Company contained in this
Agreement shall be true and correct in all material respects, on and as of
the Second Closing Date (irrespective of any notice delivered after the
date hereof), and the Company shall have performed in all material respects
all of its obligations under this Agreement required to be performed prior
to the Second Closing Date;
(b) there shall not have occurred after the date hereof any Material Adverse
Effect;
(c) the Investors shall have received a certificate of the President of the
Company, on behalf of the Company, certifying as to the fulfillment of the
conditions set forth in clauses (a) and (b) above;
(d) no statute, rule, regulation, judgment, order or injunction shall be
enacted, entered, promulgated or enforced (i) challenging the transactions
contemplated hereby, seeking to restrain or prohibit the Investment
Transactions or any other transactions contemplated hereby or seeking any
damages material in relation to the Company or the Investors, (ii) seeking
to impose limitations on the ability of the Investors to acquire or hold,
or exercise full rights of ownership of any shares of Series A or Series B
Preferred Stock, including the right to vote such shares (or Conversion
Shares) or (iii) which otherwise could reasonably be expected to have a
Material Adverse Effect;
(e) the Investors shall have been provided with evidence satisfactory to the
Investors in their discretion that the Board of Directors of the Company
has approved the transactions contemplated by this Agreement for purposes
of Section 203 of the DGCL;
(f) the Investors shall have received a certificate, dated the Closing Date,
duly executed by the Secretary of the Company certifying as to (i) the
attached copy of resolutions of the Board of Directors of the Company
authorizing and approving the execution,
-29-
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby and stating that such resolutions have not
been modified, amended, revoked or rescinded and (ii) the incumbency,
authority and specimen signature of each officer of the Company executing
this Agreement and any other document or instrument contemplated hereby;
(g) the Investors shall have received a certificate of the Company's
organization, valid existence and good standing as a domestic corporation
in the State of Delaware as of a date not more than five days prior to the
Second Closing Date;
(h) the Investors shall have received an opinion of counsel to the Company,
dated the Second Closing Date, in the form attached hereto as Exhibit D;
---------
(i) the Company shall have received (and furnished to the Investors evidence
thereof reasonably satisfactory to the Investors) any necessary or required
approvals or consents from all Governmental Entities and other third
parties (including any lender to the Company) necessary or required to
complete the transactions contemplated hereby, and such approvals and
consents shall not have been withdrawn or expired as of the Second Closing
Date;
(j) the Initial Closing shall have occurred;
(k) this Agreement and the transactions contemplated hereby, the Certificate of
Designation and the Charter Amendment shall have been adopted and approved
by the requisite vote of stockholders of the Company in accordance with the
DGCL and the Company's Certificate of Incorporation, as amended, and
Bylaws, and the Charter Amendment and the Series B Certificate of
Designation shall have been duly filed and accepted for filing with the
Secretary of State of Delaware;
(l) the management agreement referred to in Section 5.1(j) shall have been
amended effective as of the Second Closing to increase the annual
management fee therein to $100,000; and
(m) the Investors shall be satisfied in their sole discretion with the results
of their due diligence investigation of the Company and its subsidiaries
and their management and affairs.
5.4 Conditions to the Company's Obligations for the Second Closing. The
- --- --------------------------------------------------------------
obligations of the Company to effect the sale of shares of Series A or Series B
Preferred Stock contemplated by Section 1.1(b) of this Agreement are subject to
the satisfaction or written waiver of the following conditions:
(a) the representations and warranties of the Investors contained in this
Agreement shall be true and correct in all material respects, on and as of
the Second Closing Date (irrespective of any notice delivered after the
date hereof), and the Investors shall have performed
-30-
in all material respects all of their obligations under this Agreement
required to be performed prior to the Initial Closing Date;
(b) the Company shall have received a certificate of an officer of or the
general partner of each of the Investors certifying as to the fulfillment
of the condition set forth in clause (a) above; and
(c) this Agreement and the transactions contemplated hereby, the Certificate of
Designation and the Charter Amendment shall have been adopted and approved
by the requisite vote of stockholders of the Company in accordance with the
DGCL and the Company's Certificate of Incorporation, as amended, and
Bylaws.
ARTICLE VI
----------
TERMINATION; AMENDMENT; INDEMNITY
---------------------------------
6.1 Termination. This Agreement may be terminated and the transactions
- --- -----------
contemplated hereby may be abandoned at any time prior to the Initial Closing
Date or, notwithstanding approval thereof by the stockholders of the Company,
prior to the Second Closing Date:
(a) by mutual written consent of the Company and the Investors;
(b) by either the Company or the Investors:
(i) if the Initial Closing does not occur by the date that is 60 days after the
date hereof; provided, however, that the right to terminate this Agreement
-------- -------
pursuant to this Section 6.1(b)(i) shall not be available to any party
whose failure to fulfill any of its obligations under this Agreement
results in the failure of the Initial Closing to occur prior to such date;
(ii) if any court of competent jurisdiction or any other governmental body shall
have issued an order, decree or ruling or taken any other action
permanently enjoining, restraining or otherwise prohibiting the Investment
Transactions and the other transactions contemplated hereby and such order,
decree, ruling or other action shall have become final and nonappealable;
or
(c) by the Investors (i) if the Company fails to perform in any material
respect any of its obligations under this Agreement or breaches in any
material respect any of its representations and warranties hereunder; or
(ii) after receipt of a Notice of Superior Proposal; or (iii) at any time
if the Investors are not satisfied with their due diligence investigation
of the Company in the sole and absolute discretion of the Investors
(regardless of whether such decision is based on any event or circumstance
either Investor knows or could be deemed to know as of the date hereof (it
being further understood that the Investors may invoke the termination
right
-31-
under this clause (iii) without stating any reason therefor to the
Company)); or (iv) if shares of Common Stock are no longer listed or
authorized for quotation on Nasdaq; or (v) in the circumstances referenced
to in Section 4.11 (it being understood that if any of the foregoing
termination rights arise after the Initial Closing, the Investors may
alternatively elect to terminate their obligations to proceed with the
transactions contemplated by Section 1.1(b) and the Second Closing).
(d) by the Company as provided in Section 4.2 in respect of a superior proposal
(provided the Company shall have paid the Investors the Termination Fee and
the Expense Fee).
6.2 Effect of Termination. In the event of the termination and abandonment of
- --- ----------------------
this Agreement pursuant to Section 6.1, this Agreement, except for the
provisions of Section 4.3(b), 6.3 and Section 7.10, shall forthwith become void
and have no effect, without any liability on the part of any party or its
directors, officers, partners or stockholders; provided, however, that in the
event this Agreement is-------- -------terminated following the Initial Closing
but prior to the Second Closing, (a) such termination will not terminate the
survival of any representations and warranties as set forth in Section 7.3
hereof, and (b) any covenants of the Company herein shall survive such
termination in perpetuity except insofar as such covenants specifically relate
to the transactions contemplated by Section 1.1(b) hereof. Nothing in this
Section 6.2 shall relieve any party to this Agreement of liability for breach of
this Agreement.
6.3 Termination Fee and Expense Fee.
- --- --------------------------------
(a) Without limiting Section 7.10, if (i) there shall be a material breach
by the Company of this Agreement or (ii) the Company shall have delivered (or
been obligated to deliver) to the Investors a Notice of Superior Proposal or
(iii) any third party acquires beneficial ownership of 20% or more of the
outstanding shares of Common Stock, then the Company shall promptly, but in no
event later than five business days after the first to occur of any such event
described in clauses (i) through (iii) (or earlier if required pursuant to
Section 6.1(e)) (the "Payment Date"), reimburse the Investors for all reasonable
------------
out-of-pocket expenses and fees payable by them or their affiliates (including,
without limitation, fees and expenses of all counsel, printers, banks, financial
advisors and other financial institutions, and their respective agents) (the
"Expense Fee") related to the transactions contemplated by this Agreement, such
-----------
amount to be paid on the Payment Date in cash in immediately available funds by
wire transfer to an account designated by the Investors and, further, if the
event set forth in clause (ii) above shall occur prior to the Initial Closing,
the Company shall also pay the Investors a fee of $375,000 (the "Termination
-----------
Fee") on the Payment Date in cash in immediately available funds by wire
- ---
transfer to an account designated by the Investors.
(b) Without limiting Section 7.10, if this Agreement is terminated by the
Company for any reason other than a material breach by the Investors of
their obligations hereunder, prior to the date of such termination the
Company shall pay to the Investors the
-32-
Expense Fee, such amount to be paid in cash in immediately available funds
by wire transfer to an account designated by the Investors (provided that
the Expense Fee shall not be payable under this Section 6.3(b) if it has
been paid pursuant to Section 6.3(a)).
(c) Nothing in this Section 6.3 or Section 7.10 is intended to require the
Company to pay to the Investors as reimbursement for their expenses an
amount which exceeds the amount of such expenses.
6.4 Amendment. To the extent permitted by applicable law, this Agreement may
- --- ---------
be amended at any time before or after approval of this Agreement by the
stockholders of the Company. This Agreement may not be amended except by an
instrument in writing signed on behalf of all the parties.
6.5 Company's Obligation to Indemnify'. The Company shall indemnify, defend
- --- ---------------------------------
and hold harmless each of the Investors and their affiliates, and their
respective directors, officers, employees and representatives (each, an
"Investor Indemnified Party"), from and against any and all claims, losses,
- ---------------------------
settlements, fines, liabilities, damages, deficiencies, costs or expenses
(including interest, penalties and attorneys' fees and disbursements)
(collectively, "Losses") suffered, sustained, incurred or required to be paid by
------
any such Investor Indemnified Party due to, based upon, arising out of or
otherwise in respect of (a) any inaccuracy in, or any breach of, any
representation or warranty of any of the Company contained in this Agreement (or
any disclosures schedule or supplemental disclosures schedule hereto or any
certificate or other document delivered on behalf of the Company hereunder), or
(b) any breach of any covenant or agreement of the Company contained in this
Agreement.
6.6 Investor's Obligation to Indemnify'. Each Investor shall severally
- --- ----------------------------------
indemnify, defend and hold harmless the Company and its affiliates, and their
respective directors, officers, employees and representatives (each, a "Company
-------
Indemnified Party"), from and against any and all Losses suffered, sustained,
- -----------------
incurred or required to be paid by any such Company Indemnified Party due to,
based upon, arising out of or otherwise in respect of (a) any inaccuracy in, or
any breach of, any representation or warranty of such Investor contained in this
Agreement (or any disclosures schedule or supplemental disclosures schedule
hereto or any certificate or other document delivered on behalf of the Investors
hereunder), or (b) any breach of any covenant or agreement of such Investor
contained in this Agreement.
6.7 Indemnity Procedures for Third Party Claims. The obligations and
- --- -------------------------------------------
liabilities of any party hereto against which indemnification is sought
hereunder with respect to claims resulting from the assertion of liability by
third parties shall be subject to this Section 6.7.
(a) Promptly (but in no event later than 30 days) after receipt by any
indemnified party hereunder (an "Indemnified Party") of notice of any
demand or claim or the commencement (or threatened commencement) of any
action, proceeding or investigation (an "Asserted Liability") that could
------------------
reasonably be expected to result in a Loss, the Indemnified Party shall
give written notice thereof (a "Claims Notice") to any other party
-------------
obligated to provide indemnification pursuant to Section 5.1 or 5.2 (each,
an "Indemnifying Party"). Each Claims
-------------------
-33-
Notice shall describe the Asserted Liability in reasonable detail, and
shall indicate the amount (estimated, if necessary) of the Loss that has
been or may be suffered by the Indemnified Party. The rights of any
Indemnified Party to be indemnified hereunder shall not be adversely
affected by its failure to give, or its failure to timely give, a Claims
Notice with respect thereto unless, and if so, only to the extent that, the
Indemnifying Party is prejudiced thereby.
(b) The Indemnifying Party may elect to compromise or defend, at its own
expense and by its own counsel, any Asserted Liability if (i) the claim
involves (and continues to involve) solely monetary damages and the
Indemnifying Party's assumption of the defense or settlement of such claim
will not have a material adverse effect on the Indemnified Party's
business, (ii) the Indemnifying Party expressly agrees in writing to the
Indemnified Party that, as between the two, the Indemnifying Party is
solely obligated to satisfy and discharge the claim, and (iii) the
Indemnifying Party makes reasonably adequate provision to satisfy the
Indemnified Party of the Indemnifying Party's ability to satisfy and
discharge the claim (the foregoing collectively, the "Litigation
----------
Conditions"); provided, however, that if the parties in any action shall
-------- -------
include both an Indemnifying Party and an Indemnified Party, and the
Indemnified Party shall have reasonably concluded that counsel selected by
the Indemnifying Party has a conflict of interest because of the
availability of different or additional defenses to the Indemnified Party,
the Indemnified Party shall have the right to select separate counsel to
participate in the defense of such action on its behalf, at the expense of
the Indemnifying Party; and provided further, however, that the
-------- ------- -------
Indemnifying Party shall forfeit the right to control the defense or
settlement of any such claim if, at any time after assuming the defense or
settlement thereof, the Indemnifying Party no longer satisfies the
Litigation Conditions. Subject to the foregoing, if the Indemnifying Party
elects to compromise or defend such Asserted Liability, it shall within 30
days (or sooner, if the nature of the Asserted Liability so requires)
notify the Indemnified Party of its intent to do so, and the Indemnified
Party shall cooperate, at the expense of the Indemnifying Party, in the
compromise of, or defense against, such Asserted Liability. If the
Indemnifying Party elects not to compromise or defend the Asserted
Liability, fails to notify the Indemnified Party of its election as herein
provided, or fails to satisfy the Litigation Conditions, the Indemnified
Party may pay, compromise or defend such Asserted Liability. The
Indemnified Party and the Indemnifying Party may participate, at their own
expense, in the defense of any Asserted Liability as to which such party
does not control the defense or settlement. If the Indemnifying Party
chooses to defend any claim, the Indemnified Party shall, subject to
receipt of a reasonable confidentiality agreement, make available to the
Indemnifying Party any books, records or other documents within its
control, and the reasonable assistance of its employees, for which the
Indemnifying Party shall be obliged to reimburse the Indemnified Party the
reasonable out-of-pocket expenses of making them available. Neither party
will consent to any settlement of any claim without the consent of the
other party, which consent will not be unreasonably withheld (except that
no consent will be required if such settlement does not require any payment
or otherwise impose any obligation on the other party and the other party
is released from liability in respect of such claim).
6.8 Indemnity Procedures for Claims by the Parties. In the event that any
- --- ----------------------------------------------
party incurs or suffers any Losses with respect to which indemnification may be
sought by such
-34-
party pursuant to this Article VI (other than in respect of third party claims),
the Indemnified Party must assert the claim by a Claims Notice to the
Indemnifying Party. The Claims Notice must state the nature and basis of the
claim in reasonable detail based on the information available to the Indemnified
Party. Each Indemnifying Party to whom a Claims Notice is given shall respond to
any Indemnified Party that has given a Claims Notice (a "Claim Response")
--------------
within 30 days (the "Response Period") after the date that the Claims
---------------
Notice is received. Any Claim Response shall specify whether or not the
Indemnifying Party given the Claim Response disputes the claim described in the
Claims Notice (including as to whether the Indemnifying Party is required to
provide indemnification hereunder). If any Indemnifying Party elects not to
dispute a claim described in a Claims Notice, whether by failing to give a
timely Claim Response or otherwise, then the amount of such claim shall be
deemed to be an obligation of such Indemnifying Party. If the Indemnifying
Party disputes the claim, the parties will try in good faith for a period not to
exceed 60 days to settle the dispute by mediation administered by the American
Arbitration Association under its Commercial Mediation Rules. Thereafter, any
party hereto will be free to pursue litigation or any other remedies available
to such party in accordance with applicable law (it being understood, however,
that if the Indemnified Party does not prevail in any litigation to enforce its
claim for indemnification hereunder, such party shall reimburse the Indemnifying
Party for any attorneys' fees expended by the Indemnifying Party in defending
such claim).
6.9 Effect of Insurance. In computing an Indemnified Party's Losses hereunder,
- --- -------------------
full allowance shall be made for any proceeds actually recovered by such party
from such party's insurance policies.
ARTICLE VII
-----------
MISCELLANEOUS
-------------
7.1 Extension; Waiver. The parties hereto, may (a) extend the time for the
- --- -----------------
performance of any of the obligations or other acts of the other parties hereto,
(b) waive any inaccuracies in the representations and warranties contained
herein by any other applicable party or in any document, certificate or writing
delivered pursuant hereto by any other applicable party or (c) waive compliance
with any of the agreements or conditions contained herein. Any agreement on the
part of any party to any such extension or waiver shall be valid only if set
forth in an instrument in writing signed on behalf of such party.
7.2 Entire Agreement; Assignment. This Agreement (including the disclosure
- --- ----------------------------
schedules hereto) and the other documents and instruments contemplated hereby
and, to the extent contemplated in Section 4.3(b), the Confidentiality
Agreement, (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersedes all other prior agreements and
understandings, both written and oral, among the parties or any of them with
respect to the subject matter hereof and (b) shall not be assigned by operation
of law or otherwise, provided that the Investors may assign any of their rights
and obligations to any
-35-
affiliate of the Investors, but no such assignment shall relieve the Investors
of their obligations hereunder, and provided further that the Investors may
assign their rights and obligations to each other or to any third party investor
so long as Mellon Ventures remains obligated to purchase not less than 50.1% of
the total number of shares of Preferred Stock to be sold hereunder and such
assignment does not require Mellon Ventures and the Company to make any filing
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, in
connection with the transactions contemplated hereby. Either the Investors or
any affiliate of the Investors may purchase shares of Preferred Stock under this
Agreement.
7.3 Survival; Enforcement of the Agreement. (a) The representations and
- --- --------------------------------------
warranties in this Agreement shall survive the Initial Closing (or, if it
occurs, the Second Closing) for a period of 18 months following such Closing;
provided, however, that the representations and warranties in Sections 2.12 and
- -------- -------
2.13 shall survive until the expiration of the statute of limitations applicable
to such matters, Sections 2.1 and 2.3 and 3.1 shall survive indefinitely and
Section 2.15(b) - (d) shall survive for 24 months following such Closing.
(b) The parties hereto agree that irreparable damage would occur in the event
that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce
specifically the terms and provisions hereof in any Federal or state court
located in the Commonwealth of Pennsylvania (as to which the parties agree
to submit to jurisdiction for the purposes of such or any other action),
this being in addition to any other remedy to which they are entitled at
law or in equity.
7.4 Validity. The invalidity or unenforceability of any provision of this
- --- --------
Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, which shall remain in full force and effect.
7.5 Notices. All notices, requests, claims, demands and other communications
- --- -------
hereunder shall be in writing and shall be deemed to have been duly given when
delivered in person, by cable, telegram, facsimile transmission with
confirmation of receipt, or telex, or by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties as follows:
if to the Investors:
Mellon Ventures, L.P.
5 Radnor Corporate Center
100 Matson Ford Road
Suite 170
Radnor, PA 19087-4515
-36-
Attention: Mr. John P. Shoemaker
Fax: 610-688-3930
and to
Morse Partners Ltd.
Suite 205
200 Four Falls Corporate Center
West Conshohocken, PA 19428
Attention: Mr. Bruce Dalglish
Fax: 610-397-0885
with a required copy to:
Dechert Price & Rhoads
4000 Bell Atlantic Tower
1717 Arch Street
Philadelphia, PA 19103
Attention: David S. Denious, Esq.
Fax: 215-994-2222
if to the Company:
Canisco Resources, Inc.
300 Delaware Avenue
Suite 714
Wilmington, DE 19801
Attention: President
Fax: 302-777-5409
with a copy to:
Wolf, Block, Schorr and Solis-Cohen LLP
at its then current principal office in
Philadelphia, PA
Attention: Carl W. Schneider, Esq.
Fax: 215-977-2334
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above
(provided that notice of any change of address shall be effective only upon
receipt thereof).
-37-
7.6 Governing Law. This Agreement shall be governed by and construed in
- --- -------------
accordance with the substantive laws of the State of Delaware regardless of the
laws that might otherwise govern under principles of conflicts of laws
applicable thereto.
7.7 Descriptive Headings. The descriptive headings herein are inserted for
- --- --------------------
convenience of reference only and are not intended to be part of or to affect
the meaning or interpretation of this Agreement.
7.8 Parties in Interest. This Agreement shall be binding upon and inure solely
- --- -------------------
to the benefit of each party hereto, and nothing in this Agreement, express or
implied, is intended to confer upon any other person any rights or remedies of
any nature whatsoever under or by reason of this Agreement (except as expressly
contemplated by Sections 6.5 and 6.6)
7.9 Counterparts. This Agreement may be executed in two or more counterparts,
- --- ------------
each of which shall be deemed to be an original, but all of which shall
constitute one and the same agreement.
7.10 Expenses. Notwithstanding anything to the contrary herein, the Company
- ---- --------
will bear the costs and expenses of the Investors incurred in connection
herewith, regardless of whether any Closing occurs.
7.11 Certain Definitions. For purposes of this Agreement, the following terms
- ---- -------------------
shall have the meanings ascribed to them below:
(a) "affiliate" of a person shall mean (i) a person that directly or
---------
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, the first-mentioned person, and (ii) an
"associate" shall have the meaning set forth in Rule 12b-2 promulgated
----------
under the Exchange Act as in effect on the date of this Agreement.
(b) "beneficial owner" (including the term "beneficially own" or correlative
----------------
terms) with respect to any securities means a person that shall be deemed
to be the beneficial owner of such securities (i) that such person or any
of its affiliates beneficially owns, directly or indirectly, (ii) that such
person or any of its affiliates has, directly or indirectly, (A) the right
to acquire (whether such right is exercisable immediately or only after the
passage of time), pursuant to any agreement, arrangement or understanding
or upon the exercise of consideration rights, exchange rights, warrants or
options, or otherwise, or (B) the right to vote pursuant to any agreement,
arrangement or understanding or (iii) that are beneficially owned, directly
or indirectly, by any other person with which such person or any of its
affiliates has any agreement, arrangement or understanding for the purpose
of acquiring, holding, voting or disposing of any of such securities.
(c) "control" (including the terms "controlling", "controlled by" and "under
-------
common control with or correlative terms) shall mean the possession, direct
or indirect, of
-38-
the power to direct or cause the direction of the management and policies
of a person, whether through ownership of voting securities, by contract,
or otherwise.
(d) "fully diluted" in reference to the shares of Common Stock means all
-------------
outstanding securities entitled generally to vote in the election of
directors of the Company on a fully diluted basis, after giving effect to
the exercise or conversion of all options, rights and securities
exercisable or convertible into such voting securities.
(e) "Material Adverse Effect" shall mean (i) any adverse change in the
-----------------------
condition (financial or otherwise), assets, liabilities, business, or
results of operations of the Company and its subsidiaries, which change is
material, individually or in the aggregate, to the Company and its
subsidiaries taken as a whole, or (ii) any event, matter, condition or
effect which impairs the ability of the Company to perform on a timely
basis its obligations under this Agreement or the consummation of the
transactions contemplated by this Agreement.
(f) "person" shall mean a natural person, company, corporation, partnership,
------
association, limited liability company, trust or any unincorporated
organization.
(g) "subsidiary" shall mean, when used with reference to a person means a
----------
corporation the majority of the outstanding voting securities of which are
owned directly or indirectly by such person.
-39-
IN WITNESS WHEREOF, each of the parties has caused this Agreement to
be executed on its behalf by its officers thereunto duly authorized, on the day
and year first above written.
CANISCO RESOURCES, INC.
By ___________________________
MELLON VENTURES, L.P.
By MVMA, L.P., its general partner
By MVMA, Inc., its general partner
By ___________________________
MORSE PARTNERS LIMITED
By ___________________________
-40-
Schedule I
----------
Investor Shares of Preferred Stock
- -------- -------------------------
Mellon Ventures, L.P. 11,296 Shares of Series A Preferred Stock
Morse Partners Limited 2,824 Shares of Series A Preferred Stock
Total 14,120 Shares of Preferred Stock
Schedule II
-----------
Investor Shares of Preferred Stock
- -------- -------------------------
Mellon Ventures, L.P. 48,704 Shares of Series B Preferred Stock
Morse Partners Limited 12,176 Shares of Series A Preferred Stock or Series B
Preferred Stock
Total 60,880 Shares of Preferred Stock
Exhibit A
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CANISCO RESOURCES, INC./1/
Canisco Resources, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify:
FIRST: That the Board of Directors of the Corporation duly adopted a
resolution setting forth a proposed amendment to the Certificate of
Incorporation of the Corporation, declaring said amendment to be advisable
and calling for consideration of said proposed amendment by the
stockholders of the Corporation. The resolution setting forth the
amendment is as follows:
RESOLVED, that it is hereby proposed that Article THIRD of the
Certificate of Incorporation of the Corporation be amended so that the
same as amended would read as follows:
3. Authorized Capital. The aggregate number of shares of
------------------
stock which the Corporation shall have authority to issue is
45,000,000 shares, divided into three (3) classes consisting of
5,000,000 shares of Preferred Stock, par value $1.00 per share
("Preferred Stock"), 20,000,000 shares of Common Stock, par value
$.0025 per share ("Class A Common Stock") and 20,000,000 shares
of Class B Common Stock, par value $.0025 per share ("Class B
Common Stock"). Class A Common Stock and Class B Common Stock
are hereinafter sometimes referred to as "Common Stock."
- -----------------
/1/ In addition, the Investors may seek at the Stockholders Meeting an
amendment to the terms of Series A Preferred Stock to provide that it is
convertible into Series B Preferred Stock.
-1-
The following is a statement of the designations,
preferences, qualifications, limitations, restrictions and the
special or relative rights granted to or imposed upon the shares
of each such class.
A. PREFERRED STOCK
The Preferred Stock may be issued in such classes and series
as shall be determined by the Board of Directors of the
Corporation and shall have such voting powers, full or limited,
or no voting powers, and such designations, preferences and
relative, participating, optional and other special rights, and
qualifications, limitations and restrictions thereof, as shall be
stated and expressed in the resolution or resolutions of the
Board of Directors from time to time providing for the issuance
of such stock. Any of the voting powers, designations,
preferences, rights and qualifications, limitations or
restrictions of any such class or series of preferred stock may
be made dependent upon facts ascertainable outside the
Certificate of Incorporation of the Corporation or any amendment
thereto, or outside the resolution or resolutions providing for
the issuance of such stock adopted by the Board of Directors,
provided that the manner in which such facts shall operate upon
the voting powers, designations, preferences, rights and
qualifications, limitations or restrictions of such class or
series of stock is clearly and expressly set forth in the
resolution or resolutions providing for the issue of such stock
adopted by the Board of Directors.
B. CLASS A AND CLASS B COMMON STOCK
Except as otherwise provided herein, all shares of Class A
Common Stock and Class B Common Stock shall be identical and
shall entitle the holders thereof to the same rights and
privileges.
1. Dividends. Holders of Common Stock shall be entitled to
---------
receive ratably such dividends as may be declared by the Board of
Directors, provided that if dividends are declared which are
--------
payable in shares of Class A Common Stock or Class B Common
Stock, dividends shall be declared which are payable at the same
rate on each class of Common Stock and the dividends payable in
shares of Class A Common Stock shall be payable to holders of
Class A Common Stock and the dividends payable in shares of Class
B Common Stock shall be payable to holders of Class B Common
Stock.
-2-
2. Conversion. Each record holder of Class A Common Stock
----------
shall be entitled to convert any or all of such holder's Class A
Common Stock into the same number of shares of Class B Common
Stock and each record holder of Class B Common Stock shall be
entitled to convert any or all of the shares of such holder's
Class B Common Stock into the same number of shares of Class A
Common Stock; provided, however, that at the time of conversion
-------- -------
of shares of Class B Common Stock into shares of Class A Common
Stock such holder would be permitted, pursuant to applicable law,
to hold the total number of shares of Class A Common Stock which
he would hold after giving effect to such conversion. The
delivery to the Corporation of a certificate from a holder of
shares of Class B Common Stock, which certificate is to the
effect that in the good faith judgment of such holder such holder
is permitted, pursuant to applicable law, to hold the total
number of shares of Class A Common Stock which such holder would
hold after giving effect to such conversion, shall be conclusive
and binding on the Corporation.
Each conversion of shares of one class of Common Stock
into shares of another class of Common Stock shall be effected by
the surrender of the certificate or certificates representing the
shares to be converted at the principal office of the Corporation
at any time during normal business hours, together with a written
notice by the holder of such shares stating the number of shares
that any such holder desires to convert into the other class of
Common Stock. Such conversion shall be deemed to have been
effected as of the close of business on the date on which such
certificate or certificates have been surrendered and such notice
has been received by the Corporation, and at such time the rights
of any such holder with respect to the converted class of Common
Stock shall cease and the person or persons in whose name or
names the certificate or certificates for shares of the other
class of Common Stock are to be issued upon such conversion shall
be deemed to have become the holder or holders of record of the
shares of such other class of Common Stock represented thereby.
Promptly after such surrender and the receipt by the
Corporation of the written notice from the holder hereinbefore
referred to, the Corporation shall issue and deliver in
accordance with the surrendering holder's instructions the
certificate or certificates for the other class of Common Stock
issuable upon such conversion and a certificate representing any
shares of Common
-3-
Stock which were represented by the certificate or certificates
delivered to the Corporation in connection with such conversion
but which were not converted. The issuance of certificates for
the other class of Common Stock upon conversion shall be made
without charge to the holder or holders of such shares for any
issuance tax (except stock transfer taxes) in respect thereof or
other cost incurred by the Corporation in connection with such
conversion.
3. Transfers. The Corporation shall not close its books
---------
against the transfer of any share of Common Stock, or of any
share of Common Stock issued or issuable upon conversion of
shares of the other class of Common Stock, in any manner that
would interfere with the timely conversion of such shares of
Common Stock.
4. Subdivision and Combinations of Shares. If the
--------------------------------------
Corporation in any manner subdivides or combines the outstanding
shares of any class of Common Stock, the outstanding shares of
the other class of Common Stock shall be proportionately
subdivided or combined.
5. Reservation of Shares for Conversion. So long as any
------------------------------------
shares of any class of Common Stock are outstanding, the
Corporation shall at all times reserve and keep available out of
its authorized but unissued shares of Class A Common Stock and
Class B Common Stock (or any shares of Class A Common Stock or
Class B Common Stock which are held as treasury shares), the
number of shares sufficient for issuance upon conversion.
6. Distribution of Assets. In the event of the voluntary or
----------------------
involuntary liquidation, dissolution or winding up of the
Corporation, holders of Common Stock shall be entitled to receive
all of the remaining assets of the Corporation available for
distribution to its stockholders after all amounts to which the
holders of Preferred Stock are entitled have been paid or set
aside in cash for payment.
7. Voting Rights. The holders of Class A Common Stock shall
-------------
have the general right to vote for all purposes, including the
election of directors, as provided by law, subject in all
respects to the other provisions of this Certificate of
Incorporation (including in respect of any voting rights of
Preferred Stock of the Corporation). Each holder of Class A
Common Stock shall be entitled to one vote
-4-
for each share thereof held. Except as otherwise required by
law, the holders of Class B Common Stock shall have no voting
rights.
8. Merger, etc. In connection with any merger,
-----------
consolidation, or recapitalization in which holders of Class A
Common Stock generally receive, or are given the opportunity to
receive, consideration for their shares (a) all holders of Class
B Common Stock shall be given the opportunity to receive the same
form of consideration for their shares as is received by holders
of Class A Common Stock and (b) holders of Class B Common Stock
shall be entitled to receive the same amount of consideration per
share as received by holders of Class A Common Stock.
SECOND: That thereafter, pursuant to the resolution of the board of
directors, the proposed amendment was approved by the stockholders of the
Corporation at a meeting on ________, 1998.
THIRD: That said amendment was duly adopted in accordance with the
provisions of Section 242 of the General Corporation Law of the State of
Delaware.
-5-
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
executed by Ralph A. Trallo, its President, this __th day of _____, 199_.
CANISCO RESOURCES, INC.
By:______________________________
Ralph A. Trallo, President
-6-
EXHIBIT B
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF 12% SERIES A CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
CANISCO RESOURCES, INC.
Canisco Resources, Inc., a Delaware corporation (the "Corporation"),
pursuant to the provisions of Section 151 of the General Corporation Law of the
State of Delaware, does hereby make this Certificate of Designation under the
corporate seal of the Corporation and does hereby state and certify that
pursuant to the authority vested in the Board of Directors of the Corporation by
the Certificate of Incorporation, the Board of Directors has duly adopted the
following resolutions:
RESOLVED, that pursuant to Article Third of the Certificate of
Incorporation, as amended (which authorizes 5,000,000 shares of Preferred Stock,
par value $1.00 per share, none of which is presently issued and outstanding),
the Board of Directors hereby fixes the designations and preferences and
relative participating, optional and other special rights and qualifications,
limitations and restrictions of a series of Preferred Stock consisting of 75,000
shares to be designated as 12% Series A Cumulative Convertible Preferred Stock.
12% Series A Cumulative Convertible Preferred Stock
- ---------------------------------------------------
RESOLVED, that the holders of 12% Series A Cumulative Convertible
Preferred Stock, except as otherwise provided by law, shall have and possess the
following rights and preferences.
A. 12% Series A Cumulative Convertible Preferred Stock.
---------------------------------------------------
1. Designation, Number of Shares. The first series of Preferred Stock shall be
-- -----------------------------
designated as 12% Series A Cumulative Convertible Preferred Stock ("Series A
--------
Preferred Stock"), and the number of shares which shall constitute such series
- ---------------
shall be 75,000; provided, however, that such shares shall be issued only in
-----------------
connection with the transactions contemplated by the Securities Purchase
Agreement, dated as of October 15, 1998 (the "Securities Purchase Agreement"),
-----------------------------
among the Corporation and the Investors named therein, including upon conversion
of any other series of preferred stock contemplated thereby. The par value of
Series A Preferred Stock shall be $1.00 per share.
2. Rank. With respect to dividend rights and rights on liquidation, winding up
-- ----
and dissolution of the Corporation, Series A Preferred Stock shall rank (a)
senior to (i) the Common Stock, par value $.0025 per share ("Common Stock"), of
------------
the Corporation and (ii) each other class of capital stock or class or series of
preferred stock issued by the Corporation after the date hereof the terms of
which specifically provide that such class or series shall rank junior to Series
A Preferred Stock as to dividend distributions or distributions upon
liquidation, winding up and dissolution of the Corporation (each of the
securities in clauses (i) and (ii) collectively referred to as "Series A Junior
---------------
Securities"), (b) on a parity with (i) 12% Series B Cumulative Convertible
- ----------
Preferred Stock, par value $1.00 per share ("Series B Preferred Stock"), of the
Company and (ii) each other class of capital stock or class or series of
preferred stock issued by the Corporation after the date hereof the terms of
which do not specifically provide that they rank junior to Series A Preferred
Stock or senior to Series A Preferred Stock as to dividend distributions or
distributions upon liquidation, winding up and dissolution of the Corporation
(each of the securities in clauses (i) and (ii) collectively referred to as
"Series A Parity Securities"), and (c) junior to each other class of capital
- ---------------------------
stock or class or series of preferred stock issued by the Corporation after the
date hereof the terms of which specifically provide that such class or series
shall rank senior to Series A Preferred Stock as to dividend distributions or
distributions upon liquidation, winding up and dissolution of the Corporation
("Series A Senior Securities").
- ----------------------------
3. Dividend Provisions.
- -- -------------------
(a) Each holder of Series A Preferred Stock shall be entitled to receive, when,
as and if declared by the Common Stock Directors (as defined in paragraph
A(7) hereof), out of funds legally available therefor, cash dividends on
each share of Series A Preferred Stock at a rate equal to $12.00 per share
per annum. All dividends shall be cumulative, whether or not earned or
---------
declared, and shall accrue on a daily basis from the date of issuance of
Series A Preferred Stock, and shall be payable annually in arrears on each
Dividend Payment Date (as defined in paragraph B), commencing on the first
Dividend Payment Date after the date of issuance of such Series A Preferred
Stock. Each dividend on Series A Preferred Stock shall be payable to the
holders of record of Series A Preferred Stock as they appear on the stock
register of the Corporation on such record date as may be fixed by the
Board of Directors, which record date shall not be less than ten nor more
than 60 days prior to the applicable Dividend Payment Date. Dividends
shall cease to accrue in respect of any shares of Series A Preferred Stock
on the date such shares are converted to shares of Common Stock in
accordance with paragraph A(5) hereof. Notwithstanding anything to the
contrary set forth above, unless and until such dividends are declared by
the Common Stock Directors, there shall be no obligation to pay such
dividends in cash; provided, however, that such dividends shall continue to
-------- -------
cumulate until the time of conversion to Common Stock as provided herein if
not earlier declared and paid. Accrued dividends on the Series A Preferred
Stock if not paid on the first or any subsequent Dividend Payment Date
following accrual shall thereafter accrue additional dividends ("Additional
----------
Dividends") in respect thereof compounded annually, at the rate of 12% per
---------
annum.
(b) All dividends paid with respect to shares of Series A Preferred Stock
pursuant to paragraph A(3)(a) shall be paid pro rata to the holders of
--------
Series A Preferred Stock entitled thereto.
(c) Dividends on account of arrears for any past Dividend Period may be
declared and paid at any time, without reference to any regular Dividend
Payment Date, to the holders of Series A Preferred Stock of record on any
date as may be fixed by the Board of Directors, which date is not more than
30 days prior to the payment of such dividends.
(d) No full dividends shall be declared by the Board of Directors or paid or
funds set apart for the payment of dividends or other distributions on any
Series A Parity Securities for any period, and no Series A Parity
Securities may be repurchased,
-2-
redeemed or otherwise retired, nor may funds be set apart for such payment,
unless (i) full Accumulated Dividends have been paid or set apart for such
payment on the Series A Preferred Stock and Series A Parity Securities for
all Dividend Periods terminating on or prior to the date of payment of such
full dividends or distributions on, or such repurchase or redemption of,
such Series A Parity Securities (the "Series A Parity Payment Date") and
----------------------------
(ii) an amount equal to a prorated dividend on the Series A Preferred Stock
and Series A Parity Securities at the customary dividend rates for such
securities for the period from the Dividend Payment Date immediately prior
to the Series A Parity Payment Date to the Series A Parity Payment Date
have been paid or set apart for payment; provided, however, that the
-------- -------
restrictions set forth in this sentence shall not apply to the purchase or
other acquisition of Series A Parity Securities (A) pursuant to any
employee or director incentive or benefit plan or arrangement (including
any employment, severance or consulting agreement) of the Corporation or
any subsidiary of the Corporation heretofore or hereafter adopted, (B)
solely in exchange for or upon conversion into other Series A Parity
Securities or Series A Junior Securities or (C) pursuant to a redemption at
the stated redemption price of any rights granted to holders of Common
Stock pursuant to a stockholder rights plan. In the event that such
dividends are not paid in full or set apart for payment with respect to all
outstanding shares of Series A Preferred Stock and of any Series A Parity
Securities and funds available for payment of dividends shall be
insufficient to permit payment in full to the holders of all such stock of
the full preferential amounts to which they are then entitled, then the
entire amount available for payment of dividends shall be distributed
ratably among all such holders of Series A Preferred Stock and of any
Series A Parity Securities in proportion to the full amount to which they
would otherwise be respectively entitled.
(e) The holders of Series A Preferred Stock shall be entitled to receive the
dividends provided for in paragraph A(3)(a) hereof in preference to and in
priority over any dividends upon any of the Series A Junior Securities.
Such dividends on the Series A Preferred Stock shall be cumulative, whether
or not earned or declared, so that if at any time full Accumulated
Dividends on all shares of series A Preferred Stock then outstanding have
not been paid for all Dividend Periods then elapsed and a prorated dividend
on the Series A Preferred Stock at the rate aforesaid from the Dividend
Payment Date immediately preceding the Series A Junior Payment Date (as
defined below) to the Series A Junior Payment Date have not been paid or
set aside for payment, the amount of such unpaid dividends shall be paid
before any sum shall be set aside for or applied by the Corporation to the
purchase, redemption or other acquisition for value of any shares of Series
A Junior Securities (either pursuant to any applicable sinking fund
requirement or otherwise) or any dividend or other distribution shall be
paid or declared and set apart for payment on any Series A Junior
Securities (the date of any such actions to be referred to as the "Series A
--------
Junior Payment Date"); provided, however, that the restrictions set forth
------------------- -------- -------
in this sentence shall not apply to the purchase or other acquisition of
Series A Junior Securities (A) pursuant to any employee or director
incentive or benefit plan or arrangement (including any employment,
severance or consulting agreement) of the Corporation or any subsidiary of
the Corporation heretofore or hereafter adopted, (B) solely in exchange for
or upon conversion into Series A Junior Securities or (C) pursuant to a
redemption at the stated redemption price of any rights granted to holders
of Common Stock pursuant to a stockholder rights plan.
(f) Dividends payable on Series A Preferred Stock for any period less than one
year shall be computed on the basis of a 360-day year consisting of twelve
-3-
30-day months and the actual number of days elapsed in the period for which
such dividends are payable.
4. Liquidation Preference.
----------------------
(a) Upon any voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, the holders of all shares of Series A Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders an amount in
cash equal to $100.00 in cash (or, in a deemed liquidation pursuant to
paragraph (b) below, in securities valued as set forth below) per share,
plus an amount equal to full cumulative dividends (whether or not earned or
declared) accrued and unpaid thereon, including Additional Dividends, to
the date of final distribution and no more, before any distribution is made
on any Series A Junior Securities. If upon any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the application
of all amounts available for payments with respect to Series A Preferred
Stock and all other Series A Parity Securities would not result in payment
in full of Series A Preferred Stock and such other Series A Parity
Securities, the holders of Series A Preferred Stock and holders of Series A
Parity Securities shall share equally and ratably in any distribution of
assets of the Corporation in proportion to the full liquidation preference
to which each is entitled. After payment in full pursuant to this
paragraph A(4)(a), the holders of Series A Preferred Stock shall not be
entitled to any further participation in any distribution in the event of
liquidation, dissolution or winding up of the affairs of the Corporation.
(b) A consolidation or merger of the Corporation with or into any other
corporation or corporations, or a sale, conveyance or disposition of all or
substantially all of the assets of the Corporation or a transaction or
series of related transactions in which more than 50% of the voting power
of the Corporation is sold or otherwise disposed of (other than pursuant to
a sale or other disposal solely of Series A Preferred Stock (or common
stock of the Corporation issued on conversion of Series A Preferred Stock)
consummated by the holders of Series A Preferred Stock), shall each be
deemed to be a liquidation, dissolution or winding up within the meaning of
paragraph A(4)(a) above. Any securities to be delivered to the holders of
Series A Preferred Stock pursuant to such events shall be valued as
follows:
(i) securities not subject to restrictions on sale:
(A) If traded on a securities exchange or a national intedealer
quotation system, the value shall be deemed to be the average of the closing
prices of the securities on such exchange over the 10 day period ending three
days prior to the closing;
(B) If actively traded over-the-counter, the value shall be deemed to
be the average of the closing bid prices over the 10 day period ending three
days prior to the closing; and
(C) If there is no active public market, the value as determined in
good faith jointly by the Board of Directors and the holders of a majority of
the shares of Series A Preferred Stock.
-4-
(ii) securities subject to restrictions on transfer shall be valued at
an appropriate discount from the market value determined as set forth above to
reflect the fair market value thereof, as determined jointly by the Board of
Directors and the holders of a majority of the shares of Series A Preferred
Stock.
5. Conversion.
----------
(a) Right of Conversion.
- --- -------------------
(i) Each share of Series A Preferred Stock shall be convertible, at the option
of the holder thereof, at any time after the date of issuance of such
share, at the office of the Corporation or any transfer agent for the
Series A Preferred Stock, into such number of fully paid and nonassessable
shares of Common Stock as is determined by dividing the Original Series A
Issue Price (as defined in paragraph B) by the Conversion Price (as defined
below).
(A) During the period from the date the first share of Series A Preferred Stock
is issued to June 30, 1999 (or, if sooner, the date on which the Form 10-Q
for the Company for the fiscal year ended March 31, 1999 is filed with the
U.S. Securities and Exchange Commission or, if shares of Common Stock are
not then registered under Section 12(b) or 12(g) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the Company is not then
------------
subject to the reporting requirements of Section 15(d) of the Exchange Act,
the first date on which the Company's financial results for the fiscal year
ended March 31, 1999 are delivered to any senior lender of the Corporation)
(the earliest of such dates, the "Conversion Price Adjustment Date"), the
--------------------------------
"Conversion Price" shall be $2.50; or
-----------------
(B) At any time on or after the Conversion Price Adjustment Date, the
"Conversion Price" shall be (i) $2.25, if the Pro Forma EBITDA for the
-----------------
Company for the 12 month period ended March 31, 1999 is equal to or less
than $6,013,000, (ii) $2.50, if the Pro Forma EBITDA for the Company for
the 12 month period ended March 31, 1999 is more than $6,013,000 but equal
to or less than $7,349,000, or (iii) $2.75, if the Pro Forma EBITDA for the
Company for the 12 month period ended March 31, 1999 is more than
$7,349,000;
provided, however, that the Conversion Price for the Series A Preferred
-------- -------
Stock shall be subject to adjustment as set forth in paragraph A(5)(c)
hereof.
(b) Procedures for Voluntary Conversion. Before any holder of shares of Series
- --- -----------------------------------
A Preferred Stock shall be entitled to convert any of such shares into
shares of Common Stock, such holder shall surrender the certificate or
certificates therefor, duly endorsed, at the office of the Corporation or
of any transfer agent for the Series A Preferred Stock, and shall give
written notice by mail, postage prepaid, or hand delivery, to the
Corporation at its principal corporate office, of the election to convert
the same and shall state therein the name or names in which the certificate
or certificates for shares of Common Stock are to be issued. The
Corporation shall, as soon as practicable thereafter but in no event later
than three business days following receipt by the Corporation of the Series
A Preferred Stock certificates surrendered for conversion, issue and
deliver at such office to such holders of shares of Series A Preferred
Stock,
-5-
or to the nominee or nominees of such holders, a certificate or
certificates for the number of shares of Common Stock to which such holder
shall be entitled as aforesaid. Such conversion shall be deemed to have
been made immediately prior to the close of business on the date of such
surrender of the shares of Series A Preferred Stock to be converted, and
the person or persons entitled to receive the shares of Common Stock
issuable upon such conversion shall be treated for all purposes as the
record holder or holders of such shares of Common Stock as of such date. If
the conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act of 1933, as amended, the
conversion may, at the option of any holder tendering the Series A
Preferred Stock for conversion, be conditioned upon the closing with the
underwriter of the sale of securities pursuant to such offering, in which
event the person(s) entitled to receive Common Stock issuable upon such
conversion of the Series A Preferred Stock shall not be deemed to have
converted such Series A Preferred Stock until immediately prior to the
closing of such sale of securities.
(c) Adjustments of Conversion Price. The Conversion Price of the Series A
- --- -------------------------------
Preferred Stock shall be subject to adjustment from time to time as
follows:
(i) (A) Upon each issuance (or deemed issuance pursuant to the provisions
hereof) by the Corporation of any Additional Stock after the date of
issuance of Series A Preferred Stock, without consideration or for an
Effective Price per share less than the Conversion Price for the Series A
Preferred Stock in effect immediately prior to the issuance (or deemed
issuance) of such Additional Stock, then the Conversion Price for the
Series A Preferred Stock in effect immediately prior to each issuance (or
deemed issuance) shall be adjusted to a price determined by multiplying
such Conversion Price by a fraction, (1) the numerator of which shall be
the number of Common Stock Equivalents (as defined in Paragraph B)
outstanding immediately prior to such issuance plus the number of shares of
Common Stock which the aggregate consideration received (or deemed
received) by the Corporation for such issuance would purchase at such
Conversion Price; and (2) the denominator of which shall be the number of
Common Stock Equivalents outstanding immediately after such issuance.
(B) No adjustment of the Conversion Price for Series A Preferred Stock shall be
made in an amount less than one-half of one cent ($0.005) per share,
provided that any adjustments which are not required to be made by reason
of this sentence shall be carried forward and shall be taken into account
in any subsequent adjustment to the Conversion Price. No adjustment of the
Conversion Price for the Series A Preferred Stock pursuant to this
paragraph A(5)(c)(i) shall have the effect of increasing such Conversion
Price for the Series A Preferred Stock above the Conversion Price in effect
immediately prior to such adjustment.
(C) In the case of the issuance of securities of the Corporation for cash, the
amount of consideration received by the Corporation for such securities
shall be deemed to be the amount of cash paid therefor before deducting any
discounts, commissions or other expenses allowed, paid or incurred by the
Corporation for any underwriting or otherwise in connection with the
issuance and sale thereof.
(D) In the case of the issuance of securities of the Corporation for a
consideration in whole or in part other than cash, the consideration other
than
-6-
cash shall be deemed to have a dollar value equal to the fair market
value of such non-cash consideration, irrespective of any accounting
treatment thereof, as determined jointly by the Board of Directors and the
holders of a majority of the outstanding shares of Series A Preferred
Stock.
(E) In the case of the issuance (whether before, on or after the date of
issuance of Series A Preferred Stock) of Options or Convertible Securities
(as such terms are defined in paragraph (B)), the following provisions
shall apply for all purposes of this paragraph A(5)(c)(i) and paragraph
A(5)(c)(ii) hereof:
(1) With respect to Options to purchase any common stock of the Corporation,
the aggregate maximum number of shares of Common Stock deliverable upon
exercise of such Options shall be deemed to have been issued at the time
such Options were issued and for a consideration equal to the consideration
(determined in the manner provided in paragraph A(5)(c)(i)(C) and paragraph
A(5)(c)(i)(D) hereof), if any, received by the Corporation for such Options
plus the minimum exercise price provided in such Options for the common
stock issuable thereunder.
(2) With respect to Convertible Securities and Options to purchase Convertible
Securities, the aggregate maximum number of shares of common stock of the
Corporation deliverable upon the conversion or exchange of any such
Convertible Securities and the aggregate maximum number of shares of common
stock of the Corporation issuable upon the exercise of such Options to
purchase Convertible Securities and the subsequent conversion or exchange
of such Convertible Securities shall be deemed to have been issued at the
time such Convertible Securities or such Options were issued and for a
consideration equal to the consideration, if any, received by the
Corporation for any such Convertible Securities and Options, plus the
minimum additional consideration, if any, to be received by the Corporation
upon the conversion or exchange of such Convertible Securities or the
exercise of such Options and the conversion or exchange of the Convertible
Securities issuable upon exercise of such Options (the consideration in
each case to be determined in the manner provided in paragraph
A(5)(c)(i)(C) and A(5)(c)(i)(D) hereof).
(3) In the event of any change in the number of shares of common stock of the
Corporation deliverable, or in the consideration payable to the
Corporation, upon exercise of such Options or upon conversion or exchange
of such Convertible Securities, including, but not limited to, a change
resulting from the antidilution provisions thereof, the Conversion Price of
the Series A Preferred Stock, to the extent in any way affected by or
computed using such Options or Convertible Securities, shall be recomputed
to reflect such change, but no further adjustment shall be made for the
actual issuance of common stock of the Corporation or any payment of such
consideration upon the exercise of any such Options or the conversion or
exchange of such Convertible Securities.
-7-
(4) Upon the expiration or termination of any such Options or any such rights
to convert or exchange Convertible Securities, the Conversion Price of the
Series A Preferred Stock, to the extent in any way affected by or computed
using such Options or Convertible Securities, shall be recomputed to
reflect the issuance of only the number of shares of common stock of the
Corporation (and Options and Convertible Securities which remain in effect)
that were actually issued upon the exercise of such Options or upon the
conversion or exchange of such Convertible Securities.
(5) The number of shares of common stock of the Corporation deemed issued and
the consideration deemed paid therefor pursuant to paragraph
A(5)(c)(i)(E)(1) and (2) hereof shall be appropriately adjusted to reflect
any change, termination or expiration of the type described in either
paragraph A(5)(c)(i)(E)(3) or (4) hereof.
(ii) "Additional Stock" shall mean any shares of common stock of the Corporation
----------------
issued (or deemed to have been issued pursuant to paragraph A(5)(c)(i)(E)
hereof) by the Corporation after the date of issuance of Series A Preferred
Stock, except:
(A) common stock of the Corporation issued pursuant to a transaction described
in paragraph A(5)(c)(iii) hereof;
(B) Common Stock or options to purchase such Common Stock issued to officers,
employees or directors of, or consultants to, the Corporation, pursuant to
any agreement, plan or arrangement approved by the Board of Directors of
the Corporation; provided, however, that the maximum number of shares of
-------- -------
Common Stock heretofore or hereafter issued or issuable pursuant to all
such agreements, plans and arrangements shall not exceed an aggregate (as
constituted on the date hereof) of [_______] shares of Common Stock
("Permitted Options");
-------------------
(C) Common Stock issued or issuable upon conversion of shares of Series A
Preferred Stock;
(D) common stock of the Corporation issued upon conversion of any other class
of common stock of the Corporation or the Series B Preferred Stock
Contemplated by the Securities Purchase Agreement; and
(E) rights to purchase Common Stock issued in connection with any stockholder
rights plan.
(iii) In the event the Corporation at any time or from time to time after the
date of issuance of Series A Preferred Stock fixes a record date for the
effectuation of a split or subdivision of the outstanding shares of Common Stock
or the determination of holders of shares of Common Stock entitled to receive a
dividend or other distribution payable in additional shares of Common
-8-
Stock or other securities or rights convertible into, or entitling the holder
thereof to receive directly or indirectly, additional shares of Common Stock
(hereinafter referred to as "Class A Common Stock Equivalents") without payment
--------------------------------
of any consideration by such holder for the additional shares of Common Stock or
Class A Common Stock Equivalents (including the additional shares of Common
Stock issuable upon conversion or exercise thereof), then, as of such record
date (or the date of such dividend, distribution, split or subdivision if no
record date is fixed), the Conversion Price of the Series A Preferred Stock
shall be appropriately decreased so that the number of shares of Common Stock
issuable on conversion of each share of Series A Preferred Stock shall be
increased in proportion to such increase in the aggregate number of shares
issuable with respect to Class A Common Stock Equivalents, with the number of
shares issuable with respect to Class A Common Stock Equivalents determined from
time to time in the manner provided for deemed issuances in paragraph
A(5)(c)(i)(E) hereof.
(iv) If the number of shares of Common Stock outstanding at any time after the
date of issuance of Series A Preferred Stock is decreased by a combination
of the outstanding shares of Common Stock, then, following the record date
of such combination, the Conversion Price for the Series A Preferred Stock
shall be appropriately increased so that the number of shares of Common
Stock issuable on conversion of each share of Series A Preferred Stock
shall be decreased in proportion to such decrease in the outstanding shares
of Common Stock.
(d) Other Distributions. In the event the Corporation shall declare a
- --- -------------------
distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets (excluding
cash dividends) or options or rights not referred to in paragraph
A(5)(c)(iii) hereof, then, in each such case for the purpose of this
paragraph A(5)(d), the holders of shares of Series A Preferred Stock shall
be entitled to a proportionate share of any such distribution as though
they were holders of the number of shares of Common Stock into which their
shares of Series A Preferred Stock are convertible as of the record date
fixed for the determination of the holders of shares of Common Stock
entitled to receive such distribution.
(e) Recapitalization. If at any time or from time to time there shall be a
- --- ----------------
recapitalization or reclassification of Common Stock (other than a
subdivision, combination or consolidation, merger or sale of assets or
stock transaction provided for in paragraph A(4) hereof), provision shall
be made so that each holder of shares of Series A Preferred Stock shall
thereafter be entitled to receive, upon conversion of the Series A
Preferred Stock, the number of shares of stock or other securities or
property of the Corporation or otherwise, receivable upon such
recapitalization or reclassification by a holder of the number of shares of
Common Stock into which such shares of Series A Preferred Stock could have
been converted immediately prior to such recapitalization. In any such
case, appropriate adjustment shall be made in the application of the
provisions of this paragraph A(5) with respect to the rights of the holders
of shares of Series A Preferred Stock after the recapitalization or
reclassification to the end that the provisions of this paragraph A(5)
(including adjustments of the Conversion Price then in effect and the
number of shares purchasable upon conversion of the Series A Preferred
Stock) shall be applicable after that event as nearly equivalently as may
be practicable.
(f) No Impairment. The Corporation will not, by amendment of this Certificate
- --- -------------
of Incorporation or through any reorganization, recapitalization or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be
-9-
observed or performed hereunder by the Corporation, but will at all times
in good faith assist in the carrying out of all the provisions of this
paragraph A(5) and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of
shares of Series A Preferred Stock against impairment.
(g) No Fractional Shares. No fractional shares shall be issued upon conversion
- --- --------------------
of the Series A Preferred Stock, and the number of shares of Common Stock
to be issued shall be rounded down to the nearest whole share, and there
shall be no payment to a holder of shares of Series A Preferred Stock for
any such rounded fractional share. Whether or not fractional shares result
from such conversion shall be determined on the basis of the total number
of shares of Series A Preferred Stock the holder is at the time converting
into Common Stock and the number of shares of Common Stock issuable upon
such aggregate conversion.
(h) Certificate as to Adjustments. Upon the occurrence of each adjustment or
- --- -----------------------------
readjustment of the Conversion Price of the Series A Preferred Stock
pursuant to this paragraph A(5), 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 shares of Series A
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 shares of Series A Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (i) such
adjustment and 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 property which at the time would be received upon the
conversion of a share of Series A Preferred Stock.
(i) Notices of Record Date. In the event of any taking by the Corporation of a
- --- ----------------------
record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend
(other than a cash dividend) or other distribution, any right to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any
other securities or property, or to receive any other right, the
Corporation shall mail to each holder of shares of Series A Preferred
Stock, at least twenty (20) days prior to the date specified therein, a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. The Corporation shall at
- --- ---------------------------------------------
all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion
of the shares of Series A Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Series A Preferred Stock, and if at
any time the number of authorized but unissued shares of Common Stock shall
not be sufficient to effect the conversion of all then outstanding shares
of Series A Preferred Stock, then in addition to such other remedies as
shall be available to the holder of such shares of Series A Preferred
Stock, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be
sufficient for such purposes.
-10-
(k) Notices. Any notice required by the provisions of this paragraph A(5) to
- --- -------
be given to the holders of shares of Series A Preferred Stock shall be
deemed given when received if delivered via courier or sent by facsimile,
by telex, or by United States mail, postage prepaid, and addressed to each
holder of record at his, her or its address appearing on the books of the
Corporation.
(l) Mandatory Conversion. (i) Each share of Series A Preferred Stock shall, at
- --- --------------------
the option of the Corporation (as determined by the Common Stock
Directors), automatically be converted into fully paid and nonassessable
shares of Common Stock in accordance with paragraph A(5)(a)(i) above if at
any time after the second anniversary of the date the first share of Series
A Preferred Stock is issued the Closing Common Stock Market Price is more
than 200% of the Conversion Price then in effect for sixty consecutive
trading days. The "Closing Common Stock Market Price" for any day means
---------------------------------
the last sale price regular way, or, in case no such sale takes place on
such day, the average of the closing bid and asked prices regular way, in
either case as reported on the principal national securities exchange on
which shares of Common Stock are listed or admitted to trading, or, if
shares of Common Stock are not listed or admitted to trading on any
national securities exchange but are designated as national market system
securities by the National Association of Securities Dealers, Inc.
("NASD"), the last sale price, or, in case no such sale takes place on such
----
day, the average of the closing bid and asked prices, in either case as
reported on the NASD Automated Quotation/National Market System, or if
shares of Common Stock are not so designated as national market system
securities, the average of the highest reported bid and lowest reported
asked prices as furnished by the NASD (or any similar organization if the
NASD is no longer reporting such information). If at any time after the
date the first share of Series A Preferred Stock is issued shares of Common
Stock are not publicly traded as contemplated by the foregoing sentence,
this paragraph A(5)(l) shall be of no further force and effect.
(ii) If the Corporation has elected to convert Series A Preferred Stock into
Common Stock pursuant to paragraph A(5)(l)(i) above, the Corporation will
provide notice of mandatory conversion of shares of Series A Preferred
Stock to each holder of record of Series A Preferred Stock not less than
fifteen nor more than sixty days prior to the date fixed for conversion by
first class mail, postage prepaid, to each holder at such holder's address
as it appears on the stock register of the Corporation. The Corporation's
obligation to deliver shares of Common Stock shall be deemed fulfilled if,
on the mandatory conversion date, the Corporation shall deposit with a bank
or trust company in Philadelphia, Pennsylvania having a capital of at least
$50,000,000, such number of shares of Common Stock as are required to be
delivered by the Corporation upon the conversion of Series A Preferred
Stock in trust for the account of holders of the shares to be converted,
with irrevocable instructions and authority to such bank or trust company
that such shares be delivered upon conversion of the shares of Series A
Preferred Stock so called for conversion. Provided the Corporation has
fulfilled its obligation to deposit shares as provided in the foregoing
sentence, effective on the conversion date fixed by the Corporation and
notified to the holders of Series A Preferred Stock, each outstanding share
of Series A Preferred Stock shall be converted into fully paid and non-
assessable shares of Common Stock at the Conversion Price then in effect,
automatically and without any action on the part of any holder of shares of
Series A Preferred Stock, and such shares of Common Stock shall be deemed
outstanding from and after the conversion date.
-11-
6. Status of Converted Stock. In the event any shares of Series A Preferred
-------------------------
Stock are converted to Common Stock pursuant to paragraph A(5) hereof, the
shares so converted shall be canceled, retired and eliminated and shall not be
reissued by the Corporation. The Certificate of Incorporation of the
Corporation shall be appropriately amended to effect the corresponding reduction
in the Corporation's authorized capital stock.
7. Voting Rights.
- -- -------------
(a) General. Other than as set forth below and except as provided by
- --- -------
applicable law, the holders of Series A Preferred Stock shall be entitled to
vote together with the holders of Common Stock on all matters to be voted on by
the Corporation's holders of Common Stock. When voting together with the holders
of Common Stock on any matter, each share of Series A Preferred Stock shall be
entitled to the number of votes equal to the number of shares of Common Stock
into which such share is convertible as provided in paragraph A(5) hereof as of
the record date applicable to such vote (with any fractional share determined on
an aggregate conversion basis being rounded down to the nearest whole share).
(b) Class Voting Rights. (i) Except as otherwise provided below, a vote of at
- --- -------------------
least a majority of the Series A Preferred Stock then outstanding shall be
sufficient to take any action requiring the vote of the Series A Preferred
Stock as a separate class. At any meeting where the Series A Preferred
Stock shall have the right to vote as a separate class, the presence, in
person or by proxy, of a majority of the outstanding shares of Series A
Preferred Stock shall constitute a quorum of such class.
(ii) So long as any Series A Preferred Stock is outstanding, the Corporation
shall not, without the affirmative vote or consent of the holders of at
least a majority (unless a higher percentage shall then be required by
applicable law) of all outstanding shares of Series A Preferred Stock
voting separately as a class, given in person or by proxy, either in
writing or by resolution adopted at an annual or special meeting called for
this purpose (A) amend, alter or repeal any provision of the Certificate of
Incorporation of the Corporation, as amended, so as to affect, in any
manner adverse to the holders of Series A Preferred Stock, the relative
rights, preferences, qualifications, limitations or restrictions of the
Series A Preferred Stock; (B) create, authorize or reclassify any
authorized stock of the Corporation into, or increase the authorized amount
of, any class or series of the Corporation's capital stock ranking prior to
Series A Preferred Stock as to dividends or as to distributions of assets
upon liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary, or any security convertible into such a class or
series; or (C) take any other action on which the holders of Series A
Preferred Stock shall be entitled by law to vote separately as a class.
(c) Board of Directors. During such time as any share of Series A Preferred
- --- ------------------
Stock is outstanding:
The Board of Directors of the Corporation shall consist of not more
than seven directors. At each annual meeting of the stockholders of the
Corporation, and at each special meeting of the stockholders of the Corporation
called for the purpose of electing directors of the Corporation, and at any time
at which stockholders of the Corporation shall have the right to, or shall, vote
for or consent in writing to the election of directors of the
-12-
Corporation, then, and in each such event, (i) the holders of record of shares
of Series A Preferred Stock voting together as a separate class shall be
entitled to elect three directors, or, if there are more than 14,120 shares of
Series A Preferred Stock then outstanding, four directors, who shall be
nominated by the holders of record of a majority of the shares of Series A
Preferred Stock then outstanding (the "Series A Preferred Stock Directors"), and
----------------------------------
(ii) the holders of record of shares of Common Stock voting together as a single
class shall elect the remaining directors, all of whom shall be nominated by the
Board of Directors of the Corporation or otherwise in accordance with applicable
law (collectively, the "Common Stock Directors"). At any such meeting called for
----------------------
the purpose of electing directors, the presence, in person or by proxy, of (i)
the holders of record of a majority of the shares of Series A Preferred Stock
then outstanding, in the case of the election of the Series A Preferred Stock
Directors, and (ii) the holders of record of a majority of the shares of Common
Stock then outstanding, in the case of the election of the Common Stock
Directors, shall constitute a quorum for the election of directors to be elected
by such holders. A vacancy in any directorship entitled to be elected by the
holders of record of shares of Series A Preferred Stock (including a vacancy
resulting from the decision during an earlier election by the holders of the
Series A Preferred Stock not to fill the directorship to be held by the Series A
Preferred Stock Director) shall be filled only by vote of the holders of record
of shares of Series A Preferred Stock in the manner set forth herein. A vacancy
in any directorship elected by the holders of record of shares of Common Stock
shall be filled only by vote of the holders of record of shares of Common Stock
in the manner set forth herein. Each Common Stock Director who shall have been
elected as provided in this paragraph A(7) may be removed during his term of
office, whether with or without cause, only by the holders of record of a
majority of shares of Common Stock then outstanding, and each Series A Preferred
Stock Director who shall have been elected as provided in this paragraph A(7)
may be removed during his term of office, whether with or without cause, only by
the holders of record of a majority of the shares of Series A Preferred Stock
then outstanding. At elections of Series A Preferred Stock Directors, each
holder of Series A Preferred Stock shall be entitled to one vote per share. Each
Common Stock Director and each Series A Preferred Stock Director shall be
entitled to one vote on all matters on which directors are entitled to vote.
B. Definitions. As used herein, the following terms shall have the
- -- -----------
following definitions:
(a) "Accumulated Dividends" means (i) with respect to any share of Series A
---------------------
Preferred Stock, the dividends that have accrued on such shares as of such
specific date for Dividend Periods ending on or prior to such date and that
have not previously been paid in cash, including Additional Dividends, and
(ii) with respect to any Series A Parity Security, the dividends that have
accrued and are due on such security as of such specific date.
(b) "Additional Dividends" has the meaning given to such term in paragraph
--------------------
A(3)(a).
(c) "Additional Stock" has the meaning set forth in paragraph A(5)(c)(ii)
----------------
hereof.
(d) "Annual Dividend Period" means the annual period commencing on each July 1
----------------------
and ending on each Dividend Payment Date.
-13-
(e) "Closing Common Stock Market Price" has the meaning set forth in paragraph
---------------------------------
A(5)(l) hereof.
(f) "Common Stock Directors" has the meaning set forth in paragraph A(7)(b)
----------------------
hereof.
(g) "Common Stock Equivalents" means any shares of any class of common stock of
------------------------
the Corporation and any other securities or rights convertible into, or
entitling the holder thereof to receive, directly or indirectly, additional
shares of any class of common stock of the Corporation.
(h) "Conversion Price" has the meaning set forth in paragraph A(5)(a) hereof.
----------------
(i) "Conversion Price Adjustment Date" has the meaning set forth in paragraph
--------------------------------
A(5)(a) hereof.
(j) "Convertible Securities" means any indebtedness or shares of stock
----------------------
convertible into or exchangeable for shares of any class of common stock of
the Corporation; provided, however, that any series of Preferred Stock of
-------- -------
the Corporation expressly contemplated as being issued pursuant to the
Securities Purchase Agreement, dated as of October __, 1998, among the
Corporation and the Investors named therein shall not constitute
Convertible Securities.
(k) "Dividend Payment Date" means June 30 of each year (or, if such day is not
---------------------
a business day, the next succeeding day that is a business day).
(l) "Dividend Period" means the Initial Dividend Period and, thereafter, each
---------------
Annual Dividend Period.
(m) "EBITDA" of any entity means, for any period, the sum of the amounts for
------
such period of (A) the net earnings (or loss) after taxes of such entity
and its subsidiaries on a consolidated basis ("Net Income"), plus (B)
----------
federal, state and local income taxes deducted in determining Net Income in
accordance with GAAP, plus (C) depreciation and amortization expense, plus
(D) interest expense.
(n) "Effective Price" of shares of Additional Stock means the quotient
---------------
determined by dividing (i) the total number of such shares of Additional
Stock issued or sold, or deemed to have been issued or sold, by the
Corporation under paragraph A(5) hereof, into (ii) the consideration
received by the Corporation under paragraph A(5) hereof for the issuance of
such shares of Additional Stock.
(o) "Exchange Act" has the meaning set forth in paragraph A(5)(a)(i) hereof.
------------
(p) "GAAP" means the generally accepted accounting principles set forth in the
----
opinions and pronouncements of the American Institute of Certified Public
Accountant' Accounting Principles Board and Financial Accounting Standards
Board
-14-
or in such other statements by such other entity as may be in general use
by significant segments of the accounting profession, as such principles
may change from time to time, and in each case when used, GAAP shall be
applied on a consistent basis.
(q) "Initial Dividend Period" means the dividend period commencing on the date
-----------------------
the first share of Series A Preferred Stock is issued and ending on the
first Dividend Payment Date to occur thereafter.
(r) "Market Price" has the meaning set forth in paragraph A(5)(a)(ii) hereof.
------------
(s) "NASD" has the meaning set forth in paragraph A(5)(l) hereof.
----
(t) "Option" means rights, options or warrants to subscribe for, purchase or
------
otherwise acquire shares of any class of common stock of the Corporation or
Convertible Securities.
(u) "Original Series A Issue Price" means $100.00 per share of Series A
-----------------------------
Preferred Stock (appropriately adjusted for stock splits, reverse stock
splits and similar type transactions or occurrences with respect to the
Series A Preferred Stock, it being understood such amount shall not include
any accrued dividends on Series A Preferred Stock).
(v) "Permitted Options" has the meaning set forth in paragraph A(5)(c)(iii)
-----------------
hereof.
(w) "Pro Forma EBITDA" of the Corporation for any period, means the EBITDA of
----------------
the Corporation for such period on a pro forma basis giving effect to the
acquisition of any business acquired by the Corporation during such period
as if such acquisition occured on the first day of such period (but
normalizing any executive compensation expense of such business for the
period prior to the acquisition).
(x) "Series A Junior Payment Date" has the meaning set forth in paragraph
----------------------------
A(3)(e) hereof.
(y) "Series A Junior Securities" has the meaning set forth in paragraph A(2)
--------------------------
hereof.
(z) "Series A Parity Payment Date" has the meaning set forth in paragraph
----------------------------
A(3)(d) hereof.
(aa) "Series A Parity Securities" has the meaning set forth in paragraph A(2)
--------------------------
hereof.
(bb) "Series A Preferred Stock Director" shall have the meaning set forth in
---------------------------------
paragraph A(7)(b) hereof.
-15-
IN WITNESS WHEREOF, the undersigned has caused this Certificate to be
signed on the _____ day of ____________, 199__.
______________________________
-16-
EXHIBIT C
CERTIFICATE OF DESIGNATION, PREFERENCES AND RIGHTS
OF 12% SERIES B CUMULATIVE CONVERTIBLE PREFERRED STOCK
OF
CANISCO RESOURCES, INC.
Canisco Resources, Inc., a Delaware corporation (the "Corporation"),
pursuant to the provisions of Section 151 of the General Corporation Law of the
State of Delaware, does hereby make this Certificate of Designation under the
corporate seal of the Corporation and does hereby state and certify that
pursuant to the authority vested in the Board of Directors of the Corporation by
the Certificate of Incorporation, the Board of Directors has duly adopted the
following resolutions:
RESOLVED, that pursuant to Article Third of the Certificate of
Incorporation, as amended (which authorizes 5,000,000 shares of Preferred Stock,
par value $1.00 per share, none of which is presently issued and outstanding),
the Board of Directors hereby fixes the designations and preferences and
relative participating, optional and other special rights and qualifications,
limitations and restrictions of a series of Preferred Stock consisting of 60,880
shares to be designated as 12% Series B Cumulative Convertible Preferred Stock.
12% Series B Cumulative Convertible Preferred Stock
- ---------------------------------------------------
RESOLVED, that the holders of 12% Series B Cumulative Convertible
Preferred Stock, except as otherwise provided by law, shall have and possess the
following rights and preferences.
A. 12% Series B Cumulative Convertible Preferred Stock.
---------------------------------------------------
1. Designation, Number of Shares. The second series of Preferred Stock shall
- -- -----------------------------
be designated as 12% Series B Cumulative Convertible Preferred Stock ("Series B
--------
Preferred Stock"), and the number of shares which shall constitute such series
- ---------------
shall be 60,880. The par value of Series B Preferred Stock shall be $1.00 per
share; provided, however, that such shares shall be issued only in connection
-------- -------
with the transactions contemplated by the Securities Purchase Agreement, dated
as of October 15, 1998, among the Corporation and the Investors named therein.
2. Rank. With respect to dividend rights and rights on liquidation, winding up
- -- ----
and dissolution of the Corporation, Series B Preferred Stock shall rank (a)
senior to (i) the Common Stock, par value $.0025 per share ("Common Stock"), of
------------
the Corporation, (ii) the Class B Common Stock, par value $.0025 per share
("Class B Common Stock") and (iii) each other class of capital stock or class or
- ----------------------
series of preferred stock issued by the Corporation after the date hereof the
terms of which specifically provide that such class or series shall rank junior
to Series B Preferred Stock as to dividend distributions or distributions upon
liquidation, winding up and dissolution of the Corporation (each of the
securities in clauses (i), (ii) and (iii) collectively referred to as "Series B
--------
Junior Securities"), (b) on a parity with (i) 12% Series A Cumulative
- -----------------
Convertible Preferred Stock, par value $1.00 per share ("Series A Preferred
------------------
Stock") and (ii) each other class of capital stock or class or series of
- -----
preferred stock issued by the Corporation after the date hereof the terms of
which do not specifically provide that they rank junior to Series B Preferred
Stock or senior to Series B Preferred Stock as to dividend distributions or
distributions upon liquidation, winding up and dissolution of the Corporation
(the securities in clauses (i) and (ii) collectively referred to as "Series B
--------
Parity Securities"), and (c) junior to each other class of capital stock or
- -----------------
class or series of preferred stock issued by the Corporation after the date
hereof the terms of which specifically provide that such class or series shall
rank senior to Series B Preferred Stock as to dividend distributions or
distributions upon liquidation, winding up and dissolution of the Corporation
("Series B Senior Securities").
- ----------------------------
3. Dividend Provisions.
- -- -------------------
(a) Each holder of Series B Preferred Stock shall be entitled to receive, when,
as and if declared by the Common Stock Directors (as defined in the
Certificate of Incorporation), out of funds legally available therefor,
cash dividends on each share of Series B Preferred Stock at a rate equal to
$12.00 per share per annum. All dividends shall be cumulative, whether or
---------
not earned or declared, and shall accrue on a daily basis from the date of
issuance of Series B Preferred Stock, and shall be payable annually in
arrears on each Dividend Payment Date (as defined in paragraph B),
commencing on the first Dividend Payment Date after the date of issuance of
such Series B Preferred Stock. Each dividend on Series B Preferred Stock
shall be payable to the holders of record of Series B Preferred Stock as
they appear on the stock register of the Corporation on such record date as
may be fixed by the Board of Directors, which record date shall not be less
than ten nor more than 60 days prior to the applicable Dividend Payment
Date. Dividends shall cease to accrue in respect of any shares of Series B
Preferred Stock on the date such shares are converted to shares of Class B
Common Stock or Series A Preferred Stock in accordance with paragraph A(5)
hereof. Notwithstanding anything to the contrary set forth above, unless
and until such dividends are declared by the Common Stock Directors, there
shall be no obligation to pay such dividends in cash; provided, however,
-------- -------
that such dividends shall continue to cumulate until the time of conversion
to Class B Common Stock or Series A Preferred Stock as provided herein if
not earlier declared and paid. Accrued dividends on the Series B Preferred
Stock if not paid on the first or any subsequent Dividend Payment Date
following accrual shall thereafter accrue additional dividends ("Additional
----------
Dividends") in respect thereof compounded annually, at the rate of 12% per
---------
annum.
(b) All dividends paid with respect to shares of Series B Preferred Stock
pursuant to paragraph A(3)(a) shall be paid pro rata to the holders of
--------
Series B Preferred Stock entitled thereto.
(c) Dividends on account of arrears for any past Dividend Period may be
declared and paid at any time, without reference to any regular Dividend
Payment Date, to the holders of Series B Preferred Stock of record on any
date as may be fixed by the Board of Directors, which date is not more than
30 days prior to the payment of such dividends.
(d) No full dividends shall be declared by the Board of Directors or paid or
funds set apart for the payment of dividends or other distributions on any
Series B Parity Securities for any period, and no Series B Parity
Securities may be repurchased,
-2-
redeemed or otherwise retired, nor may funds be set apart for such payment,
unless (i) full Accumulated Dividends have been paid or set apart for such
payment on the Series B Preferred Stock and Series B Parity Securities for
all Dividend Periods terminating on or prior to the date of payment of such
full dividends or distributions on, or such repurchase or redemption of,
such Series B Parity Securities (the "Series B Parity Payment Date") and
----------------------------
(ii) an amount equal to a prorated dividend on the Series B Preferred Stock
and Series B Parity Securities at the customary dividend rates for such
securities for the period from the Dividend Payment Date immediately prior
to the Series B Parity Payment Date to the Series B Parity Payment Date
have been paid or set apart for payment; provided, however, that the
-------- -------
restrictions set forth in this sentence shall not apply to the purchase or
other acquisition of Series B Parity Securities (A) pursuant to any
employee or director incentive or benefit plan or arrangement (including
any employment, severance or consulting agreement) of the Corporation or
any subsidiary of the Corporation heretofore or hereafter adopted, (B)
solely in exchange for or upon conversion into other Series B Parity
Securities or Series B Junior Securities or (C) pursuant to a redemption at
the stated redemption price of any rights granted to holders of Common
Stock pursuant to a stockholder rights plan. In the event that such
dividends are not paid in full or set apart for payment with respect to all
outstanding shares of Series B Preferred Stock and of any Series B Parity
Securities and funds available for payment of dividends shall be
insufficient to permit payment in full to the holders of all such stock of
the full preferential amounts to which they are then entitled, then the
entire amount available for payment of dividends shall be distributed
ratably among all such holders of Series B Preferred Stock and of any
Series B Parity Securities in proportion to the full amount to which they
would otherwise be respectively entitled.
(e) The holders of Series B Preferred Stock shall be entitled to receive the
dividends provided for in paragraph A(3)(a) hereof in preference to and in
priority over any dividends upon any of the Series B Junior Securities.
Such dividends on the Series B Preferred Stock shall be cumulative, whether
or not earned or declared, so that if at any time full Accumulated
Dividends on all shares of Series B Preferred Stock then outstanding have
not been paid for all Dividend Periods then elapsed and a prorated dividend
on the Series B Preferred Stock at the rate aforesaid from the Dividend
Payment Date immediately preceding the Series B Junior Payment Date (as
defined below) to the Series B Junior Payment Date have not been paid or
set aside for payment, the amount of such unpaid dividends shall be paid
before any sum shall be set aside for or applied by the Corporation to the
purchase, redemption or other acquisition for value of any shares of Series
B Junior Securities (either pursuant to any applicable sinking fund
requirement or otherwise) or any dividend or other distribution shall be
paid or declared and set apart for payment on any Series B Junior
Securities (the date of any such actions to be referred to as the "Series B
--------
Junior Payment Date"); provided, however, that the restrictions set forth
------------------- -------- -------
in this sentence shall not apply to the purchase or other acquisition of
Series B Junior Securities (A) pursuant to any employee or director
incentive or benefit plan or arrangement (including any employment,
severance or consulting agreement) of the Corporation or any subsidiary of
the Corporation heretofore or hereafter adopted, (B) solely in exchange for
or upon conversion into Series B Junior Securities or (C) pursuant to a
redemption at the stated redemption price of any rights granted to holders
of Common Stock pursuant to a stockholder rights plan.
(f) Dividends payable on Series B Preferred Stock for any period less than one
year shall be computed on the basis of a 360-day year consisting of twelve
-3-
30-day months and the actual number of days elapsed in the period for which
such dividends are payable.
4. Liquidation Preference.
----------------------
(a) Upon any voluntary or involuntary liquidation, dissolution or winding up of
the Corporation, the holders of all shares of Series B Preferred Stock then
outstanding shall be entitled to be paid out of the assets of the
Corporation available for distribution to its stockholders an amount in
cash equal to $100.00 in cash (or, in a deemed liquidation pursuant to
paragraph (b) below, in securities valued as set forth below) per share,
plus an amount equal to full cumulative dividends (whether or not earned or
declared) accrued and unpaid thereon, including Additional Dividends, to
the date of final distribution and no more, before any distribution is made
on any Series B Junior Securities. If upon any voluntary or involuntary
liquidation, dissolution or winding up of the Corporation, the application
of all amounts available for payments with respect to Series B Preferred
Stock and all other Series B Parity Securities would not result in payment
in full of Series B Preferred Stock and such other Series B Parity
Securities, the holders of Series B Preferred Stock and holders of Series B
Parity Securities shall share equally and ratably in any distribution of
assets of the Corporation in proportion to the full liquidation preference
to which each is entitled. After payment in full pursuant to this
paragraph A(4)(a), the holders of Series B Preferred Stock shall not be
entitled to any further participation in any distribution in the event of
liquidation, dissolution or winding up of the affairs of the Corporation.
(b) A consolidation or merger of the Corporation with or into any other
corporation or corporations, or a sale, conveyance or disposition of all or
substantially all of the assets of the Corporation or a transaction or
series of related transactions in which more than 50% of the voting power
of the Corporation is sold or otherwise disposed of (other than pursuant to
a sale or other disposed solely of Series B Preferred Stock (or common
stock of the Corporation issued on conversion of Series B Preferred Stock)
consummated by holders of Series B Preferred Stock), shall each be deemed
to be a liquidation, dissolution or winding up within the meaning of
paragraph A(4)(a) above.
Any securities to be delivered to the holders of Series B Preferred Stock
pursuant to such events shall be valued as follows:
(i) securities not subject to restrictions on sale:
(A) If traded on a securities exchange or a national intedealer quotation
system, the value shall be deemed to be the average of the closing prices
of the securities on such exchange over the 10 day period ending three days
prior to the closing;
(B) If actively traded over-the-counter, the value shall be deemed to be the
average of at the closing bid prices over the 10 day period ending three
days prior to the closing; and
-4-
(C) If there is no active public market, the value as determined in good faith
jointly by the Board of Directors and the holders of a majority of the
shares of Series B Preferred Stock.
(ii) securities subject to restrictions on transfer shall be valued at an
appropriate discount from the market value determined as set forth above to
reflect the fair market value thereof, as determined jointly by the Board
of Directors and the holders of a majority of the shares of Series B
Preferred Stock.
5. Conversion.
----------
(a) Right of Conversion into Class B Common Stock.
- --- ---------------------------------------------
(i) Each share of Series B Preferred Stock shall be convertible, at the option
of the holder thereof, at any time after the date of issuance of such
share, at the office of the Corporation or any transfer agent for the
Series B Preferred Stock, into such number of fully paid and nonassessable
shares of Class B Common Stock as is determined by dividing the Original
Series B Issue Price (as defined in paragraph B) by the Conversion Price
(as defined below).
(A) During the period from the date the first share of Series B Preferred Stock
is issued to June 30, 1999 (or, if sooner, the date on which the Form 10-Q
for the Company for the fiscal year ended March 31, 1999 is filed with the
U.S. Securities and Exchange Commission or, if shares of Common Stock are
not then registered under Section 12(b) or 12(g) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), and the Company is not then
------------
subject to the reporting requirements of Section 15(d) of the Exchange Act,
the first date on which the Company's financial results for the fiscal year
ended March 31, 1999 are delivered to any senior lender of the Corporation)
(the earliest of such dates, the "Conversion Price Adjustment Date"), the
--------------------------------
"Conversion Price" shall be $2.50; or
-----------------
(B) At any time on or after the Conversion Price Adjustment Date, the
"Conversion Price" shall be (i) $2.25, if the Pro Forma EBITDA for the
-----------------
Company for the 12 month period ended March 31, 1999 is equal to or less
than $6,013,000, (ii) $2.50, if the Pro Forma EBITDA for the Company for
the 12 month period ended March 31, 1999 is more than $6,013,000 but equal
to or less than $7,349,000, or (iii) $2.75, if the Pro Forma EBITDA for the
Company for the 12 month period ended March 31, 1999 is more than
$7,349,000;
provided, however, that the Conversion Price for the Series B Preferred
-------- -------
Stock shall be subject to adjustment as set forth in paragraph A(5)(c)
hereof.
(b) Procedures for Voluntary Conversion. Before any holder of shares of Series
- --- -----------------------------------
B Preferred Stock shall be entitled to convert any of such shares into
shares of Class B Common Stock, such holder shall surrender the certificate
or certificates therefor, duly endorsed, at the office of the Corporation
or of any transfer agent for the Series B Preferred Stock, and shall give
written notice by mail, postage prepaid, or hand delivery, to the
Corporation
-5-
at its principal corporate office, of the election to convert the same and
shall state therein the name or names in which the certificate or
certificates for shares of Class B Common Stock are to be issued. The
Corporation shall, as soon as practicable thereafter, but in no event later
than three business days following receipt by the Corporation of the Series
B Preferred Stock Certificates surrendered for conversion, issue and
deliver at such office to such holders of shares of Series B Preferred
Stock, or to the nominee or nominees of such holders, a certificate or
certificates for the number of shares of Class B Common Stock to which such
holder shall be entitled as aforesaid. Such conversion shall be deemed to
have been made immediately prior to the close of business on the date of
such surrender of the shares of Series B Preferred Stock to be converted,
and the person or persons entitled to receive the shares of Class B Common
Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Class B Common Stock as of
such date. If the conversion is in connection with an underwritten offering
of securities registered pursuant to the Securities Act of 1933, as
amended, the conversion may, at the option of any holder tendering the
Series B Preferred Stock for conversion, be conditioned upon the closing
with the underwriter of the sale of securities pursuant to such offering,
in which event the person(s) entitled to receive Class B Common Stock
issuable upon such conversion of the Series B Preferred Stock shall not be
deemed to have converted such Series B Preferred Stock until immediately
prior to the closing of such sale of securities.
(c) Adjustments of Conversion Price. The Conversion Price of the Series B
- --- -------------------------------
Preferred Stock shall be subject to adjustment from time to time as
follows:
(i) (A) Upon each issuance (or deemed issuance pursuant to the provisions
hereof) by the Corporation of any Additional Stock after the date of
issuance of Series B Preferred Stock, without consideration or for an
Effective Price per share less than the Conversion Price for the Series B
Preferred Stock in effect immediately prior to the issuance (or deemed
issuance) of such Additional Stock, then the Conversion Price for the
Series B Preferred Stock in effect immediately prior to each issuance (or
deemed issuance) shall be adjusted to a price determined by multiplying
such Conversion Price by a fraction, (1) the numerator of which shall be
the number of Common Stock Equivalents (as defined in Paragraph B)
outstanding immediately prior to such issuance plus the number of shares of
Common Stock which the aggregate consideration received (or deemed
received) by the Corporation for such issuance would purchase at such
Conversion Price; and (2) the denominator of which shall be the number of
Common Stock Equivalents outstanding immediately after such issuance.\
(B) No adjustment of the Conversion Price for Series B Preferred Stock shall be
made in an amount less than one-half of one cent ($0.005) per share,
provided that any adjustments which are not required to be made by reason
of this sentence shall be carried forward and shall be taken into account
in any subsequent adjustment to the Conversion Price. No adjustment of the
Conversion Price for the Series B Preferred Stock pursuant to this
paragraph A(5)(c)(i) shall have the effect of increasing such Conversion
Price for the Series B Preferred Stock above the Conversion Price in effect
immediately prior to such adjustment.
(C) In the case of the issuance of securities of the Corporation for cash, the
amount of consideration received by the Corporation for such securities
shall be deemed to be the amount of cash paid therefor before deducting any
discounts,
-6-
commissions or other expenses allowed, paid or incurred by the Corporation
for any underwriting or otherwise in connection with the issuance and sale
thereof.
(D) In the case of the issuance of securities of the Corporation for a
consideration in whole or in part other than cash, the consideration other
than cash shall be deemed to have a dollar value equal to the fair market
value of such non-cash consideration, irrespective of any accounting
treatment thereof, as determined jointly by the Board of Directors and the
holders of a majority of the outstanding shares of Series B Preferred
Stock.
(E) In the case of the issuance (whether before, on or after the date of
issuance of Series B Preferred Stock) of Options or Convertible Securities
(as such terms are defined in paragraph B), the following provisions shall
apply for all purposes of this paragraph A(5)(c)(i) and paragraph
A(5)(c)(ii) hereof:
(1) With respect to Options to purchase any common stock of the Corporation,
the aggregate maximum number of shares of Common Stock deliverable upon
exercise of such Options shall be deemed to have been issued at the time
such Options were issued and for a consideration equal to the consideration
(determined in the manner provided in paragraph A(5)(c)(i)(C) and paragraph
A(5)(c)(i)(D) hereof), if any, received by the Corporation for such Options
plus the minimum exercise price provided in such Options for the common
stock issuable thereunder.
(2) With respect to Convertible Securities and Options to purchase Convertible
Securities, the aggregate maximum number of shares of common stock of the
Corporation deliverable upon the conversion or exchange of any such
Convertible Securities and the aggregate maximum number of shares of common
stock of the Corporation issuable upon the exercise of such Options to
purchase Convertible Securities and the subsequent conversion or exchange
of such Convertible Securities shall be deemed to have been issued at the
time such Convertible Securities or such Options were issued and for a
consideration equal to the consideration, if any, received by the
Corporation for any such Convertible Securities and Options, plus the
minimum additional consideration, if any, to be received by the Corporation
upon the conversion or exchange of such Convertible Securities or the
exercise of such Options and the conversion or exchange of the Convertible
Securities issuable upon exercise of such Options (the consideration in
each case to be determined in the manner provided in paragraph
A(5)(c)(i)(C) and A(5)(c)(i)(D) hereof).
(3) In the event of any change in the number of shares of common stock of the
Corporation deliverable, or in the consideration payable to the
Corporation, upon exercise of such Options or upon conversion or exchange
of such Convertible Securities, including, but not limited to, a change
resulting from the antidilution provisions thereof, the Conversion Price of
the Series B Preferred Stock, to the extent in any way affected by or
computed using such Options or Convertible Securities, shall be recomputed
to reflect such change, but no further
-7-
adjustment shall be made for the actual issuance of common stock of the
Corporation or any payment of such consideration upon the exercise of any
such Options or the conversion or exchange of such Convertible Securities.
(4) Upon the expiration or termination of any such Options or any such rights
to convert or exchange Convertible Securities, the Conversion Price of the
Series B Preferred Stock, to the extent in any way affected by or computed
using such Options or Convertible Securities, shall be recomputed to
reflect the issuance of only the number of shares of common stock of the
Corporation (and Options and Convertible Securities which remain in effect)
that were actually issued upon the exercise of such Options or upon the
conversion or exchange of such Convertible Securities.
(5) The number of shares of common stock of the Corporation deemed issued and
the consideration deemed paid therefor pursuant to paragraph
A(5)(c)(i)(E)(1) and (2) hereof shall be appropriately adjusted to reflect
any change, termination or expiration of the type described in either
paragraph A(5)(c)(i)(E)(3) or (4) hereof.
(ii) "Additional Stock" shall mean any shares of common stock of the Corporation
----------------
issued (or deemed to have been issued pursuant to paragraph A(5)(c)(i)(E)
hereof) by the Corporation after the date of issuance of Series B Preferred
Stock, except:
(A) common stock of the Corporation issued pursuant to a transaction described
in paragraph A(5)(c)(iii) hereof;
(B) Common Stock or options to purchase such Common Stock issued to officers,
employees or directors of, or consultants to, the Corporation, pursuant to
any agreement, plan or arrangement approved by the Board of Directors of
the Corporation; provided, however, that the maximum number of shares of
-------- -------
Common Stock heretofore or hereafter issued or issuable pursuant to all
such agreements, plans and arrangements shall not exceed an aggregate (as
constituted on the date hereof) of [_______] shares of Common Stock
("Permitted Options");
-------------------
(C) Class B Common Stock issued or issuable upon conversion of shares of Series
B Preferred Stock;
(D) Common Stock issued upon conversion of Class B Common Stock or Series A
Preferred Stock and Class B Common Stock issued upon conversion of Common
Stock; and
(E) rights to purchase Common Stock issued in connection with any stockholder
rights plan.
(iii) In the event the Corporation at any time or from time to time after the
date of issuance of Series B Preferred Stock fixes a record date for the
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effectuation of a split or subdivision of the outstanding shares of Class B
Common Stock or the determination of holders of shares of Class B Common Stock
entitled to receive a dividend or other distribution payable in additional
shares of Class B Common Stock or other securities or rights convertible into,
or entitling the holder thereof to receive directly or indirectly, additional
shares of Class B Common Stock (hereinafter referred to as "Class B Common Stock
--------------------
Equivalents") without payment of any consideration by such holder for the
- -----------
additional shares of Class B Common Stock or Class B Common Stock Equivalents
(including the additional shares of Common Stock issuable upon conversion or
exercise thereof), then, as of such record date (or the date of such dividend,
distribution, split or subdivision if no record date is fixed), the Conversion
Price of the Series B Preferred Stock shall be appropriately decreased so that
the number of shares of Class B Common Stock issuable on conversion of each
share of Series B Preferred Stock shall be increased in proportion to such
increase in the aggregate number of shares issuable with respect to Class B
Common Stock Equivalents, with the number of shares issuable with respect to
Class B Common Stock Equivalents determined from time to time in the manner
provided for deemed issuances in paragraph A(5)(c)(i)(E) hereof.
(iv) If the number of shares of Class B Common Stock outstanding at any time
after the date of issuance of Series B Preferred Stock is decreased by a
combination of the outstanding shares of Class B Common Stock, then,
following the record date of such combination, the Conversion Price for the
Series B Preferred Stock shall be appropriately increased so that the
number of shares of Class B Common Stock issuable on conversion of each
share of Series B Preferred Stock shall be decreased in proportion to such
decrease in the outstanding shares of Class B Common Stock.
(d) Other Distributions. In the event the Corporation shall declare a
- --- -------------------
distribution payable in securities of other persons, evidences of
indebtedness issued by the Corporation or other persons, assets (excluding
cash dividends) or options or rights not referred to in paragraph
A(5)(c)(iii) hereof, then, in each such case for the purpose of this
paragraph A(5)(d), the holders of shares of Series B Preferred Stock shall
be entitled to a proportionate share of any such distribution as though
they were holders of the number of shares of Class B Common Stock into
which their shares of Series B Preferred Stock are convertible as of the
record date fixed for the determination of the holders of shares of Class B
Common Stock entitled to receive such distribution.
(e) Recapitalization. If at any time or from time to time there shall be a
- --- ----------------
recapitalization or reclassification of Class B Common Stock (other than a
subdivision, combination or consolidation, merger or sale of assets or
stock transaction provided for in paragraph A(4) hereof), provision shall
be made so that each holder of shares of Series B Preferred Stock shall
thereafter be entitled to receive, upon conversion of the Series B
Preferred Stock, the number of shares of stock or other securities or
property of the Corporation or otherwise, receivable upon such
recapitalization or reclassification by a holder of the number of shares of
Class B Common Stock into which such shares of Series B Preferred Stock
could have been converted immediately prior to such recapitalization. In
any such case, appropriate adjustment shall be made in the application of
the provisions of this paragraph A(5) with respect to the rights of the
holders of shares of Series B Preferred Stock after the recapitalization or
reclassification to the end that the provisions of this paragraph A(5)
(including adjustments of the
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Conversion Price then in effect and the number of shares purchasable upon
conversion of the Series B Preferred Stock) shall be applicable after that
event as nearly equivalently as may be practicable.
(f) No Impairment. The Corporation will not, by amendment of this Certificate
- --- -------------
of Incorporation or through any reorganization, recapitalization or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by
the Corporation, but will at all times in good faith assist in the carrying
out of all the provisions of this paragraph A(5) and in the taking of all
such action as may be necessary or appropriate in order to protect the
conversion rights of the holders of shares of Series B Preferred Stock
against impairment.
(g) No Fractional Shares. No fractional shares shall be issued upon conversion
- --- --------------------
of the Series B Preferred Stock, and the number of shares of Common Stock
to be issued shall be rounded down to the nearest whole share, and there
shall be no payment to a holder of shares of Series B Preferred Stock for
any such rounded fractional share. Whether or not fractional shares result
from such conversion shall be determined on the basis of the total number
of shares of Series B Preferred Stock the holder is at the time converting
into Common Stock and the number of shares of Common Stock issuable upon
such aggregate conversion.
(h) Certificate as to Adjustments. Upon the occurrence of each adjustment or
- --- -----------------------------
readjustment of the Conversion Price of the Series B Preferred Stock
pursuant to this paragraph A(5), 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 shares of Series B
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 shares of Series B Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (i) such
adjustment and 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 property which at the time would be received upon the
conversion of a share of Series B Preferred Stock.
(i) Notices of Record Date. In the event of any taking by the Corporation of a
- --- ----------------------
record of the holders of any class of securities for the purpose of
determining the holders thereof who are entitled to receive any dividend
(other than a cash dividend) or other distribution, any right to subscribe
for, purchase or otherwise acquire any shares of stock of any class or any
other securities or property, or to receive any other right, the
Corporation shall mail to each holder of shares of Series B Preferred
Stock, at least twenty (20) days prior to the date specified therein, a
notice specifying the date on which any such record is to be taken for the
purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right.
(j) Reservation of Stock Issuable Upon Conversion. The Corporation shall at
- --- ---------------------------------------------
all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion
of the shares of Series B Preferred Stock, such number of its shares of
Common Stock as shall from time to time be sufficient to effect the
conversion of all outstanding shares of Series B Preferred Stock, and if at
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any time the number of authorized but unissued shares of Common Stock shall
not be sufficient to effect the conversion of all then outstanding shares
of Series B Preferred Stock, then in addition to such other remedies as
shall be available to the holder of such shares of Series B Preferred
Stock, the Corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but
unissued shares of Common Stock to such number of shares as shall be
sufficient for such purposes.
(k) Notices. Any notice required by the provisions of this paragraph A(5) to
- --- -------
be given to the holders of shares of Series B Preferred Stock shall be
deemed given when received if delivered via courier or sent by facsimile,
by telex, or by United States mail, postage prepaid, and addressed to each
holder of record at his, her or its address appearing on the books of the
Corporation.
(l) Mandatory Conversion. (i) Each share of Series B Preferred Stock shall, at
- --- --------------------
the option of the Corporation (as determined by the Common Stock
Directors), automatically be converted into fully paid and nonassessable
shares of Class B Common Stock in accordance with paragraph A(5)(a)(i)
above if at any time after the second anniversary of the date the first
share of Series B Preferred Stock is issued the Closing Common Stock Market
Price is more than 200% of the Conversion Price then in effect for sixty
consecutive trading days. The "Closing Common Stock Market Price" for any
---------------------------------
day means the last sale price regular way, or, in case no such sale takes
place on such day, the average of the closing bid and asked prices regular
way, in either case as reported on the principal national securities
exchange on which shares of Common Stock are listed or admitted to trading,
or, if shares of Common Stock are not listed or admitted to trading on any
national securities exchange but are designated as national market system
securities by the National Association of Securities Dealers, Inc.
("NASD"), the last sale price, or, in case no such sale takes place on such
----
day, the average of the closing bid and asked prices, in either case as
reported on the NASD Automated Quotation/National Market System, or if
shares of Common Stock are not so designated as national market system
securities, the average of the highest reported bid and lowest reported
asked prices as furnished by the NASD (or any similar organization if the
NASD is no longer reporting such information). If at any time after the
second anniversary of the date the first share of Series B Preferred Stock
is issued shares of Common Stock are not publicly traded as contemplated by
the foregoing sentence, this paragraph A(5)(l) shall be of no further force
and effect.
(ii) If the Corporation has elected to convert Series B Preferred Stock into
Class B Common Stock pursuant to paragraph A(5)(l)(i) above, the
Corporation will provide notice of mandatory conversion of shares of Series
B Preferred Stock to each holder of record of Series B Preferred Stock not
less than fifteen nor more than sixty days prior to the date fixed for
conversion by first class mail, postage prepaid, to each holder at such
holder's address as it appears on the stock register of the Corporation.
The Corporation's obligation to deliver shares of Class B Common Stock
shall be deemed fulfilled if, on the mandatory conversion date, the
Corporation shall deposit with a bank or trust company in Philadelphia,
Pennsylvania having a capital of at least $50,000,000, such number of
shares of Class B Common Stock as are required to be delivered by the
Corporation upon the conversion of Series B Preferred Stock in trust for
the account of holders of the shares to be converted, with
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irrevocable instructions and authority to such bank or trust company that
such shares be delivered upon conversion of the shares of Series B
Preferred Stock so called for conversion. Provided the Corporation has
fulfilled its obligation to deposit shares as provided in the foregoing
sentence, effective on the conversion date fixed by the Corporation and
notified to the holders of Series B Preferred Stock, each outstanding share
of Series B Preferred Stock shall be converted into fully paid and non-
assessable shares of Class B Common Stock at the Conversion Price then in
effect, automatically and without any action on the part of any holder of
shares of Series B Preferred Stock, and such shares of Common Stock shall
be deemed outstanding from and after the conversion date.
(m) Conversion to Series A Preferred Stock. (i) In addition to the other
- --- --------------------------------------
conversion rights set forth above in this paragraph A(5), each holder of
record of shares of Series B Preferred Stock will be entitled to convert
any or all of such holder's Series B Preferred Stock into the same number
of shares of Series A Preferred Stock; provided, however, that at the time
-------- -------
of conversion of shares of Series B Preferred Stock into shares of Series A
Preferred Stock such holder would be permitted, pursuant to applicable law,
to hold the total number of shares of Series A Preferred Stock such holder
would hold after giving effect to such conversion. The delivery to the
Corporation of a certificate from a holder of shares of Series B Preferred
Stock who wishes to convert such shares into shares of Series A Preferred
Stock, which certificate is to the effect that in the good faith judgment
of such holder such holder is permitted, pursuant to applicable law, to
hold the total number of shares of Series A Preferred Stock which such
holder would hold after giving effect to such conversion, shall be
conclusive and binding on the Corporation.
(ii) Before any holder of shares of Series B Preferred Stock shall be entitled
to convert any of such shares into shares of Series A Preferred Stock ,
such holder shall surrender the certificate or certificates therefor, duly
endorsed, at the office of the Corporation or of any transfer agent for the
Series B Preferred Stock, and shall give written notice by mail, postage
prepaid, or hand delivery, to the Corporation at its principal corporate
office, of the election to convert the same and shall state therein the
name or names in which the certificate or certificates for shares of Series
A Preferred Stock are to be issued. The Corporation shall, as soon as
practicable thereafter, issue and deliver at such office to such holders of
shares of Series B Preferred Stock, or to the nominee or nominees of such
holders, a certificate or certificates for the number of shares of Series A
Preferred Stock to which such holder shall be entitled as aforesaid. Such
conversion shall be deemed to have been made immediately prior to the close
of business on the date of such surrender of the shares of Series B
Preferred Stock to be converted, and the person or persons entitled to
receive the shares of Series A Preferred Stock issuable upon such
conversion shall be treated for all purposes as the record holder or
holders of such shares of Series A Preferred Stock as of such date. If the
conversion is in connection with an underwritten offering of securities
registered pursuant to the Securities Act of 1933, as amended, the
conversion may, at the option of any holder tendering the Series B
Preferred Stock for conversion, be conditioned upon the closing with the
underwriter of the sale of securities pursuant to such offering, in which
event the person(s) entitled to receive Series A Preferred Stock issuable
upon such conversion of the Series B Preferred Stock shall not be deemed to
have converted such Series B Preferred Stock until immediately prior to the
closing of such sale of securities.
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6. Status of Converted Stock. In the event any shares of Series B Preferred
-------------------------
Stock are converted to Class B Common Stock pursuant to paragraph A(5) hereof,
the shares so converted shall be canceled, retired and eliminated and shall not
be reissued by the Corporation. The Certificate of Incorporation of the
Corporation shall be appropriately amended to effect the corresponding reduction
in the Corporation's authorized capital stock. In the event the Corporation
reacquires any shares of Series B Preferred Stock by reason of the conversion of
such shares to Series A Preferred Stock, such shares of Series B Preferred Stock
may be reissued in connection with a conversion of Series A Preferred Stock to
Series B Preferred Stock, but only if such conversion is permitted under the
terms of the Certificate of Incorporation.
7. Voting Rights. Except as otherwise required by law, the holders of Series B
- -- -------------
Preferred Stock shall have no voting rights. In the event Series B Preferred
Stock is entitled to vote as a matter of law, it will vote as a single class
with Series A Preferred Stock (unless otherwise required by law).
B. Definitions. As used herein, the following terms shall have the following
- -- -----------
definitions:
(a) "Accumulated Dividends" means (i) with respect to any share of Series B
---------------------
Preferred Stock, the dividends that have accrued on such shares as of such
specific date for Dividend Periods ending on or prior to such date and that
have not previously been paid in cash, including Additional Dividends, and
(ii) with respect to any Series A Parity Security, the dividends that have
accrued and are due on such security as of such specific date.
(b) "Additional Dividends" has the meaning given to such term in paragraph
--------------------
A(3)(a).
(c) "Additional Stock" has the meaning set forth in paragraph A(5)(c)(ii)
----------------
hereof.
(d) "Annual Dividend Period" means the annual period commencing on each July 1
----------------------
and ending on each Dividend Payment Date.
(e) "Closing Common Stock Market Price" has the meaning set forth in paragraph
---------------------------------
A(5)(l) hereof.
(f) "Common Stock Equivalents" means any shares of any class of Common Stock of
------------------------
the Corporation and any securities or rights convertible into, or entitling
the holder thereof to receive, directly or indirectly, additional shares of
any class of common stock of the Corporation.
(g) "Conversion Price" has the meaning set forth in paragraph A(5)(a) hereof.
----------------
(h) "Conversion Price Adjustment Date" has the meaning set forth in paragraph
--------------------------------
A(5)(a) hereof.
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(i) "Convertible Securities" means any indebtedness or shares of stock
----------------------
convertible into or exchangeable for shares of any class of common stock of
the Corporation.
(j) "Dividend Payment Date" means June 30 of each year (or, if such day is not
---------------------
a business day, the next succeeding day that is a business day).
(k) "Dividend Period" means the Initial Dividend Period and, thereafter, each
---------------
Annual Dividend Period.
(l) "EBITDA" of any entity means, for any period, the sum of the amounts for
------
such period of (A) the net earnings (or loss) after taxes of such entity
and its subsidiaries on a consolidated basis ("Net Income"), plus (B)
----------
federal, state and local income taxes deducted in determining Net Income in
accordance with GAAP, plus (C) depreciation and amortization expense, plus
(D) interest expense.
(m) "Effective Price" of shares of Additional Stock means the quotient
---------------
determined by dividing (i) the total number of such shares of Additional
Stock issued or sold, or deemed to have been issued or sold, by the
Corporation under paragraph A(5) hereof, into (ii) the consideration
received by the Corporation under paragraph A(5) hereof for the issuance of
such shares of Additional Stock.
(n) "Exchange Act" has the meaning set forth in paragraph A(5)(a)(i) hereof.
------------
(o) "GAAP" means the generally accepted accounting principles set forth in the
----
opinions and pronouncements of the American Institute of Certified Public
Accountant' Accounting Principles Board and Financial Accounting Standards
Board or in such other statements by such other entity as may be in general
use by significant segments of the accounting profession, as such
principles may change from time to time, and in each case when used, GAAP
shall be applied on a consistent basis.
(p) "Initial Dividend Period" means the dividend period commencing on the date
-----------------------
the first share of Series B Preferred Stock is issued and ending on the
first Dividend Payment Date to occur thereafter.
(q) "Market Price" has the meaning set forth in paragraph A(5)(a)(ii) hereof.
------------
(r) "NASD" has the meaning set forth in paragraph A(5)(l) hereof.
----
(s) "Option" means rights, options or warrants to subscribe for, purchase or
------
otherwise acquire shares of any class of common stock of the Corporation or
Convertible Securities.
(t) "Original Series B Issue Price" means $100.00 per share of Series B
-----------------------------
Preferred Stock (appropriately adjusted for stock splits, reverse stock
splits and similar
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type transactions or occurrences with respect to the Series B Preferred
Stock), it being understood such amount does not include any accrued
dividends on Series B Preferred Stock.
(u) "Pro Forma EBITDA" of the Corporation, for any period, means the sum of (i)
the EBITDA of the Corporation for such period on a pro forma basis giving
effect to the acquisition of any businesses acquired by the Corporation
during such period as if such acquisition occurred on the first day of such
period (but normalizing any executive compensation expense of such business
for the period prior to the acquisition).
(v) "Permitted Options" has the meaning set forth in paragraph A(5)(c)(iii)
-----------------
hereof.
(w) "Series B Junior Payment Date" has the meaning set forth in paragraph
----------------------------
A(3)(e) hereof.
(x) "Series B Junior Securities" has the meaning set forth in paragraph A(2)
--------------------------
hereof.
(y) "Series B Parity Payment Date" has the meaning set forth in paragraph
----------------------------
A(3)(d) hereof.
(z) "Series B Parity Securities" has the meaning set forth in paragraph A(2)
--------------------------
hereof.
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IN WITNESS WHEREOF, the undersigned has caused this Certificate to be
signed on the _____ day of ____________, 199__.
______________________________
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